The U.S. Securities and Exchange Commission (SEC) has filed a fraud lawsuit against the owner and CEO of a Vermont ski resort, accusing them of misappropriating the bulk of $350 million in investments obtained under the EB-5 immigrant investor program. The suit had been filed in Florida federal court and unsealed on April 10. Federal securities regulators say Ariel Quiros, a Florida entrepreneur and owner of the Jay Peak Inc. ski resort, and Jay Peak CEO William Stenger engaged in an eight-year fraudulent scheme that raised $350 million from investors hoping to obtain visas through the EB-5 program. This is a program designed to reward job-creating investments in the U.S. The Defendants allegedly were to have used the funds to build and develop the resort as well as a biomedical research facility in Vermont.
The SEC said the two men, through various companies including Jay Peak and Q Resorts Inc., used $200 million of the money in “Ponzi-like fashion” to cover losses in unrelated projects as well as $50 million on Quiros’ personal expenses. Andrew Ceresney, director of the SEC’s Division of Enforcement, said in a statement:
The alleged fraud ran the gamut from false statements to deceptive financial transactions to outright theft. The defendants diverted millions of EB-5 investor dollars to their own pockets, leaving little money for construction of the research facility investors were told would be built and thereby putting the investors’ funds and their immigration petitions in jeopardy.
U.S. District Judge Darrin P. Gayles granted the SEC’s motion for a freeze of assets of Quiros, Jay Peak and various related companies. The SEC alleges that Quiros diverted the investor funds in order to buy a $2.2 million luxury condo at Trump Place in New York, pay off his income taxes and acquire an unrelated ski resort called Q Burke. The complaint alleges:
Quiros orchestrated and Stenger facilitated an intricate web of transfers between the various defendants and relief defendants to disguise the fact that the majority of the seven projects were either over budget or experiencing shortfalls. These shortfalls were due in large part to Quiros pilfering tens of millions of dollars of investor money for his own use.
The SEC alleges violations of the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934 and seeks preliminary and permanent injunctions, financial penalties and disgorgement of ill-gotten gains, as well as injunctive relief against Quiros and Stenger. Vermont state officials have filed their own civil suit against Quiros and others that mirrors many of the SEC’s claims. Vermont Gov. Peter Shumlin said in a statement they were committed to protecting the jobs of Vermont residents as well as the investors. Gov. Shumlin had this to say:
This is obviously a difficult day for Vermont and for the many people, myself included, who are so invested in growing jobs and economic opportunity. Most of all, this is a difficult day for the hundreds of employees in the Northeast Kingdom who rely on Jay Peak, Q Burke, and the related projects that appeared to hold so much promise.
The SEC is represented by Christopher E. Martin and Robert K. Levenson. The case is in the U.S. District Court for the Southern District of Florida.