Jay Peak and Q Burke owners Bill Stenger and Ariel Quiros have been charged with fraud by the Securities and Exchange Commission, sending shock wave through the Northeast Kingdom in Vermont. In a move that will wreak havoc on the already economically depressed corner of Vermont, the SEC has frozen the assets related to the ski areas and has appointed an outside company, Leisure Hotel and Resorts, to run the areas until the charges are brought to a legal conclusion.
“The alleged fraud ran the gamut from false statements to deceptive financial transactions to outright theft,” according to Andrew Ceresnay of the SEC. “As alleged i 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 be built and thereby putting the investor’s funds and their immigration petitions in jeopardy.”
The federal EB-5 program was passed to encourage foreign residents to invest at least $500,000 in economically depressed areas in exchange for a fast-tracked green card application. The investment had to create or preserve at least 10 jobs. The SEC charges that the duo had raised approximately $350 million from all over the world which allowed them to construct new hotels, a water park, a hotel/condo complex at Burke, start a biomedical research facility in Newport, and other projects. It provided a huge lift for Jay Peak with skier visits showing a nice uptick. However, according to the SEC, the fraud started to happen in 2008 and “...in Ponzi-like fashion, money from investors in later projects was misappropriated to fund deficits in earlier projects.”
It wasn’t business difficulties based on market problems that caused the fall. While investors were told their funds were going to be used for projects connected to the expansion of the ski areas, it is charged that Quiros took at least $50 million from the funds to buy things like a $2 million apartment in Trump Place in New York, pay off back personal taxes, and his part of the buy-in for Burke Mountain.
This is especially damaging to Burke Mountain. The area has had seven different owners since 1991, all of whom did not have enough money to make the changes that were necessary to bring the mountain into the new age of snowmaking and luxury accommodations. When it was announced that Stenger and Quiros were going to use EB-5 money to re-invigorate the area, the local community celebrated. Over 100 investors through the EB-5 program helped fund a $58 million hotel/condo complex and other mountain improvements.
Although the weather hurt the early season, employees and area skiers were looking forward to 2016/17. But then things started to fall apart. The builder of the hotel/condo complex was not paid the remaining $5.5 million and refused to let it open until he was paid. Once that happened, the flow of money was critically examined and it became obvious something was amiss. Close to 200 employees were laid off. What started with such promise after the disaster of seven different owners since 1991, has turned into an disappointing economic nightmare with no clear path forward.
This is obviously a very difficult day for Vermont and for the many people, myself included, who are so invested in growing jobs and economic opportunity in the Northeast Kingdom," said Vermont Gov. Peter Shumlin. Although the Governor did not expect any job losses at Jay Peak, all of the other economic development projects this company had projected will not be going forward.
Jay Peak management insists that the day-to-day operations of the mountain will not be affected and that guests to the area will see no diminution of service. The following was released from Jay Peak.
“As you may have heard, we here at Jay Peak will be working with Leisure Hotels and Resorts (LHR) to continue managing Jay Peak same as it ever was. Current ownership is working with state and federal officials surrounding their ongoing investigation relative to the EB5 Foreign Investment Program. That process is distinct and not connected to the day to day operations of the mountain, indoor waterpark, golf course, lodging or any of our amenities that continue to be available on a daily basis here. Our longtime CMO Steve Wright has recently been named General Manager and he, along with LHR will be responsible for the day to day operations of the resort.
We are anticipating our busiest summer on record with music, conferences, almost 70 weddings and a host of other business segments and we look forward to keeping on. It is an awkward time for us on the ground as well and we appreciate you giving us some room to figure all of this out. We will absolutely keep you in the loop as this takes more shape and appreciate your support as we move toward a much more sustainable future”
It has been a hard year for the ski industry in New England. The weather has certainly been a factor in the economic difficulties of even the best run areas. Although creative managers tried every conceivable marketing device to get folks to the mountains, the conditions much of the time were horrible. It has been a net minus for most areas. However, no area, over time, can survive poor or dishonest management. Although Jay Peak will probably survive this latest mess, it looks like Burke is once again in deep trouble. All of those jobs lost will have a continuing and deep impact on this poor and rural corner of the woods. Stay tuned.