SEC Alleges Jay Peak Owners Engaged in Massive Fraud of EB-5 Investors
By Omar Hakim, Esq.
The Securities and Exchange Commission has charged and frozen the assets of Ariel Quiros of Miami, FL, William “Bill” Stenger of Newport, VT, Q Resorts Inc. and Jay Peak Inc. in connection with violations of the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The allegations are disheartening as the Jay Peak project had previously been held up as a shining example of the job creation potential of the EB-5 program in rural areas, it was even cited in 2012 by presidential candidate Bernie Sanders as a “marriage and partnership between private business and federal, state and local government.” These charges being levied against such a popular and well-known EB-5 project really highlights the need for greater integrity measures as called for by the S. 2415 – EB-5 Integrity Act.
The SEC alleges that Quiros and Stenger diverted over $200 million in funds while raising $350 million from investors to construct ski resort facilities and a biomedical research facility in Vermont. These funds were solicited through the EB-5 investment program, which jeopardizes the investors’ immigration petitions. Funds were allegedly used for various unrelated expenses, including the payment of taxes for undisclosed the investments, the purchase of an unrelated ski resort, and $50 million that went towards Quiros’ personal expenses and income taxes. Furthermore, the SEC contends that the EB-5 capital was also used to fund deficits in earlier projects instead of the projects and purposes listed in the offering to investors. Lastly, according to the SEC, Quiros and Stenger along with their companies made false statements and omitted key information while raising capital.
In December of 2015, PBS foreshowed these allegations in aptly named segment titled “Is this job-creating foreign investment project too good to be true?” The segment covered the Jay Peak Resort and Management Company as suspicions arose regarding the legitimacy of the project. Stenger was quoted in the piece as saying, “There is no obligation to pay the investment back,” despite maintaining that the loans were guaranteed by the resort. This was after multiple investors had received IOUs 5 years after they invested, despite many investors claiming they were expecting to be repaid in cash. In another segment by VTDigger.org in early 2015, it was revealed that Jay Peak was under fire for promoting projects that were not approved by its state partners and neglecting to disclose familial relationships in the management structures of interrelated companies, among other things.
As we discussed recently on the EB5 Diligence webinar, it is extremely important to disclose material interrelationships. Nonetheless, disclosure would obviously not be a defense where there is misappropriation of investor funds and a disregard of fiduciary duties, as the SEC alleges here.
Four other companies are also named as relief defendants in the SEC’s complaint to recover investor funds transferred into their accounts. The SEC seeks preliminary and permanent injunctions, financial penalties, and disgorgement of ill-gotten gains plus interest. Other punitive measures sought include conduct-based injunctive relief against Quiros and Stenger along with an officer-and-director bar against Quiros.
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Omar Hakim, Esq. is an attorney at Mona Shah & Associates in New York City. The firm is an established source for EB-5, assisting numerous Regional Centers/EB-5 Projects and Investors in navigating this complex, nuanced and constantly changing area of immigration law. Omar offers clients years of experience in corporate finance, the financial regulatory system, securities matters and in general corporate governance matters. Additionally, he is able to draw on his experiences at major federal regulatory agencies and bodies, which includes work at the SEC, the United States House of Representatives Committee on Financial Services, and the CFTC. He earned his J.D. at the University of Virginia; his Master of Laws in Securities and Financial Regulation at the Georgetown University Law Center; and his B.A. in Economics at Georgetown University.