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Monday
Apr182016

Vermont Ski Resort Accused Of $350 Million "Ponzi-like" Scheme

The Securities and Exchange Commission filed an emergency enforcement action accusing a Vermont ski resort and several related companies of using a federal immigration program to raise more than $350 million in what the Commission labeled a "massive eight-year fraudulent scheme."  Ariel Quiros, of Miami, Florida, and William Stenger, of Newport, Vermont, are the two individuals the Commission accuses of masterminding the fraud, alleging that they used a vast network of companies to raise money from immigrants seeking permanent residency in the United States.  The Commission is seeking injunctive relief, disgorgement of ill-gotten gains, civil monetary penalties, and pre-judgment interest.  In addition, the Commission successfully secured the appointment of a federal equity receiver to secure and marshal assets for defrauded victims.

The Complaint alleges that at least seven fraudulent securities offerings are linked to Jay Peak, Inc. ("Jay Peak"), a Vermont Ski Resort owned by Quiros through a Florida-based company known as Q Resorts, Inc.  The various offerings each purported to take advantage of the U.S. Citizenship and Immigration Service's EB-5 Immigrant Investor Program (the "EB-5 Program"), which allows immigrants the ability to earn permanent residency in the United States by investing in U.S. projects that create and sustain a certain amount of jobs.  To qualify, a foreign applicant must invest at least $500,000 in an approved business and may then apply for a conditional green card.  The applicant may then have the restrictions removed from the green card if the project creates or preserves at least ten jobs during its first two years.  

Jay Peak began offering the first of seven securities offerings in December 2006, selling limited partnership interests to investors.  These offerings, which centered around a ski resort and related facilities such as lodging, recreation, and meeting facilities, were marketed to prospective EB-5 investors through the internet, overseas events, sales agents, and even through immigration attorneys.  In each of the offerings, potential investors were told that they could earn not only their green card but also an annual return ranging from 2%-6%.  The first five offerings, which included proejcts for the construction of vacation rental townhouses, a penthouse suites hotel, and golf cottage duplexes, were each funded and fully constructed and continue to operate today.  While the remaining two offerings, a luxury lodging project and a biomedical research center, have raised at least $150 million from investors, a "small amount of work" has been done on the lodging project while no work at all has commenced on the biomedical research center.  

As laid out in a detailed 81-page complaint, the Commission alleges that the offering of securities to investors was fraught with material misrepresentations and omissions as to the work to be performed, the use of investor funds, and the estimated costs.  Quiros and Stenger are also accused of actively mismanaging hundreds of millions of dollars in investor funds for their own personal enrichment.  For example, the Commission alleges that investor funds were used to purchase Jay Peak in 2008, as collateral for several large margin loans and personal lines of credit, corporate and personal income taxes, the purchase of a condo at the Trump Place in New York City, and the purchase of a separate Q Burke Mountain Resort owned by Quiros and also located in Vermont.  In total, the Commission alleges that Quiros misappropriated over $50 million for his personal expenses.  In addition, the Complaint charges that investor funds were used to pay purported returns to investors in earlier projects "in Ponzi-like fashion."  

The Commission points out that, due to the alleged mismanagement and misappropriation of investor funds, the two most recent projects stand in "grave danger" of not being built.  For example, the most recent offering for a biomedical research facility is allegedly over $40 million short of the needed funds to complete the facility.  While not only having an adverse effect on the Newport, Vermont community, the failure to complete those projects also means that the hundreds of foreign investors contributing funds now stand to likely lose their investment and any possibility to secure a green card.

The Complaint is below:

 

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