From Rogues to Riches: Jay Peak Climbs Out of EB-5 Scandal

Is Jay Peak’s EB-5 scandal over? Not quite.  In June, new allegations emerged just as two other New England ski resorts made the news with investment scandals of their own; foreclosure on southern Vermont’s The Hermitage Club ‘s Inn at Sawmill Farm and the prospective owner of Maine’s Saddleback Mountain arrested for fraud in Australia. Meanwhile, Jay Peak has seemingly emerged from its financial troubles even stronger. It has grown significantly under its new leadership and has big plans for the summer. Here’s a wrap-up of what’s happened so far with Jay Peak’s lawsuits and what’s coming down the pike:

The Allegations (ICYMI)

in 2016, the Federal Securities and Exchange Commission filed an allegation that former owner Ariel Quiros of Q Resorts and former Jay Peak Resort general manager Bill Stenger, had misused $200 million of more than $350 million raised from foreign investors via the federal EB-5 program.  In what has been called a “Ponzi-like” scheme, Quiros allegedly misused the money earmarked to build up eight projects in the Northeast Kingdom.

Six of the projects were at Jay Peak, a seventh was a biomedical facility in Newport, Vt., that had not even begun the process of FDA approval and the eighth, a new hotel at Burke Mountain Resort, also owned at the time by Q Resorts. The SEC cited 52 securities violations.

Stenger, who claimed he was unaware of the fraud and did not profit from it, settled early and paid a $75,000 fine. In January 2018, Quiros agreed to pay back nearly $84 million. The SEC alleged that Quiros had diverted $50 million of the investors’ funds for personal use to pay for, among other things, luxury condominiums in New York (including one at Trump Place), margin loans and his income taxes. Quiros still faces charges from individual investors.

On June 10, Goldberg alleged that the fraud went all the way back to 2008, when Quiros and Stenger purchased the resort from  Saint Saveur Valley Resorts, using $15 million in EB-5 funds earmarked for buildings and development, and that the Canadian company was complicit.

The Backstory

In 2008, when Quiros teamed up with then-Jay Peak general manager Bill Stenger to buy Jay Peak and Burke resorts, many heralded it as the start of a new era of investment in the Northeast Kingdom.

The money for development was to come through the federal EB-5 program, which gives visas to approved foreigners who invest $500,000 or more in a designated project. That project, in turn, must guarantee job creation. EB-5 has also been used, successfully, by Sugarbush Resort and, most recently by Mount Snow, to help build out its snowmaking and its Carinthia base lodge expansion.

Over  8 years, more than 800 investors from 74 countries put their funds into multiple phases of Jay Peak’s development of the mountain, waterpark, Stateside condos, and hotel at Burke Mountain Resort. The investment was always termed “at risk” but the promise of a U.S. Green Card for investors and their families, and the possibility of a return on investment was an attractive proposition.

Thanks to the program, more than 10,000 jobs were slated to be created in what was previously one of the poorest regions in New England. And, for a time in 2013-14, job growth surged in the region during a flurry of building and development.

However, in 2013 investors began to complain that Q Resorts had changed the terms of their investments and watchdog media VTDigger.com began to report on the issue. The SEC, which began its investigation in 2012, froze assets and filed charges in 2016.

The Future

In January 2018, Ariel Quiros agreed to pay back $84 million, part of the nearly $200 million in misused funds. The court-appointed receiver Michael Goldberg also received a $150 million settlement from Raymond James, the brokerage firm the funds had been funneled through and where Quiros’ then son-in-law worked.

Thanks to these funds, contractors who had performed work at the resorts are being paid and foreign investors are gradually being reimbursed and permitted to transfer their EB-5 investments to other projects.

Under the new leadership of Goldberg and Jay Peak’s new general manager Steve Wright, the resort has been growing. At the end of the 2017 fiscal year, the resort was reporting upwards of $9 million in profits, compared with $1.8 million the prior year. Projects slated for completion are underway and the settlement money has been used to build out the new Clips N Reels and lacrosse fields. As communications director JJ Tolland notes, “when you host lacrosse tournaments, you get families coming and staying for a week at a time.”

Asked when and if Jay Peak might be sold, Tolland said: “The resort is actively for sale and has been but usually investors want to see three years of solid returns. So far, we have two.”