The small community of Vermont's Northeast Kingdom is no doubt shocked by news of allegations of financial fraud at two of the area's ski resorts. Tim Kirchoff photo.
UPDATED 5:00 PM MST: In a shocking turn of events in a story that has seen a share of wild and at times ugly episodes, the Securities and Exchange Commission announced charges of fraud for Jay Peak Resort and Q Burke Resort owners Ariel Quiros and Bill Stenger. The SEC has also frozen assets related to the ski resort business, much of which was fundraised through the federal EB-5 program, in which foreign residents who invest a minimum of $500,000 into an economic development project that develops a certain number of local jobs have their green card applications fast-tracked.
Stenger and Quiros have raised upwards of $350 million from investors around the world to construct new ski resort and business facilities in Vermont's remote Northeast Kingdom, including new hotels and an indoor water park at Jay Peak and biomedical research facilities elsewhere in the region. According to the SEC, more than $200 million of the total was used for "other-than-stated purposes," including $50 million for a purchase by Quiros of a luxury condo – in New York City's Trump Place, no less – and payment of his income taxes and personal expenses.
“The alleged fraud ran the gamut from false statements to deceptive financial transactions to outright theft,” said Andrew Ceresney, Director of the SEC’s Division of Enforcement. “As alleged in our complaint, 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."
Stenger and Quiros are also accused of using new investor money not to invest in physical projects, but to pay deficits owed to previous investors.
Q Burke, Jay Peak, and EB-5: A Timeline
Bill Stenger and his business partner Aerial Quiros spurred an innovative economic development program to spur the economy of Northern Vermont. Jay Peak Resort photo.
The current SEC allegations come on the heels of a very eventful period of investment and changes in Vermont's Northeast Kingdom. As with any story like this, it's complicated, but we've done our best to summarize the history of the area that pertains to these allegations as succinctly as we can:
1980’s-2000’s: Financial difficulties are a fact of life at Burke Mountain Resort. Among the worst of it is a bounced check of nearly $100,000 to the town of East Burke, seven successive and unsuccessful owners since a 1991 foreclosure, a public auction of the resort in 2000, and a $674 million default with Credit Suisse by the mountain’s Florida-based owner, real estate developer Ginn Co.
Jay Peak CEO Bill Stenger at the groundbreaking for Jay's Tram Haus Lodge in 2010, which was the first project of the EB-5 program in Northern Vermont. Jay Peak Resort photo.
2008: Aerial Quiros funds economic renaissance of VT’s Northeast Kingdom with Jay’s Bill Stenger through the new Northeast Kingdom Economic Development Project. Through the creative use of the EB-5 visa program, a federal program in which foreigners who invest upwards of $500,000 in a local community, and are able to prove jobs were created because of that investment, have their green cards fast-tracked. Among its early projects in northern Vermont are a new hotel and giant indoor waterpark at Jay Peak.
The proposed investments included hundreds of millions of dollars in new facilities and projects in the economically depressed Northeast Kingdom, and range outside of ski resort projects to one to update an airport and another to build the North American headquarters of a Korean biotech firm.
In 2012, Burke Mountain Resort is bought by Aerial Quiros and, strangely, renamed Q Burke Resort. Tim Kirchoff photo.
May 2012: Ary Quiros, son of Ariel & 12-year Army veteran, takes over Burke Mountain Resort after his father buys the struggling ski area along with business partner Stenger from Ginn Co. Renames it Q Burke Mountain Resort to associate it with the success of Jay Peak’s owner, Q Resorts – which barely had any name recognition, having been founded only recently – for the purposes of investor branding. Wins Ski Area Management Award for Worst Name Change. Locals considered it simply “bold arrogance,” and a daft move from someone with zero marketing experience.
Summer 2013: In an effort to cut costs, Ary began cutting staff, including many long-term members of upper management with institutional knowledge.
Ary Quiros cut ties between Q Burke Resort and Kingdom Trails Association, the group that has played a huge party in turning East Burke into a mountain biking mecca. KTA photo.
December 2013: Ary cuts ties and $20K support for Kingdom Trails Association, an organization that through partnership building and much physical labor has turned East Burke into a mountain biking mecca and buffered Q Burke’s financial success in the summertime, as its trails link directly into Burke’s bike park and feature in the mountain’s summertime marketing. Quiros, Jr. said that he was not initially aware of Burke’s obligation to the organization and that the $20 Q Burke received as part of a revenue split with KTA on a $35 bike pass lift ticket wasn’t adequate to cover the resort’s costs.
A leaked email finds Ary saying “The mistake is following all of you [KTA]. You have neglected a great product here and the hard working employees that make Burke work. Kingdom Trails took advantage of a weak and vulnerable organization to their benefit. Now I have stopped it with great pleasure. Burke is coming back strong and it’s not afraid to do what is right. I assure you I will not follow you or your group so do what you have to do. This is an exciting place here and believe me, it’s not because of Kingdom Trails.” Stenger has to walk back Ary’s comments and mend the relationship with KTA.
January 2014: Bill Stenger is called in on the PR front yet again to make some apologies on behalf of business partner Quiros, who insulted Q Burke’s former owners, including Don Graham, a benefactor of the Burke Mountain Academy – the private ski school that produced Olympic greats like Mikaela Shiffrin – who stepped in to buy the ski area for the school when the 2000 public auction crumbled into the mountain being sold off piecemeal.
May 2014: A Burlington, Vermont developer anticipating EB-5 investment into a property he held in Newport, which was deigned to become the site of a new marina and conference center as part of the slate of project anticipated in the Northeast Kingdom Economic Development Project, said he’d waited long enough for the project to materialize, and instead extended the lease to his current tenants. The conference center is part of a massive project to redevelop downtown Newport to be more business and tourist-friendly.
The airport redevelopment project is also taken out of the larger NKEDP, and Quiros and Stenger say they’ll finance it privately instead.
July 2014: The first round of EB-5 investors due to be paid back, 35 of whom had invested $500,000 each into building the Tram Haus Lodge hotel at Jay Peak, are stunned and largely outraged when they find out Stenger dissolved the company they invested in, transferring their equity stakes into unsecured loans. It’s a legal move in the terms of the EB-5 program, but certainly not a best practice.
Many of the investors fear never recouping their investments or having legal resource, but Stenger maintained the dissolution was decided upon as part of an exit strategy for the investors, who’d see their money get back to them over time or through a fractional ownership program.
Over $50 million is raised through 100 foreign investors to build the Q Burke Hotel at the base of the mountain. It will be a separate business from the ski area. Tim Kirchoff photo.
January 2015: 100 foreign investors had dumped an average of $550,000 each through the EB-5 program into Q Burke Hotel project, which began to build a 116-room hotel and conference center at the base of the ski area.
July 2015: The state of Vermont begins for the first time to require oversight over funds collected through the EB-5 program, and forces developers of the Q Burke Hotel and a biotech plant planned in Newport, Vermont in escrow so the state can oversee and approve its disbursement.
The requirement in approval for construction funds begins a tense back-and-forth between Stenger and Vermont’s financial regulation authorities. The state is miffed by the high construction management fees Stenger and Quiros are charging for the redevelopment projects – 15% compared to an industry average of 5.6% – and requests for purchases of equipment, such as IT infrastructure and anticipated legal fees, that they argue are unrelated to the central construction projects.
Stenger grows increasingly agitated with state officials and their approval process. Construction payments are approved sometimes two months after their due dates.
January 2016: Q Burke Mountain Resort doesn’t open until the 2016/2017 season until January 1st, missing the Christmas holiday entirely after being hampered by a severely warm New England winter and problems with its snowmaking water supply. Its $58 million Q Burke Hotel remains closed due to unpaid back pay owed to the contractor.
March 2016: The contractor building the Q Burke Hotel, who has been owed back pay all winter and is still owed $5.5 million, refuses to release the certificates of occupancy for the brand-new hotel until he’s paid. On March 22nd, Q Burke lays off 180 employees, including 45 full-time, year-round employees.
April 4th, 2016: State of VT freezes the escrow account for the $58 million Q Burke Hotel since “millions of dollars” have gone unaccounted for. A source who worked as a ski industry PR manager believes this is not because of financial wrongdoing, and is “potentially just bad accounting” that needs to be tightened up for the state to continue its support. It’s the tightest the state has monitored any EB-5 program.
Jay Peak CEO Bill Stenger was in South Africa raising money for the Q Burke Hotel at press time, and said he would have the contractor paid “within a few weeks.”
The $58 million Q Burke Hotel remains closed due to unpaid constructions bills owed to the contractor. Q Burke Resort photo.
On the same day, Q Burke Hotel Manager Sarah Benedict posts an op-ed on the Q Burke website about why, despite being one of only 3 employees left on the payroll, she is standing by the resort’s having to make tough decisions to maintain the financial viability of the resort and the $58 million hotel.
April 8th, 2016: After Stenger accuses the state of Vermont’s delay in authorizing payments towards construction bills for the Q Burke Hotel, the state’s top financial regulator, Susan Donegan, fires back, saying that reason payments were delayed was because Stenger and his partner lacked the funds to pay them.
April 13th, 2016: Vermont Senator Patrick Leahy (D), who helped spearhead the EB-5 program, called in a Capitol Hill hearing for the program to be reviewed, citing gerrymandering issues that allowed investors to not pay as much, as well as issues surrounding protection for investors in the program. “The bill addresses concerns that investors have raised, in Vermont and elsewhere,” Leahy said, “about not receiving sufficient information about investments and not having enough protections if an investment goes poorly.”
Leahy had in past comments cited Stenger as a “visionary” leader in his efforts to transform the Northeast Kingdom’s economy. During the hearing on Capitol Hill, investigators conduct an unannounced raid at Q Burke Hotel, change the locks, and leave with a bunch of evidence.
April 14th, 2016: Security and Exchange Commission officials announce charges of fraud for Quiros and Stenger, and put a freeze on assets in the EB-5 program. It appoints Leisure Hotel and Resorts, an outside company based in Kansas City, to oversee day-to-day operations of Jay Peak and Q Burke as their investigation proceeds.
On the same day, someone makes a funny joke by listing Jay Peak in the “For Sale” section of Craigslist. Add reads: ”Ski area with many lifts (some in good condition) includes many new buildings. Prime location, excellent weather, and established, devoted customer base. Motivated seller. Cash only.”
Jay Peak announces on its Facebook that long-time Chief Marketing Officer Steve Wright will be taking over as acting General Manager, as that the SEC’s investigation will not affect day-to-day operations nor the guest experience at Jay.
A big thanks to Alex Kaufman at the Wintry Mix Podcast for assistance in creating the above timeline.
About The Author
stash member Ryan Dunfee
Former Managing Editor at Teton Gravity Research, current Senior Contributor, current professional hippy at the Sierra Club, and avid weekend recreationalist.
subielove
April 14th, 2016
Lol - they will probably get 5 hours of community service and be back in business.
kailas
April 16th, 2016
Typical amoral eastcoast behavior.
m.gregory
April 16th, 2016
An interesting compilation of facts. No wonder why my repeated requests for press info were ignored. Such a blight on a well loved industry—makes me sad