Last month, the Securities and Exchange Commission filed charges against two developers in Vermont’s Northeast Kingdom, accusing them of conducting a Ponzi-like scheme with EB-5 funds.
According to documents filed by the SEC, a massive eight-year scheme by Jay Peak Ski Resort owner Ariel Quiros and CEO William Stenger systematically looted more than $50 million of the more than $350 million raised from foreign investors through the U.S. Citizenship and Immigration Service's EB-5 Immigrant Investor Program. The program gives foreign investors a chance to earn permanent residence by investing at least a half million dollars in projects that create a certain number of jobs.
The half-billion dollar development project in the Northeast Kingdom included renovations to Jay Peak, a $110 million biomedical research center, and redevelopment in downtown Newport.
The charges against Quiros and Stenger shocked many Vermonters, except perhaps readers of Vermont Digger. The investigative newspaper had raised questions for two years. While editor Anne Galloway knew the SEC was investigating, she had already found evidence of fraud. “Back in the fall I was aware that they had been commingling funds and that they had been using one of Quiros’ companies as a holding company or shell company for what looked back then to be a fraud. But I was not able to prove it. But certainly the material I had from sources indicated that that was rather likely. So I was kind of relieved actually when SEC charges came through because it was clear that what I had found in the fall was true. This is certainly the biggest fraud in Vermont history and it’s one of the biggest in New England.”
When the charges against Stenger and Quiros were announced, there was a flurry of finger-pointing among Vermont politicians and calls for strengthened oversight of the EB-5 program. While that has quieted for the moment, Middlebury College Political Scientist Bert Johnson expects it will resurface as a campaign issue that Republicans will use against Democrats. “I think it hurts the people that can be tied to the governor and tied to this deal in any way. I don't think it will directly implicate people who are going to be running for office. But it may dampen the enthusiasm for people who have worked closely with Governor Shumlin.”
Meanwhile some projects are incomplete, contractors and sub-contractors have not been paid and there is a huge hole in the center of downtown Newport where a hotel and conference center would have been built. University of Vermont economist Art Woolf: “The good news is that much of the money has been spent and there is a tangible result. That is there's a waterpark. There's hotels. There's condominiums. That stuff's been built so that’s an asset that’s there. Presumably the assets at some point will be sold. The city of Newport itself is stuck with a hole in the ground, which is not good.”
Vermont Digger has posted a timeline of the case and the full archive of its investigation online. The SEC will present its allegations during a hearing in Miami next week.