The Deeper Dig: From biotech ‘dream’ to federal court

Bill Stenger: I’m very, very excited to welcome you all today…

Anne Galloway: In spring of 2015, it was May actually, when they held this press conference. I remember it was a really bright sunny day, after a long winter, there was grass.

Bill Stenger: …for the groundbreaking for AnC Bio Vermont.

Galloway: Bill Stenger was there with Ariel Quiros, and with a number of individuals who were involved with a company called NNE Pharma. Bill Kelly was there, who was counsel for Quiros.

Our editor, Anne Galloway, covered this event, just after publishing an exposé on the project these developers were promoting.

Galloway: And there were very few state officials present. I remember being kind of shocked that Governor Shumlin wasn’t there, that Senator Patrick Leahy hadn’t sent anyone.

Stenger: You might notice that the local representatives and senators and our governor are not here today.

Galloway: And the reason I was surprised by that was because in the past, events that were associated with the EB-5 program at Jay Peak typically meant a lot of state presence.

Did you have suspicions of why they weren’t there that day?

Galloway: Yes. They said they were too busy, you know, and it happened to take place at the end of the legislative session that year.

Stenger: They’re under the golden dome, focused, I suspect, on taxes. And cutting them, at least is what I hope they’re doing.

Galloway: Secretary of the Agency of Commerce Pat Moulton wasn’t there, Susan Donegan from the Department of Financial Regulation wasn’t there. And I think there was a sense that state officials were trying to distance themselves from Bill Stenger and Ariel Quiros.

Why?

Galloway: Well, because it seemed pretty obvious from my research at that point that the project was completely fraudulent. They were talking about stem cell research, they were going to manufacture artificial organs.

Stenger: We’re very proud of the medical devices we will be creating, very proud of the stem cell technologies that are going to be developed and distributed.

Galloway: They were going to have white rooms, clean rooms available for labs, and so on.

Stenger: We have three distinctive business lines, all of which are going to be successful.

Galloway: And in my research, I found that they hadn’t obtained the patents and FDA approval they needed for all these potential activities at the biomedical facility, so it just never seemed plausible to me.

And there was a lot of self dealing involved. They had decided to take $50 million in investor funds right away to pay off distribution rights and technology rights to AnC Bio Korea, which was a fraudulent project in South Korea that — Alex Choi, who is a distant relative of Quiros’s wife — and the Korean government had gone after him. And I had reported some of that in the original story in 2015.

So you’ve reported this stuff already, but you’re there at this press conference, just covering it, taking pictures, taking notes. Did you have any interaction with the people about what you knew and what was out in the open?

Galloway: Well, sure. I asked lots of questions. And they seemed embarrassed and didn’t have good answers for some of the things I asked. But I remember the sense of like, heightened anticipation because I honestly wasn’t sure — it kind of shocked me they were having the press conference. And to me it seemed like emblematic of their hubris around AnC Bio.

Judge John Conroy: Ariel Quiros would you please stand sir? Am I pronouncing your last name correctly?

Quiros: KEE and ros — Quiros.

Conroy: Mr. Quiros, OK.

In 2016, Anne’s reporting was corroborated when the Securities and Exchange Commission filed civil charges against the developers. But there had been no criminal charges in the case until last week.

Conroy: Mr. Quiros, you are here today in the United States District Court for the District of Vermont because the federal grand jury has returned an indictment, which is a formal accusation, accusing you of having committed various federal offenses.

Galloway: I am not a court reporter. So I’m always kind of entranced by the drama of the courtroom and the formality of it. And so you know, you had the Magistrate Judge Conroy presiding.

Conroy: Good afternoon, Mr. Stenger, would you please stand, sir?

Galloway: When Bill Stenger came in —

Conroy: Mr. Stenger, you’re here today in the United States District Court for the District of Vermont…

Galloway: He originally, when he walked into the courthouse, he was wearing a sports coat and was not making eye contact. He refused to speak to the reporters who gathered around him to find if he would give them comment. And he went up the elevator. I happened to go up right before he did. He waited in an anteroom until he was called. But when he came in, he was actually wearing handcuffs. They had handcuffed him before he went into the courtroom. And that was kind of shocking. You know, he had to turn around to have the handcuffs taken off so that he could sit comfortably with his defense attorney and listen to what the magistrate had to say.

Conroy: Mr. Stenger, do you understand you’ve now taken an oath to tell the truth and that if you were to make a false statement here today, you could be charged with the crime of perjury.

Stenger: Yes, sir.

Conroy: Would you begin by telling me your full name please.

Stenger: William Joseph Stenger.

Conroy: And how are you sir?

Stenger: 70 years old.

Galloway: At that point, Judge Conroy said that Mr. Stenger would be held under $100,000 bond. He had to surrender his passport, that he couldn’t travel outside the country, and then if he spoke to any witnesses, he could get into very big trouble.

Conroy: Mr. Stenger, it is a crime punishable by up to 10 years in prison and up to a $250,000 fine or both to obstruct a criminal investigation. To tamper with a witness, victim, informant, to retaliate or attempt to retaliate against a witness, victim or informant.

Galloway: It was a very serious set of exchanges between the judge and Bill Stenger.

Why is it so significant that he’s handcuffed on Wednesday? Why was that shocking?

Galloway: Well, I think because Bill Stenger has so vociferously maintained his innocence all along. And so symbolically that punctured that particular narrative. I mean, of course, he’s innocent until proven guilty, but all along, he said I didn’t do anything wrong. Quiros has been kind of blamed as the mastermind and you know, the real evil one, who was behind the scenes making all this happen. Stenger has blamed Quiros all along.

He was the good guy. He was just trying to help the Northeast Kingdom and you know, he’s the friend of Senator Patrick Leahy, he’s the friend of Governor Peter Shumlin. He’s trying to create jobs. He’s the kind of Robin Hood of the Northeast Kingdom. And so for him to be presented in court that way was a little shocking.

Stenger [in 2015]: Community-wide economic development is like a puzzle. And everyone plays a role in the puzzle. As then as the pieces of the puzzle come together, a picture is created. This facility is going to be a remarkable technology facility.

Galloway: To give you an idea of how kind of legendary Bill Stenger is in the Northeast Kingdom, for years on the town offices door in Newport, they had a ‘Thank you, Bill Stenger’ sign. You know, he was lauded by people in the Northeast Kingdom. He won the Man of the Year Award in 2011 for the Vermont Chamber of Commerce. He was thought of as a real hero in the state. And consequently, his appearance in court last week was a real shock.

U.S. Attorney Christina Nolan: Well, good afternoon, everyone. Thank you all for coming here today.

On the same day as the arraignments, U.S. Attorney Christina Nolan held a press conference in Newport to describe the federal charges around AnC Bio Vermont.

Nolan: Specifically, the federal grand jury has returned a series of wire fraud, money laundering and false statement counts against four defendants: Ariel Quiros of Florida, William Kelly of Florida, Jong Weon Choi, also known as Alex Choi, of South Korea, and William Stenger of Vermont.

The indictment states that all four men, including Stenger, conspired to defraud investors in the project.

Nolan: The AnC Vermont project was not in fact designed to create the number of jobs or the amount of revenue for the Northeast Kingdom that the defendants claimed. Rather, the project was designed to siphon millions of dollars to the control of Quiros and Choi, who were secretly business partners, and in charge of the project.

Galloway: One of the most interesting facts that came out of it that I was not able to key into at the time in 2015, was that they had a meeting in Korea in which they decided how to divvy up the money that they were going to get from those technology and distribution rights I was telling you about.

Nolan: In 2011, Quiros, Choi and Kelly worked together to decide how much money to take from immigrant investors, and how much to divert to Quiros and Choi.

Galloway: Each person got so many millions, and most of it went to Alex Choi. Ariel Quiros got the second largest share, Bill Kelly was supposed to get 4 or 5 million, and Bill Stenger, who has said repeatedly that he had no financial interest in AnC Bio or other projects associated with the Jay Peak fraud, was going to get a million dollars out of this particular pool of money from investors in the AnC Bio project. So that kind of surprised me, because Stenger has maintained his complete innocence all along. And this seemed like a really clear instance in which he was going to make out financially on the project.

Stenger All of the efforts that we as a company have undertaken over the last half dozen plus years, has been directed at meeting the needs and development of our community. As I said, many of these positions and jobs have been in the hospitality world. This is a technology world that we are embracing now.

What was your first thought when you heard that there was a biotech campus that was going to be part of this whole suite of EB-5 projects?

Galloway: Well, it didn’t fit with the rest of the projects that they had been involved in. The Northeast Kingdom Development Initiative, as it was called, really started with Jay Peak. And that itself was a $250 million prospect, all of it paid for with EB-5 investment funds. And then it made sense, actually, that they wanted to buy Burke Mountain and to make improvements there. They also wanted to build an office complex in downtown Newport, a hotel and conference center and marina, all of those projects seemed kind of similar in a way — they were about bringing tourists to the Northeast Kingdom.

The AnC Bio facility was quite different in that it was a technical project, it was a biomedical facility that required a highly sophisticated group of employees to run.

Stenger: I’ve been asked many times, what kind of jobs will there be? Where will people come from? Well, we’ve consistently shared that about a third of them will be manufacturing and operation. Another third will be technology that will require some degree of certification. And another third will represent high-end Master’s and Ph.D.-level personnel. A wide range of technology backgrounds, high-quality jobs, year-round, with families, children, school system involvement, healthcare needs, real economic energy that will inject a tremendous outcome for our community.

Galloway: And we’re talking about a town, Newport, that’s on the Canadian border that’s very, very far away from a university or a large-scale hospital or medical facility of any kind. I mean Newport is kind of isolated. It’s a small, small town in a county of about 60,000 residents. And it seemed implausible to me that they were going to be able to get the professors and medical experts that they needed to do the work there.

The other thing that really stood out was that when they had public hearings about AnC Bio, there were people in the community who knew back then that this was kind of far fetched. I mean, the idea of having an artificial organ factory in Newport just seemed absurd to people and they weren’t able to say where these artificial organs had been tested anywhere. They weren’t able to really show that they had a tenant for the clean rooms. It always seemed kind of odd.

When did you first start to get evidence that kind of backed up the suspicion that something wasn’t as advertised there?

Galloway: I started to hear about and AnC Bio from Tony Sutton, who was the Tram Haus investor who provided me with documents over time to back up a number of the stories that I wrote about financial improprieties at Jay Peak.

I also received records from the state. The Agency of Commerce and Community Development became concerned AnC bio in May of 2014, when the ANC Bio Korea facility was sold at auction to the Korean bank that had originally floated the loans for that property. The state finally kind of figured out that there was something really wrong there. About eight or nine months later, they provided me with records that showed that they were asking some tough questions about what was happening there.

Unbeknownst to me, though, until I received those documents, I had no idea that the state had suspended the memorandum of understanding that allowed the developers to go out and solicit new investors. I didn’t know about that suspension in 2014 until I wrote a story about AnC Bio in March of 2015. A few weeks later, Governor Peter Shumlin told Susan Donegan, the head of the Department of Financial Regulation, that she needed to partially approve the AnC Bio project. So that allowed the developers to go ahead and solicit more investors at that point, which I always thought was really strange.

Stenger: AnC Bio Vermont is the first of the Northeast Kingdom Economic Development initiative to be launched. All in all, 220 investors will be welcomed to the AnC Bio Vermont EB-5 project.

Galloway: Bill Stenger was traveling all over the world right up until the end of March 2016. Two weeks before the SEC brought charges, he was in Johannesburg trying to pitch the AnC Bio project to investors there. And there were a few people that signed up, and they got caught in the fraud.

In December 2016, Anne traveled to South Korea to look into Alex Choi’s operation there.

Galloway: I wanted to see whether there was any activity at the factory in Pyeongtaek. It’s a kind of steel and glass stone structure. You know, it looks like something you’d see in any office park in America. There was a big parking lot next to it. I had a translator with me. And we went to interview the real estate firm that was involved in leasing the property at one point and the couple at the real estate firm said, ‘well, you know, it never seemed like there was any activity at the factory, the parking lot was empty. There weren’t any really employees there. We always thought it was kind of dubious,’ you know. And I went to the factory and I interviewed someone who was there, and there were some kind of leftovers from the original facility. It turns out that Alex Choi never really intended to fulfill his promises to foreign investors in Korea.

Promotional video: AnC Bio will make endless progress with lofty missions of a biomedical company. We, AnC Bio, will make your dream come true.

Galloway: There was an office in Seoul that I went to visit, and that was even stranger than the factory. There was still a lot of AnC Bio paraphernalia and kind of signage on the building. But that was even emptier than the facility in Pyeongtaek.

Did you see kind of what you’d hoped to see you there? Like, did you get the information you were hoping to get by traveling across the world?

Galloway: I did. I had an opportunity to work with a young man who had done quite a bit of research into the business files that were in the prosecutor’s office there in Korea. He was able to help me understand the complexity of the businesses that Alex Choi owned and how they related to AnC Bio Korea.

Basically, it was a shell game, similar to some of the companies that Ariel Quiros had with Jay Peak. Alex Choi had four or five different companies that he was moving money around in. There were weird buyouts, weird acquisitions, weird transfers of funds. And in the end, according to the indictment, Alex Choi ended up spending some time in jail. It was hard for me to tell at the time.

He’s at large now. No one knows where he is. That’s why he wasn’t in Burlington last week for the indictment.

Nolan: The second charges Quiros, Choi and Kelly with concealing the fact that Choi was being investigated and prosecuted in Korea for how he ran AnC Korea, including the fact that Choi was in jail for parts of 2013 in Korea, and for most of 2014, in Korea.

And it was interesting too in the indictment to see that basically, they characterize the AnC Bio Vermont project, as — I think she called it a carbon copy of the Korea project. The implication being that the Vermont project was just as fraudulent as everything you just described.

Galloway: Yeah, that’s right. Not to mention the fact that in order to make it work in Vermont, they would’ve had to have made significant design changes. And in the indictment, she explains that those design changes were never made. So they didn’t even update the drawings for the Vermont project. And this was early on. This was in 2012, 2013, when they knew they were going to have to really adapt the facility for the Vermont climate and so on.

Beyond that specific new information, what’s the broader significance of there being criminal charges in this case at all?

Galloway: Well, I long wondered whether or not criminal charges would be brought. In other EB-5 cases around the country, that has been part of what happens when EB-5 fraud charges by the SEC are brought: the civil suit’s usually followed quickly followed by criminal charges.

For example, in a case involving a proposed Chicago convention center, the developer in that project was first charged by the SEC. And pretty soon after ,within 18 months, he was criminally charged, and he was sentenced a few years after that for some time in jail.

So I was surprised that it took three years for the charges to be filed. And in point of fact, Christina Nolan said that they started the investigation in 2015. That predates her tenure as U.S. Attorney. But Paul Van De Graaf, who has been a longtime prosecutor for the U.S. Attorney’s Office, must have been working on it from about the time the state got involved in investigation, and we had written an exposé that year sometime he also got involved in pursuing a criminal investigation.

Your reporting from back then, the civil charges, and now the criminal charges, all seem to kind of corroborate each other. But like you said, all the defendants here are innocent until proven guilty. What happens next in this case, what are we expecting?

Galloway: Over the next three months, the defense attorneys will be compiling information for their response to the indictments. The deadline for that is near the end of August. And then at that point, I think we’ll have a better idea of what happens with the cases going forward.

It’s possible that the defendants could attempt to settle in the meantime with prosecutors, or they may go to trial. Ariel Quiros’s attorney, Seth Levine, has said, ‘look, you know, we’re going to do everything we can to protect our client.’ And if that means essentially releasing records that could be completely exculpatory, you know, that could have a real bearing on how this case proceeds. He made thinly veiled references to the arguments that Melissa Visconti, Quiros’s attorney, had made in civil court regarding the state’s quote unquote, unclean hands, in which she argued that state officials should have known what was going on with the Jay Peak projects early on, and they essentially allowed Ariel Quiros to commit fraud and engaged in a kind of cover up.

With AnC Bio, that’ll be an interesting argument to make, because the state really didn’t have a clear sense of what was going on until late, late, late 2013, early 2014 perhaps, they started asking questions. That was a few months too late for governor Peter Shumlin, who, in a video that was translated into Chinese and distributed around the world, the governor said, ‘look, all of the projects have been audited by the state. We, you know, back what the developers and Vermont are doing.’ That statement, which he claims was a mistake, really could put them in a little bit of hot water on this and certainly puts the state in an uncomfortable position.

Got it. Thanks, Anne.

Galloway: Thank you.