Michael Goldberg, left, Gov. Peter Shumlin and Patricia Moulton, the secretary of the Agency of Commerce and Community Development, at a press conference at Jay Peak Resort. Photo by Anne Galloway/VTDigger
Jay Peak Resort has enough money to operate through the off-season, according to Michael Goldberg.
“I can guarantee we have enough money to fund the operations, to pay the employees,” Goldberg told reporters at a press conference with state officials on Wednesday. He also said Burke Mountain has a potential buyer. Both ski areas are in federal receivership.
That declaration was an about-face from earlier statements made to the U.S. District Court in Miami. Last Friday, in a deposition, Goldberg, the court-appointed receiver who is managing affairs at Jay Peak, painted a dire financial picture for the resort. He told a federal court judge the ski area had “insufficient cash” in company accounts to meet operational costs in the lean summer and fall months.
Ariel Quiros, the former owner of the Jay Peak and Burke Mountain resorts, and Bill Stenger, the former CEO of Jay Peak, have been accused by federal regulators of misusing $200 million in EB-5 immigrant investor funds in a development scheme. The Securities and Exchange Commission seized all of Quiros’ assets on April 12.
Quiros sought to have the asset freeze lifted in a federal court hearing in Miami on Monday. Judge Darrin Gayles decided to continue the freeze through May 9.
Goldberg told the court that “overall the hotel is profitable,” but Jay Peak has had a tough time staying on top of costs for day-to-day costs, the ski area owes hundreds of vendors, the tramway system needs to be repaired and a sewage treatment system was not built.
In addition, Stenger and Quiros did not complete construction of townhomes for the Stateside project at Jay Peak and an athletic center at Burke Mountain. A biotech center in Newport, which was deemed “nearly a complete fraud” by the SEC, will never be built. As a result, the immigration status of several hundred immigrant EB-5 investors in the projects who put up $500,000 each in exchange for residency in the United States, is in jeopardy. Goldberg is also handling the eventual payout for an additional 500 immigrant investors who backed projects at Jay Peak.
In remarks to the press on Wednesday, just two days after he told the court there wasn’t enough money to keep Jay Peak going and that Burke could “go dark,” Goldberg said he was 99.9 percent sure that Jay Peak will remain open because the hotels at the resort are profitable, and he now has enough money to fund operations and pay employees through the lean summer and fall months. Goldberg told reporters he has obtained $6 million in funds to cover operations through the summer and fall. The money comes from bank accounts formerly held by Quiros.
That statement is in sharp contrast to his depiction of resort finances on Monday.
Profits, he said, were overstated by Quiros, and his partner, Bill Stenger, who estimated that Jay Peak made $12 million to $13 million a year. Actual profits have been between $1.6 million and $3 million. A recent appraisal of the property pegged the value at roughly $100 million, significantly less than the $282 million investors contributed to the suite of six projects at the Jay Peak resort. Quiros originally purchased the resort for $20 million.
Goldberg said he wanted to block Quiros’ motion to lift a freeze on seized investor funds. The Miami businessman, through his attorney, told the judge that he needed hundreds of thousands of dollars to pay personal and business expenses ($87,000 a month) and to foot legal and accounting bills ($225,000 a month).
“We were basically saying to the judge we need all the money we have available to operate the hotel and keep it open and then if you would give it to him that may be a cash crunch here,” Goldberg said.
Jay Peak now has enough money to cover basic operating expenses at the resort, and Goldberg said he has located cash to fix the tram and they are going to bring in an independent engineer to assess whether it needs repair.
The resort is hiring for the summer and anticipates hosting 65 weddings, dozens of concerts and the annual Porsche Club of America parade in June.
“If need be, we have other funds that are frozen,” Goldberg said. “If need be, we will request the court to take a loan from those funds to fund the operations, but I don’t think that will be a problem. I don’t think we’ll ever get there. I think we will have sufficient cash liquidity to operate the hotel anyway.”
Goldberg said the buildings are assets that make the receivership both more complicated and simpler to address. Many of the immigrant investors are more worried about getting green cards than they are in getting their money back.
“This receivership is not like other receiverships I’ve been involved with,” Goldberg said. “In a typical receivership like this a lot of times I’ll come in and there’ll be nothing, and you have to start scrambling to find out where the money went. Well, it’s pretty obvious where much of the money went here. You have a building, you have an operational hotel that is operating at a profit. Overall it makes money.”
Investors who are worried about the possibility of losing their green cards and eventual deportation have offered to come up with the $20 million needed to finish the half-constructed Stateside condo village. The construction must result in the creation of 10 jobs for every $500,000 in investment under EB-5 rules.
“There are investors in Q Burke and Stateside who actually want to infuse additional funds into the equity into the projects so jobs can be created so they can get their EB-5 visas,” Goldberg said. “They have more concern with getting their EB-5 status than getting their money back.”
The AnC Bio Vermont investors, however, have no asset, and the Burke Mountain project is incomplete. Goldberg said because money from AnC Bio investors was diverted into Jay Peak projects, it’s possible they could get green cards based on the jobs created at the ski resort.
Otherwise, the receiver may have to seek green cards for the immigrant investors through federal legislative action. Goldberg will be meeting soon with Sen. Patrick Leahy, D-Vt., a booster for the EB-5 program and the Jay Peak projects, to talk about the options.
“It’s too early to tell, but Sen. Leahy’s office has reached out to me and we will be meeting shortly,” Goldberg said.
“My goal is to not only maximize the value of the assets, but also to protect those investors,” Goldberg said. “For a lot of them, their primary concern is their EB-5 status and we’ll do what we have to do.”
Gov. Peter Shumlin praised investors who are willing to infuse more cash into the projects.
“The goal here is to do every that we can to protect jobs for Vermonters and protect and help thrive the businesses that were created here in the Northeast Kingdom and to meet the investors’ goals of having the jobs created so that their immigration status will not be jeopardized,” Shumlin said.
“So in a sense, for a change, investors aren’t simply saying liquidate it and get me the most money you can, what they’re saying is please do this in a way that preserves the jobs,” the governor said. “Which is exactly what I’m interested in as governor and what the employees here are so interested in because they want to keep their jobs.”
No one has lost employment as a result of the receivership at Jay Peak, Goldberg said, which employs 500 to 600 people in the summer and fall and 1,200 to 1,300 during the winter ski season. (About 180 workers were laid off at Burke Mountain on April 4 before the SEC seized the resort.)
“When I first got here, it was suggested that we give the employees a message if media comes to you, have a script of what to say or to say, ‘I can’t speak to you,’” Goldberg said. “I said, ‘No, let employees speak directly to the media,’ and if you want these employees to have not been scripted they will tell you that there’s very little difference what they were doing previously than what they’re doing today.”
“It’s business as usual,” Goldberg said. “It’s actually better than usual because the management company Leisure Hotels is making the operation more efficient and we expect that the hotel will thrive.”
Leisure Hotel & Resorts is handling operations at Jay Peak until the resort is eventually sold.
Burke Mountain is also under receivership, and Goldberg said Quiros has been dispossessed of the property, and he is working to find a buyer for the resort. Goldberg is already showing the ski area in East Burke to prospective buyers, he said, and he thought it would be sold in five months to a year.
Meanwhile, the resort will be renamed Burke Mountain, and the “Q” will be scrubbed from marketing materials, letterhead and signage at the resort.
“It’s going to happen in the next week there are so many Qs on that property, every bed has a Q on it,” Goldberg said. “That will be phased out over time but in the marketing materials and main signage you’ll see that change the Q will be dropped.”
The hotel at Burke is complete and that makes the resort an attractive asset, Goldberg said.
“It’s ready to open, there’s grease in the fry cookers, there’s flour in the bins. Everything is brand new and it’s beautiful,” he said. “The alarm clocks are set to the right times in the rooms, there is grease in the fry cooker, the stores are all stocked with equipment, there’s skis, there’s poles, there’s snowboards, there’s helmets ready to be rented. That place can be opened immediately.”
The city of Newport, which was part of Quiros and Stenger’s development scheme, is last on the list. AnC Bio Vermont will not be built and the Bogner plant will remain vacant until the state can find a buyer. The developers tore down a block of Main Street last year to construct an office building that never materialized and the hole in the ground is likely to be an eyesore for years to come.
Shumlin said there is no easy fix for Newport. “So the bottom line is, we are all going to work together to make the best of a bad situation, and the Northeast Kingdom folks are resilient and innovative, and we’ll all work together to do the best we can, but there’s no question that because those weren’t ongoing operating businesses like Jay Peak and about to be Burke, the biggest challenges are the downtown and the former AnC Bio.”
Patricia Moulton, the secretary of the Agency of Commerce and Community Development, painted a rosier scenario.
“One of the things about the hole in the ground is, it is a clean slate,” Moulton said. “The asbestos has been abated, what was apparently a fire hazard has been torn down, so it’s a site ready to go for anyone interested in making an investment in downtown Newport.”
Out-of-state and Canadian companies have expressed interest in the Bogner facility, which Moulton said “presents a great opportunity that now we can start to market.”
Moulton is also bullish about the future of the Vermont EB-5 Regional Center, which she says is the only regional center in the country that has a securities regulator as a partner. Moulton says all other projects in Vermont are in compliance and have been reviewed quarterly. The Jay Peak projects did not undergo compliance reviews until late 2014, eight years after the state approved the first project.
“We are, in fact, continuing to market four other EB-5 projects – Mount Snow, Trapp’s Brewing, Stowe Aviation and Southface Village in Ludlow,” Moulton said. “The projects are ongoing. We have the systems in place now to do the necessary compliance and review so investors can have comfort this kind of fraud would not happen again, and we are doing the necessary quarterly compliance. We’re in a good place as it relates to EB-5.”
Shumlin acknowledged that the Jay Peak fraud case hurts Vermont’s reputation. “No question this has left a bad taste in Vermont’s proverbial mouth,” he said. “You’d have to have no taste buds not to have no taste. Having said that the Vermont regional center continues to have very positive projects.”
Experts have said the alleged Stenger and Quiros fraud case is the biggest in EB-5 history. Goldberg, an attorney with Akerman in Miami, handled the receivership for the Bernie Madoff victims.
When Shumlin was asked if he was worried about being sued for the state’s lax oversight of the Jay Peak projects and his own role in promoting the project in trips overseas and a video in which he told investors the projects were audited, the governor was defensive.
“I’m in no way speculating what lawsuits might happen, I’m sure that every lawyer will try their very best to get a piece of the tragedy here,” Shumlin said. “What I can tell you is, I, like past governors, have been proud to promote Vermont’s EB-5 Regional Center, and whenever I have done a presentation in front of a group of investors, I always started by saying I want to be very clear I cannot endorse any part of the project, I’m not here to endorse the project being outlined here today, I’m here to tell you about Vermont’s EB-5 Center.
“And that’s been my goal and you can always hire a lawyer to sue anybody, but I can’t believe you’d get very far,” he continued.
In response to a question about his use of the word “audited” in a video, Shumlin said, “It’s been well reported in the press that I asked them to correct that word. It was in a free flow of response, and I used a wrong word. At the time it was reported that I used the wrong word we had them [the developers] take it down. They did remove the word. I’m not perfect. Nobody here in this world is perfect I don’t think, but I did use one wrong word when speaking and had it corrected.”
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