EB-5 Development: 4 Named In Criminal Indictment Filed In Federal Court Over NEK Project
A federal grand jury has filed criminal charges against former Jay Peak developers Ariel Quiros and Bill Stenger and two other men, more three years after regulators unmasked their "Ponzi-like" investment scheme.
The 14-count, 33-page indictment also names Quiros advisor William Kelly and Jong Weon Choi, a South Korean businessman, as defendants.
The indictment focuses on the scheme to develop a biotech facility, AnC Bio, in Newport, as part of a sprawling series of projects the men undertook under the federal EB-5 investor program.
The men raised $93 million from approximately 169 investors for the project, which was never built, despite repeated private and public assurances that the project was viable. According the indictment, final designs were never even completed. Instead, most of the money was embezzled or used to pay off other debts, according to the indictment.
More on the indictment and the AnC Bio project further down in this post.
Kelly, Stenger and Quiros were arraigned in U.S. District Court in Burlington on Wednesday. In quick succession, each pleaded not guilty before Magistrate Judge John Conroy. All three men were released after brief hearings.
Stenger and Quiros entered the courtroom in handcuffs. After the hearing, Stenger’s attorney, Brooks McArthur, told reporters: “We unequivocally and with very strong language want you to know that Bill Stenger did not commit any criminal conduct."
Kelly was ordered to surrender his passport and avoid contact with the co-defendants. Kelly described himself as a “consultant” during his court appearance.
Assistant U.S. Attorney Paul Van de Graaf told Conroy that discovery in the case is "significant, voluminous, and complex."
While Vermont Attorney General TJ Donovan said last summer that a federal criminal investigation into Quiros was under way, federal authorities haven't confirmed or denied the existence of a criminal federal investigation until now.
Federal prosecutors held a press conference Wednesday afternoon in Newport in front of the infamous "hole" in downtown. The vacant lot was slated to be where one of the EB-5 projects developed was built, but it’s sat empty in the years since the alleged fraud came to light.
U.S. Attorney Christina Nolan told reporters the AnC Vermont project was touted by the developers as a way to bring “much-needed jobs to the Northeast Kingdom.”
“But the defendant lied and they cheated,” Nolan said. “According to the grand jury’s indictment, the AnC Vermont project was not in fact designed to create the number of jobs or the amount revenue for the Northeast Kingdom that the defendants claimed. Rather, the project was designed to siphon millions of dollars to Quiros and Choi.”
Nolan said the investigation began in 2015. The case involved more than a million pages of evidence and a “Korean angle” which added hurdles to evidence collection, Nolan said.
Choi – the South Korean businessman named in the indictment – is currently at-large, according to Nolan.
While there were several other projects supported by EB-5 funds, Nolan said her office chose to focus on AnC Vermont because it “was the culmination of the rest and also the project that was the undoing of the criminal enterprise, or when the undoing began.”
Nolan declined to comment when asked whether there are other investigations.
A small crowd of city residents gathered behind the gaggle of reporters to watch Wednesdays's press conference, including Newport Mayor Paul Monette. Speaking after the press conference, Monette said the indictments bring a sense of relief and healing to the community.
“Knowing that justice is happening, albeit slowly, but it is happening,” Monette said. “For the community members that think you can get away with things, I think it shows you can’t.”
Monette said he’s not sure what’s going to happen with the empty lot – it’s currently owned by a court-appointed receiver.
“We don’t own it one bit," he said. “And I wish we did, because then maybe we could have our own destiny.”
The AnC Bio Project
While the developers are best known for projects at Jay Peak and Burke Mountain, the charges announced Wednesday are based on a later project that never got off the ground.
The plan, as described to investors and the public, was to open a state-of-the art biotechnology center in the outskirts of Newport. AnC Bio was to be an offshoot of AnC Korea, an outfit run by Choi.
According to the indictment:
- Quiros controlled the money and made the final decisions
- Kelly was a “key advisor” to Quiros
- Choi was a hidden partner who formulated the business plan for the Vermont facility
- Stenger served as the public face, to win over investors and politicians, and in doing that work “presented a variety of false and fraudulent statements” to investors and regulators
The plan was a total fraud, according to the indictment, and involved embezzling investor money and lying about the revenue and number of jobs the project would create.
For example, the indictment notes that materials to investors listed a $40 million cost for “construction fit out and equipment,” but that $12 million of that went directly to Quiros and Choi. Those two also personally took $10 million of $16 million listed for “working capital,” according to the indictment.
Kelly was to receive $4 million as part of the scheme, the indictment says, and Stenger was to get a $1 million “management fee.”
By the middle of 2013, the U.S. Securities and Exchange Commission was investigating Stenger and Quiros. But the indictment say the defendants engaged in financial crimes well after federal and state authorities began asking questions.
In May 2014, Quiros was questioned by the SEC about using AnC money to repay other loans. But he continued to misuse AnC money months after, according to the indictment.
More from VPR — Newport Residents Question Developers Of Bio-Med Facility [July 22, 2014]
In June 2014, the Vermont EB-5 Regional Center — the state outfit tasked with regulating EB-5 projects — ordered the defendants to suspend work on the project and to provide more details of their financial plans. But the indictment says that by April 2015, the regional center allowed the defendants to raise more money for the project.
All along, according to the indictment, the defendants hid the fact that they weren’t prepared to begin construction, let alone generate revenue.
In addition to financial crimes, the indictment says the defendants also misled investors about how many jobs the project would create. In order to win government approval for the AnC project, they needed to demonstrate a plan to create at least 2,200 jobs — however the indictment says they exaggerated the economic impact of both building the theoretical facility and operating it.
The defendants claimed the facility would manufacture and sell three different artificial organs, including an artificial heart, kidney and liver. But the artificial heart needed to be redesigned and “had no commercial market,” and the kidney and liver hadn’t been developed, according to the indictment. None had obtained approval from the U.S. Food and Drug Administration.
Since 2016: An EB-5 Refresher
In 2016, Ariel Quiros and Bill Stenger were accused of running a "Ponzi-like" scheme that defrauded more than $200 million from foreign investors through the federal EB-5 program, which offers a path to citizenship for immigrant investors who agree to put at least $500,000 into approved projects in economically depressed regions of the United States and generate a certain number of jobs.
The money was intended for development projects in the Northeast Kingdom, including Jay Peak Ski Resort and a proposed biomedical facility in Newport. State officials, like Gov. Peter Shumlin, Sen. Patrick Leahy and Rep. Peter Welch were boosters for the project before the alleged fraud was revealed.
The U.S. Securities and Exchange Commission alleged Quiros misappropriated millions of dollars and used investor funds for personal expenses, including paying off personal debt and a $2.2 million luxury condo in Trump Place in New York City.
More from VPR — State Releases Nearly Half Million Jay Peak EB-5 Records [March 28]
Stenger settled a lawsuit with the SEC in 2016, and then early last year Quiros paid tens of millions of dollars to settle a federal lawsuit.
In July 2018, it was announced that the state of Vermont had also settled civil suits with both Quiros and Stenger.
Last year the U.S. Citizenship and Immigration Services ordered the shutdown of the state-run regional center that oversees EB-5 projects in Vermont. The feds said the regional center didn’t provide enough oversight or management of its projects — which, the feds say, might have allowed the alleged fraud to flourish. The state said it would appeal the federal decision.
Update 5:16 p.m. This post was updated with reporting from the press conference in Newport.
Update 4:02 p.m. This post was updated with more information from the indictment. Headline was also updated to clarify it is a single indictment filed (with 14 counts).
Update 1:18 p.m. This post was updated following Wednesday's arraignments.