[A] former senior accountant at Jay Peak Resort told the SEC that he became aware in 2010 that the resort developers commingled and misused investor funds.
John Carpenter, who oversaw the books for the resort from October 2009 through March 2011, told the SEC that Bill Stenger, CEO of Jay Peak, and his partner, Ariel Quiros, were using funds from Hotel Jay to pay for the construction of the Tram Haus Lodge.
When Carpenter raised concerns about the arrangement, he says Stenger told him that money obtained from future investors in Jay Peak’s EB-5 immigrant investor program would help pay for construction costs of previous projects, according to a deposition released in federal court.
According to the testimony obtained by the SEC, Stenger told Carpenter that the properties were being “built and delivered as promised and that the use of funds was at his discretion.”
Carpenter, who identifies himself as the controller for the resort, said some of the money was also likely used to cover other capital and operating costs for the Northeast Kingdom ski area.
Last week the SEC filed a case in U.S. District Court in Miami alleging that Stenger and his partner, Ariel Quiros, misused $200 million in EB-5 immigrant investor funds out of $350 million that was slated to be used for developments at Jay Peak, Burke Mountain Resort and a biotech facility. Quiros is accused of “systematically looting” investor funds, ultimately stealing $50 million.
The state has also sued. Susan Donegan, the commissioner of the Department of Financial Regulation, says Quiros treated the money from investors like his own “piggybank.”
Hotel Jay and Tram Haus are two of six projects in the redevelopment of Jay Peak Resort, which is located on the Canadian border in Orleans County. In addition, the developers built a hotel at Burke Mountain Resort and collected more than $80 million for a biotech facility that the SEC has described as “nearly a complete fraud.”
Carpenter told investigators he experienced difficulty obtaining monthly bank statements for the Jay Peak EB-5 related entities from Stenger and Quiros.
When he did finally get access to the statements, he told the SEC that it was clear the developers were using money from new investors to pay for previous projects and for operating expenses at the resort.
A spreadsheet attached to an email from the time, shows cost overruns at Tram Haus.
In August 2009, the construction balance for the Tram Haus was $14.6 million, Carpenter told the SEC, but when he arrived at Jay Peak in October of 2009, only $50,000 remained. The total cost of the hotel was $26.68 million.
Carpenter told investigators that in August 2010 the ski resort was “cash deficient during the summer operating season, and a new cable to repair the resort’s Tram had cost approximately $2 million,” Carpenter told investigators.
The only source of funds to cover the cash flow shortages and capital needs would have come from the EB-5 limited partnership accounts, he testified.
At a minimum, Carpenter said in the email to Stenger that he thought $8 million had been borrowed from Phase II to pay for Phase I. He also estimated that Jay Peak Inc. had borrowed $2.8 million from Phase I.
Quiros and Stenger used mirror bank accounts to transfer money, according to a deposition from Joel Burstein, Quiros’ former son-in-law who managed Raymond James accounts in Miami for Jay Peak. Stenger put the investor funds in separate accounts in People’s Bank and then transferred the money to accounts at Raymond James. Quiros then put pooled investor money in U.S. Treasury Bills and used it as collateral for margin loans.
“When I needed money to pay bills for the various EB-5 Partnerships, I would ask Mr. Stenger to move money into People’s Bank, and he said he would first have to ask Mr. Quiros,” Carpenter testified.
Money for the Tram Haus (Phase I) and Hotel Jay (Phase II) projects was combined in an account held by Jay Peak Management, Carpenter said in a deposition with federal regulators.
Carpenter told Stenger and Hulme that there was so much commingling that he thought it would be advisable to go through the Raymond James bank account transaction by transaction.
“There has been so much co-mingling of the funds via transfers” that it had become, he said in an email, “quite a mess.”
Carpenter said Stenger didn’t satisfy his concerns “about the additional cost growth and how it would be funded.” He left Jay Peak in March 2011.