Red Flags Preceded Fraud Allegations at Jay Peak

Published in The Boston Globe

By Hilary A. Niles
GLOBE CORRESPONDENT APRIL 21, 2016

MONTPELIER — The news was stunning: Two of Vermont’s most prominent businessmen, Jay Peak Resort owner Ariel Quiros and president Bill Stenger, were accused last week of securities fraud and misuse of more than $200 million raised from investors since 2008.

But red flags had been waving for years over their use of a controversial federal program that grants US residency to foreigners in exchange for job-creating investments.

Bill Stenger surveys construction developments at Jay Peak Resort. © Hilary A. Niles

Some of the warnings dated to 2012, when an immigration attorney involved in Jay Peak’s securities deals publicly severed his relationship with the developers, implying their financial disclosures were misleading.

Construction delays mounted, and a crucial real estate deal was canceled for lack of payment. Investors complained that Quiros and Stenger had changed the terms of their payouts.

Other alarms rang later, heard only within state government: An approved business plan didn’t pass legal muster. Jay Peak withheld information about a key business partner. Quiros and Stenger resisted the state’s requests for documentation.

But state officials overseeing the visas-for-investment program largely allowed the Jay Peak executives to proceed — a testament to the developers’ promise of much-needed spending in Vermont’s most economically challenged counties and the strong political support from two governors and Vermont’s congressional delegation.

“You had a sense something wasn’t right here, just on the questions we weren’t getting answered,” said the state’s commerce secretary, Patricia Moulton, whose agency runs Vermont’s immigrant investor program. She eventually became suspicious of Jay Peak.

Quiros and Stenger’s designs were as audacious as the fraud they are accused of committing. In 2012, the duo unveiled a half-billion-dollar plan for Vermont’s Northeast Kingdom. It would sweep from the Jay Peak ski resort, near the Canadian border, to the newly acquired and renamed Q Burke Mountain.

Jay Peak would build a biotechnology campus, window manufacturing plant, mixed-use hotel, conference center, and marina known as Renaissance Block.

Q Resorts, Jay Peak’s parent company, wholly owned by Quiros, even took over management of the Newport State Airport

in a flurry of promises that saw the facility renamed Northeast Kingdom International Airport.

But only expansion of the ski resorts came to pass. At the airport, international flights have yet to land or take off.

Development money was to come from the federal EB-5 visa program. EB-5 offers permanent residency to foreign investors and their family members if at least 10 jobs’ worth of economic activity can be attributed to an investment of at least $500,000 in a qualified US business.

The investment offerings are exempt from the federal securities registration that’s common for stocks and bonds, but otherwise subject to federal and state securities laws.

Vermont’s EB-5 office has worked with about a dozen developers since 2006, but none more than Jay Peak. Quiros, who is based in Miami, and Stenger raised more than $350 million from over 700 investors in at least 74 countries, according to an April 12 lawsuit filed by the Securities and Exchange Commission.

Neither man could be reached for comment.

A new federally-funded runway extension allows larger planes to land at the Northeast Kingdom International Airport. The developer, Q Resorts, is on the hook to deliver other improvements, but there's some concern about timetable delays. © Hilary A. Niles
A new federally-funded runway extension allows larger planes to land at the Northeast Kingdom International Airport. The developer, Q Resorts, is on the hook to deliver other improvements, but there’s some concern about timetable delays. © Hilary A. Niles

Vermont runs its EB-5 program through an entity owned and operated by the state. It’s an unusual setup adopted by only one other state, Michigan. Hundreds of other regional centers, as the EB-5 offices are known, are for-profit outfits.

Even at a news conference to announce allegations of “massive” fraud leveled by the SEC and the state, Governor Peter Shumlin promoted the added assurance that state oversight affords.

Yet compliance with securities laws appears to have been an afterthought.

Moulton, the state commerce secretary, said that until Vermont financial regulators got involved in 2015, about a year after the SEC began investigating, the regional center conducted no systematic, independent, third-party reviews of projects’ business plans.

“We can all sit back now and say there are probably 18 things we should have done. But we were not required in our position as a regional center to do that level of analysis. We’re required as a regional center to market projects,” she said.

Moulton said this is a weakness in the whole EB-5 system, and one Vermont corrected after bringing in financial regulators. She said the commerce agency’s due diligence previously amounted to a review of applicants’ business plans and the reputations of their principals. With Jay Peak, Bill Stenger carried the case. The longtime president of the iconic ski area was a known entity in Vermont well before Quiros bought the operation in 2008.

And with Jay Peak, as with other projects, state officials mostly took the word of attorneys who had drafted the securities offerings, Moulton said.

The econometric forecasts on which job-creation projections were based — the heart of EB-5 — were taken at face value, even though they were paid for by developers. Market analyses also were trusted, but never verified beyond EB-5 approval by US Citizenship and Immigrant Services.

That federal green light remains the only required business plan review in the EB-5 process.

In 2012, Doug Hulme, an immigration attorney who had worked with Jay Peak, cut ties with the resort over alleged financial misrepresentations. Hulme issued a news release saying his company, Rapid USA Visas, “no longer has confidence in the accuracy of representations made by Jay Peak.”

But Hulme himself was the cause of consternation in the state EB-5 office, because Rapid USA at the time was improperly marketing itself as the state regional center, Moulton said. The state chalked it all up to “sour grapes,” Moulton said.

No financial audit of Jay Peak was performed.

Not every project got a pass, though. The regional center did rescind agreements with other developers and has declined to work with at least one group it was “not comfortable with,” Moulton said.

The state does not appear to have applied such scrutiny to Jay Peak until early 2014, when a group of investors began complaining that Quiros and Stenger had converted investor’s equity shares in the resort’s Tram Haus Lodge to unsecured IOUs — without their knowledge or consent.

Prior to this, Moulton said, more-rigorous inspection hadn’t seemed necessary because there hadn’t been any visible problems.

“Projects were getting built. Jobs were being created. Money was being spent. There was nobody screaming and hollering, no question marks, until the first conversion of Phase I investors from equity into debt.”

After a brief suspension by the regional center, the state allowed Jay Peak to continue selling its EB-5 securities, with conditions set by the Department of Financial Regulation. Responsibility for compliance for all of Vermont’s EB-5 projects was moved to Financial Regulation, which exercised its subpoena power to demand over 300,000 documents from Jay Peak. Its investigation is one the commerce agency had neither the resources nor the authority to conduct. The resulting charges against Quiros and Stenger largely mirror the federal charges by the SEC.

Shumlin, who is finishing his third two-year term, deflects questions about whether Vermont’s EB-5 center should have been reformed sooner. He cited its structure as a legacy of prior administrations. “We made the change when we made it, and we found what we found,” Shumlin said by e-mail.

Vermont Police Are Rarely De-Certified, Even For Crimes And Misconduct

Broadcast on Vermont Public Radio

In December 2015, the City of Rutland, Vermont, settled a nearly $1 million lawsuit with a former police officer. Andrew Todd had alleged that two of his colleagues on the police force engaged in racial discrimination and multiple instances of improper conduct — including racial slurs and physical threats against him, racial profiling, and sometimes getting drunk or having sex while on duty.

Law enforcement officers look on as lawmakers discuss a bill making it easier to de-certify police in Vermont for crimes and misconduct. (Photo by Hilary Niles)

By the time of the settlement, Sergeant John Johnson had retired and officer Earl “Frank” Post had already resigned. Although the two were never charged with any crimes, the civil settlement certainly was damning.

And despite the severity of the accusations against them, Johnson and Post walked away from their jobs with their police certification intact. That’s because, in Vermont, it’s really hard to lose your right to wear a badge.

This spring, state lawmakers are tackling a bill that would sharpen their teeth when it comes to dealing with bad cops.

// Listen here and read the full story

Mapping Education Reform in Vermont

Story by Howard Weiss-Tisman, data and mapping by Hilary Niles / Vermont Public Radio

Vermont’s student enrollment has declined steadily in recent years, leaving hundreds of small-town school districts serving fewer and fewer kids — some as few as 20. Meanwhile property taxes that fund education have steadily risen, along with the profile of education finance as a political lightning rod.

Screen Shot 2016-02-26 at 11.19.38 AMIn 2015, the Vermont Legislature instituted a controversial program requiring school districts to consolidate, or else face stiff property tax penalties. Towns have three years to respond to Act 46, as it’s known.

Using CartoDB, I created a map to track the merger status of all districts. The map, embedded in stories published by Vermont Public Radio, is sync’d to data hosted on GitHub. This allows the most current data to be reflected in all online stories with the map embedded.

Read Howard Weiss-Tisman’s coverage of Act 46 and see the map online:
5 District Consolidation Plans Pass On Town Meeting Day

Traffic-Stop Race Data Remain Elusive in Vermont

Published by Seven Days

When they stop motorists in Vermont, cops don’t just collect licenses and registrations. As of September 1, 2014, all police officers in the state must record the race of every driver they pull over.

image courtesy Beachfront B-Roll
image courtesy Beachfront B-Roll

The new mandate for “roadside stop” data collection is just one step in a national movement to halt discriminatory law enforcement. “Throughout the country, there’s a crisis of legitimacy in policing,” said Burlington Police Chief Brandon del Pozo. “Part of that crisis stems from a belief that the police are biased in the way they use their discretion. And traffic stops are something that police have immense discretion over.”

But Vermonters are still waiting to see what the new statewide data collection reveals. That’s because, while technically public, the information remains largely inaccessible. In 16 months, no one has compiled the raw data — a necessary first step before analysis. In fact, no one even knows if all of law enforcement is complying with the mandate to collect the data in the first place.

// Read the full story

// Watch my WCAX television interview about the story

Delays and Debt Plague Vermont’s $1B+ IT Upgrades

Broadcast in two parts on Vermont Public Radio:

Vermont’s state government is contemplating at least $1 billion of information technology projects in the coming years. The wish list is long, and some projects — even important ones — are likely to stay on it for a long time.

graphic by aleksangel / istock.com
graphic by aleksangel / istock.com

Consider the Medicaid information system: A big upgrade scheduled several years ago has been put off, a couple times, and it’s still on hold into the foreseeable future.

Meanwhile, the core system is not set up to compute all the information that policymakers need to build an accurate budget. This year, state officials are scrambling to fund $36 million more in Medicaid charges than they budgeted for — although they don’t have the data they need to understand how expenses ballooned the way they did, or how much the program will cost in the future.

Information technology projects like Medicaid’s get put off for various reasons, and throughout state government. Vermont’s Judiciary, its Departments of Motor Vehicles and Public Safety, the Public Service Board, the state’s accounting and procurement offices are all home to IT projects that face continual delays.

And as it turns out, when projects are funded, debt for Vermont’s state IT projects often outlasts the technology. That’s because state funds for IT projects currently are coming from selling bonds — a form of long-term financing that leaves taxpayers paying for technology even years after it’s obsolete.

Mixed Signals for Airport Funding And Timeline

Broadcast on Vermont Public Radio

Dan Gauvin radios from his four-seat Cessna and aims for the sky. Gauvin lifts off almost every day. He had been running the Newport State Airport for almost decade when, in 2012, developers from Jay Peak ski resort took over management of the facility.

Northeast Kingdom International Airport Manager Dan Gauvin navigates his four-seat Cessna through a stiff crosswind over Coventry and Newport. Gauvin had been running the Newport State Airport for almost decade when, in 2012, developers from Jay Peak took over management of the facility.
Northeast Kingdom International Airport Manager Dan Gauvin navigates his four-seat Cessna through a stiff crosswind over Coventry and Newport. Gauvin had been running the Newport State Airport for almost decade when, in 2012, developers from Jay Peak took over management of the facility.

Jay Peak’s parent company, Q Resorts, kept Gauvin on to run airport operations. He’s seen a lot of changes since then. From 1,000 feet above ground, he points out some big ones: A thousand feet of fresh black-top caps the base of the airport’s north-south runway. Between it and a tiny white terminal building, construction vehicles criss-cross a new area for planes to park. Beyond that lies a massive new stormwater retention pond.

“The base of that’s the size of a football field, believe it or not. It’s 27 feet deep,” Gauvin says.

These and other infrastructure improvements were mostly paid for by federal grant money — a lot of it.

“$2.1 million is our usual program funding from the feds every year, and we brought in excess of $60 million in two years,” according to Guy Rouelle, who heads up Vermont’s Aviation Program.

A new federally-funded runway extension allows larger planes to land at the Northeast Kingdom International Airport. The developer, Q Resorts, is on the hook to deliver other improvements, but there's some concern about timetable delays.
A new federally-funded runway extension allows larger planes to land at the Northeast Kingdom International Airport. The developer, Q Resorts, is on the hook to deliver other improvements, but there’s some concern about timetable delays.

Almost half that has gone to the Newport airport, for upgrades designed in conjunction Q Resorts’ plan to put the airport on the map: They’d build a new and improved terminal with customs service for international cargo and passengers, bonded warehouses for use by import-export businesses, an assembly plant for small aircraft and more hangars for private plane owners.

This year, the Legislature even renamed the airport the Northeast Kingdom International Airport.

To date, though, it’s mostly the publicly-funded projects that have come through. Q Resorts, which also has projects in limbo in nearby Newport and East Burke, hasn’t yet delivered its end of the bargain.

// Listen here and read the full story

Vermont’s Lake Champlain Cleanup Plan, Explained

Published by Vermont Public Radio

With a surface area of 435 square miles stretched over a length of 120 miles, Lake Champlain is one of the largest lakes in North America. Its waters support aquatic ecosystems, recreation, agriculture and public water supplies.

Percent phosphorous reductions required for each lake segment: The proportional percent of phosphorus reduction required for a lake segment may be quite different from the volume reduction required. For example, in a segment with low phosphorus loads, a small volume may represent a large percentage of that segment’s reduction — and vice versa.

But high levels of phosphorus in the water threaten all these uses of the lake. A plan to clean up Lake Champlain proposes limiting phosphorous runoff, which causes potentially toxic blue-green algae to proliferate. The plan is called the Total Daily Maximum Load, or TMDL.

The limits apply not just to farms and developments (although those are the leading contributors of phosphorus to Lake Champlain), but also to wastewater treatment plants, back roads and even forests and streams. Runoff from all these sources throughout a 8,234-square-mile watershed in Vermont, New York and Quebec ends up in the lake.

A new proposal, referred to as Total Maximum Daily Loads (TMDL), is a choice between scenarios that allow different amounts of pollution from various sources to enter specific parts of the lake. It’s a long and technical document; this series of interactive graphs and charts explains the basics of the official plan — which is not without controversy.

// See the data project.

// Read the story the data accompanied.

Growing a ‘Startup Ecosystem’ on Two Wheels

Broadcast on Vermont Public Radio

Riders mostly stay together en route between pitch stops, sharing experiences like getting caught in the rain, noticing great swimming holes or enjoying the twists and turns of Vermont’s hills. Photo by Hilary Niles

It’s becoming tradition in Vermont: The first week of August, riders tour through the most promising hubs in the state, stopping twice a day to get pitched by budding businesses looking for money, advice and connections. The riders — about 45 this year — are looking to invest, help out, have fun, and stay out of the rain.

Event organizer Cairn Cross says the Road Pitch, as it’s called, is a form of economic development for which the private sector is uniquely positioned.

“I personally believe that one of the problems with public sector economic development … is we tend to think of hierarchies,” Cross says. “‘How do we have a one-stop shop where everybody goes and they know exactly where to go to get all the resources?’ And the reality is, you don’t. In part because in a good entrepreneurial economy, new resources are popping up all the time.”

Cairn Cross says his goal in encouraging a “startup ecosystem” is to create opportunities for people with resources to interact with people who need them.

“If you connect those resources together over time, things will happen,” he says.

But the long gestation period inherent in this approach, the riskiness of startups and the disruptive potential of entrepreneurialism — these can be hard sells for politicians and public officials with multiple constituencies to answer to, with taxpayers dollars to be accountable for, with results to show to for the next election.

// Listen here and read the full story

Dana Wilkinson, of clothing line Dirty Old Biker, and James Lockridge, of the music-centered nonprofit Big Heavy World, chat after a picnic dinner at Bennington College. Photo by Hilary Niles

Lagging Health Insurance Exchange Glitches Leave Major Medicaid Improvements in Limbo

Broadcast on Vermont Public Radio

More than a third of Vermont’s population is enrolled in Medicaid. Their health care claims every year number in the millions, and those claims add up to well over $1 billion — on par with the size of Vermont’s General Fund, or even bigger.

But, like a lot of the state government’s technology, the IT system the Medicaid program runs on is really old: 30 years old.

It still works, but not very efficiently. Reports on those millions of Medicaid claims are vulnerable to human error, and producing them is time-consuming. So, the Medicaid Management Information System, or MMIS, is inefficient by modern standards.

It also doesn’t allow the state Medicaid office to be as effective as it could be in managing care for the roughly 225,000 adults and children enrolled in the program.

The IT upgrade intended for the Medicaid system already had faced years of delays before Vermont’s health insurance exchange effectively crashed straight out of the gate in 2014. And still the years add up.

Efforts to get back on track with Vermont Health Connect after its faulty rollout are consuming so much of the state’s resources that all other big health-related IT projects are on hold. That’s despite federal pressure to get them done.

// Listen here and read the full story

Huge Money, Small Oversight: State IT Spending In Vermont

$1 Billion+ ... The most accurate available information shows that the state could spend this amount on IT projects over the next five years.
$1 Billion+ ... The most accurate available information shows that the state could spend this amount on IT projects over the next five years.
Illustration: Amanda Shepard/VPR. Data source: Vermont Department of Information and Innovation.

story by Taylor Dobbs, data by Hilary Niles / Vermont Public Radio

The use of technology in Vermont state government went from a background concern to a political flashpoint throughout the troubled rollout of Vermont Health Connect, the state’s online health insurance exchange. None of the state’s IT projects receive the same level of public scrutiny, but information technology in state government is ubiquitous and makes up a significant — yet unknown — portion of the state’s budget every year.

A Vermont Public Radio investigation has found that it’s nearly impossible for Vermonters to know how much of their tax money goes toward IT operations in the state, how successful IT projects are in meeting state needs, or how well state agencies follow defined protocols for state contracts.

Using available records, interviews and dozens of documents released in response to multiple records requests, VPR built a comprehensive data base of IT projects across state government. The documents and interviews showed:

  • Despite efforts to improve transparency, there is no way for state officials or the public to track the total amount of money spent by the state government on information technology. The most accurate available information shows that the state could spend nearly $1 billion or more on IT projects over the next five years.
  • The state has increased oversight for IT projects in recent years, allowing the Department of Information and Innovation (DII) to monitor and even cancel projects from the time a department launches the procurement process to the finished product.
  • Although increased oversight provides more opportunities for DII officials to identify problems with an IT project, there’s still no way to know how successful these projects are in meeting their stated goals.
  • Specific protocols for state purchasing have been in place since 2008. Yet the state agencies tasked with ensuring those protocols are followed have never used their authority to audit compliance, making it difficult to know if agencies are following best practices as defined by the state itself.

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