Former Shumlin chief of staff sought to limit state probe of EB-5 fraud, Stenger’s lawyers argue

Department of Public Service Commissioner Elizabeth Miller announces the release of the final version of the state's Comprehensive Energy Plan. VTD/Josh Larkin
Department of Public Service Commissioner Elizabeth Miller announces the release of the final version of the state’s Comprehensive Energy Plan. File photo by Josh Larkin/VTDigger

Updated April 14 at 9:58 a.m.

As high-ranking state regulators prepared to dig into the finances of a proposed biomedical research facility in Newport, a top aide to then-Gov. Peter Shumlin wanted to make sure the probe was limited, according to defense attorneys for one of the developers.

Liz Miller, Shumlin’s chief of staff at the time, pressed the commissioner of the Department of Financial Regulation to ensure the investigation would not be a “carte blanche” review, according to former Jay Peak Resort president Bill Stenger’s lawyers. Miller emailed back and forth with Commissioner Susan Donegan on a Sunday afternoon and into the night in March 2015 to make sure the scope of the review was clear. 

Documents show that once Donegan, the state’s top regulator, reassured Miller that the probe would be limited “initially,” the chief of staff gave Shumlin an update that same Sunday. 

The records are included as exhibits filed by David Williams and Brooks McArthur, attorneys for Stenger. Their client’s sentencing hearing is set to kick off Thursday in federal court in Burlington on a criminal charge related to the failed biomedical research facility project.

Why the governor’s office had such a keen interest in the scope of the financial review of the doomed AnC Bio Vermont project is unclear.

Lawyers for Stenger, whom federal prosecutors have accused of helping to orchestrate a massive financial fraud, have a theory. 

“The scope of DFR’s proposed financial investigation must have alarmed someone who might have something to hide and who knew where to turn to keep his secrets secret,” McArthur and Williams wrote.

In a written statement to VTDigger on Wednesday, Miller said she strongly disagreed with the assertions made by Stenger’s defense attorneys. On the contrary, she said, she “agreed with and supported the scope of the inquiry” proposed by the Department of Financial Regulation. 

“What those emails show is that I asked DFR to confirm the scope of their inquiry, which included personal account funds that may have been commingled with the projects,” Miller wrote by email, “because someone on the defendants’ side was claiming to the governor’s office that DFR was overreaching.” 

“That’s not what I understood was happening,” she continued. “I understood, and DFR confirmed, that their inquiry was totally appropriate and necessary to their scope of review for the projects.”

As allegations of fraud swirled around Stenger and his business partner, Ariel Quiros, Miller ran interference for Shumlin, positioning herself as the go-between with a number of state officials, the records show.

Quiros had assiduously cultivated Shumlin as a friend, partner and — the lawyers suggest — protector. He had a direct line to Shumlin, records show, turning to the governor for help when the U.S. Securities and Exchange Commission came calling — and when another arm of state government, the Agency of Commerce and Community Development, suspended AnC Bio Vermont and another project, Burke Mountain Resort, in July 2014. The two developments were part of a massive $400 million construction boondoggle that also included hotels and condos at Jay Peak Resort. 

When scrutiny intensified in early 2015, state regulators told Shumlin that Quiros had stolen millions of dollars from the Jay Peak developments. Some of the money was used to purchase the very luxury Manhattan condo where the governor liked to stay when he visited New York. 

By late March 2015, state regulators were aware that Jay Peak’s EB-5 projects were seriously compromised, according to court filings from the defense, and that “(e)very single penny of investor money that moves through these projects will invariably be lost for good.”

The federal EB-5 visa program allows foriegn investors to put at least $500,000 into a qualified project and receive permanent U.S residency, or a green card, provided that investment can be tied to the creation of 10 jobs. 

Despite being briefed on misuse of EB-5 funds, Shumlin told state regulators and the commerce agency to lift the suspension of AnC Bio and Burke in March 2015. The fraud continued for another year before the SEC brought 52 counts of securities fraud against Stenger and Quiros for perpetrating a Ponzi-like scheme. 

Miller and three other former top state officials are expected to testify this week in Stenger’s sentencing hearing in federal court in Burlington. Those other former officials include Patricia Moulton, former secretary of commerce; David Cassetty, former general counsel for the Department of Financial Regulation; and Donegan, former commissioner of that department. 

Stenger’s lawyers hope to shift blame onto state officials in an effort to reduce their client’s sentence for his role in the failed biomedical plant.

Federal prosecutors are calling on Judge Geoffrey Crawford to sentence Stenger to five years in prison, the maximum allowed under a plea deal. The 73-year-old Newport resident has admitted to a charge of submitting a false statement to the government related to AnC Bio.  

The federal prosecutors also want the judge to order Stenger to pay $1.66 million in restitution to bilked foreign investors who put money into the biomedical development. 

Stenger, Quiros and Bill Kelly, an advisor, raised more than $80 million from over 160 foreign investors but barely got a shovel in the ground before regulators brought the project to a halt in April 2016. AnC Bio Vermont was one of eight developments in what federal officials have called a Ponzi-like scheme that started at Jay Peak Resort in 2008. The partners raised more than $400 million in all. Of that amount more than $200 million was misused, federal prosecutors have said. 

All three men have reached plea deals with prosecutors over criminal charges. Stenger is the first of the trio to face sentencing. 

Stenger has been convicted of making false statements to the government, including overinflated sales projections and a timeline for biomedical products that omitted “uncertainty about the (U.S. Food and Drug Administration) approval process.”

Stenger’s defense attorneys say state officials are to blame for investors’ financial losses. The Shumlin administration did not stop the fraud because officials were afraid of political backlash, Williams and McArthur wrote in their latest filing last week. 

State officials greenlighted the AnC Bio Vermont project and construction of a hotel and conference center at Burke Mountain ski area, according to Stenger’s latest filing, another one headed by Quirios and Stenger. 

Contractors at Burke Mountain hadn’t been paid for years because of work stoppages caused by Quiros pilfering from construction accounts across the Jay Peak projects, according to the SEC enforcement action in 2016. He used the money to pay off his taxes and buy real estate, a Porsche and antique motorcycles.

Vendors and workers in the Northeast Kingdom were hurting, and they weren’t quiet about it. 

“People whose livelihoods were on the line blamed Governor Peter Shumlin for this mess,” Stenger’s attorneys wrote. “Administration officials knew that unless the hold on further investment in the QBurke project was lifted, bills would not be paid, the hotel would not be completed, and the aggrieved creditors would continue to confront Governor Shumlin and make his life miserable.”

“In the words of Chief of Staff Miller,” Stenger’s attorneys wrote, “QBurke was an ‘economic pressure point’ with things getting so bad that the Governor could not go anywhere without a contractor saying something.” 

The governor was “fixated” on completing the Burke Hotel, they wrote.

“State officials knew, however, that if they refused to approve further investment in the AnC Bio VT project or if they publicly disclosed the evidence that Quiros was operating a Ponzi scheme, investment in the unfinished QBurke hotel project would have dried up,” they said.

No ‘carte blanche review’

Miller saw state approval of an amended investor agreement for AnC Bio VT as “necessary” for the goal they needed to achieve — “completion of the QBurke project to take the political heat off of the Governor,” the defense wrote in its filings.

As part of that effort, Miller kept a close eye on state efforts to rein in Stenger and Quiros, according to the filings.

On March 1, 2015, Donegan forwarded a copy of the draft agreement letter to Miller.

Two weeks later, the Sunday emails began. 

At 3:35 p.m. Sunday, March 15, 2015, Miller sent an email to Donegan and Michael Pieciak, then the Department of Financial Regulation’s deputy commissioner, wanting to know more about the agreement.

“Have you made clear that your department’s review of any individual/personal financial accounts of the partners would be limited to commingling or to funds flowing to/from any personal accounts and (Jay Peak’s EB-5) projects?” Miller asked Donegan and Pieciak.

Miller then reiterated, “In other words, (DFR) will conduct not a carte blanche review of any/all personal financial transactions for whatever purpose, but instead a review limited to determine the extent to which personal accounts may have been used for or in connection with EB-5 project funding, in order to trace project funding/transactions and associated disclosures?” 

Stenger’s attorneys said they searched for the reply in a database of discovery records for the case and were not able to locate it.

Pieciak told VTDigger he talked with Miller by phone. Subsequently, Miller emailed Shumlin, confirming that Pieciak and DFR intended to fulfill the chief of staff’s request. 

Donegan, later that same Sunday at 8:58 p.m., wrote to Miller and appeared to express displeasure with the situation. 

“The new angst over personal accounts gives one pause … At any rate, as long as the agreement reads (which I think it does with the amended language), that we will INITIALLY not look at personal accounts, then I am ok,” Donegan wrote.

Pieciak, in an email to VTDigger Wednesday, said it “does not appear” that an email is missing, and that contrary to arguments made by Stenger’s attorneys, personal accounts were reviewed by the Department of Financial Regulation.

He wrote, “it appears I called Chief of Staff Miller that Sunday afternoon and confirmed we planned to follow the investor money and if it led to personal accounts we would review those too. In fact, we analyzed over 100 financial accounts during the course of our investigation, some of which were personal accounts that improperly received diverted investor funds.”

‘An economic pressure point’

In early 2015, the Department of Financial Regulation began negotiating with Jay Peak’s corporate attorneys over the scope of an investigation into AnC Bio Vermont finances.  

A proposed “Letter of Agreement” indicated the scope of the department’s review would be limited to “AnC and any other entity or individual under common control or ownership of AnC that received funds from AnС.”

In court filings, the defense says that state regulators seized control of investor funds and the Vermont Attorney General’s Office managed payments to contractors for the completion of the Burke hotel. Meanwhile, Stenger was allowed to continue to solicit money from investors around the world. 

Pieciak prepared a PowerPoint at the time showing that the Burke investors would lose their investments of at least $500,000 and their hope of permanent U.S. residency through the federal EB-5 visa program as a result of the fraud. 

Despite a mounting body of evidence, the hold was lifted and the Department of Financial Regulation approved an investor agreement that “did not identify material risks associated with the project that state regulators were already aware of,” the defense attorneys wrote. “One of these regulators later revealed to federal investigators that this crucial decision “was ‘academic’ because (state regulators) knew (AnC Bio VT’s developers) would never be able to spend new money.” 

Stenger’s lawyers say the state also sought to cover up its own role in the scandal. The commerce agency knew about the questionable financial transactions at AnC Bio as early as June 2014, but still permitted the fraud to continue until April 2016. That’s when the U.S. Securities and Exchange Commission stopped the music.

Shumlin, reached Wednesday, declined to comment, saying he wouldn’t do so until litigation in the matter was complete.



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