Would the Sharks Invest in Jay Peak?

A Tale of EB5 Investment Fraud?

Jay Peak is under investigation as the latest EB-5 fraud in Vermont. The EB-5 Program (or Immigrant Investor Program) encourages entrepreneurs to become permanent residents by investing in U.S.

Jay Peak CEO Bill Stenger

The annual cap of 10,000 was first reached in August 2013, thereby extending the queue to two or three years. This makes the possibility of losing a visa even more detrimental, especially for those hoping to get dependent visas for their kids before their 21st birthday. Therefore, evaluating EB-5 qualified projects to pour your life’s saving into is exceptionally important. The complaint filed by the Securities and Exchange Commission described how the Jay Peak owner, Ariel Quiros, and CEO, Bill Stenger, funneled and misused a majority of the investor funds. Would Jay Peak have gotten any offer from the Sharks?

1. What are your sales?

Depends on whom (and when) you ask!

More often than not, this is the first and most important question that the Sharks ask. Investors are interested in knowing whether the business is profitable so that they can get their money back. Specifically, if there is a dip in trends, the Sharks will want to be reassured with understanding the cause of the drop and possible strategies to increase sales.

On the contrary, Jay Peak’s lack of clarity in its financial standings seems alarming. In September 2015, Quiros made multiple obscure claims of Jay Peak’s pretax profit, ranging from $8 million to $13 million. However, Michael Goldberg, a federally appointed receiver, stated the profits to be much lower. Jay Peak’s pretax profits were $2.6 million for FY 2014, $3 million for fiscal year 2015, and through February 2016 appeared to be on track for $1.8 million for FY 2016.

2. What are you going to bring to the table?

Jay Peak projects create jobs and help EB-5 investors gain permanent residency.

Capable entrepreneurs are key to obtaining investments. The Sharks do not only base their investment decisions on businesses, but the entrepreneurs as well. Most of the time, they choose to take a gamble on the entrepreneur because of their personal motivations, experiences, or successes. The investors need to be able to trust their money with the entrepreneurs.

Notably, Quiros and Stenger earned a positive reputation in the investor community with their prior successes. As of July 2014, all “six EB-5 projects…have been substantially completed…evidence of job creation approved by federal overseers, and permanent residency obtained.” Additionally, the growth of Jay Peak was deemed to be the driver for the exponential increase of jobs in the Orleans County versus other counties. Therefore, the state senator supported Quiros as an advocate for the EB-5 program, even when Jay Peak converted $17.5 million in equity to unsecured, five-year loans without notifying the investors. While Quiros admitted that they have mishandled communicating this change, they insisted on the decision to be ethical.

3. Why do you have to have our money?

To pay off my income taxes and buy luxurious condos!

The Sharks typically want to know how the entrepreneurs plan to spend the requested funds. This helps to give them a gauge of their most immediate expansion plan, whether it is for more equipment, inventory, or personnel. The least favorable answer is simply to appropriate the funds as salaries for the entrepreneurs themselves. Despite the hardships that the entrepreneurs might be experiencing, it is more enticing to the Sharks when the funds are to be fully invested to grow the business.

In contrast, Jay Peak owner and CEO prioritized personal expenses over investing in projects. About $50 million were deceptively used for Quiros’s personal expenses, such as purchasing condos and paying his income taxes. A total of $200 million was misused, including paying for earlier project deficits. Even though each investment was promised to specific projects, Quiros and Stenger would divert part of these funds to their personal accounts. Thereby, leaving insufficient funds for the actual development projects. This lag in construction could also jeopardize EB-5 investors’ petitions for permanent residence.

Deal or No Deal?

Unfortunately, it doesn’t seem like Jay Peak would have gotten any offers from the Sharks. Quiros and Stenger might have started off intending to advocate for the EB-5 investors and create jobs in their community. Instead, they weren’t able to resist the urge to fraudulently use the funds for personal gains. Regrettably, their misconduct not only negatively impacts the families of EB-5 investors, but also those in the local community as well.

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