As Mike Pieciak’s political star rises, his role regulating EB-5 projects looms in the background

As he campaigns to become Vermont’s next state treasurer, Mike Pieciak has faced few political obstacles. Not a single fellow Democrat challenged him for his party’s nomination — and in the general election, his sole opponent is perennial Republican nominee H. Brooke Paige. 

But as he glides toward statewide office — and is eyed as a future candidate for even higher office — Pieciak must still reckon with a hefty piece of political baggage: his role regulating the Northeast Kingdom EB-5 projects that became the largest fraud in the state’s history.

In the years before federal regulators swooped in and shut down the development projects based around Jay Peak Resort, Pieciak was serving as deputy commissioner of the state Department of Financial Regulation. 

By some accounts, he played a key role in untangling a complex fraud that the feds later referred to as a “Ponzi-like scheme.” But according to his critics, Pieciak’s failure to take quick action cost foreign investors hundreds of millions of dollars and left them without the green cards, or permanent U.S. residency, they were seeking through their investments.

“I think one of two things happened,” said Paul Dame, chair of the Vermont Republican Party. “He knew something and he just swept it under the rug, or the state didn’t do a good enough job asking questions.”

Pieciak, who defends his actions as deputy commissioner, said in an interview that the issue that thrust him into the spotlight eight years ago rarely comes up on the campaign trail. 

“I don’t hear anybody talking about it,” he said, adding that he has campaigned in more than 150 towns. “It’s not something I hear.”

Former Gov. Peter Shumlin, whose administration brought Pieciak on board in 2014, dismissed claims that Pieciak’s role in the EB-5 saga could be a political liability.

“Anybody who listens to facts will conclude it is another example why he should have a gold medal for public service,” Shumlin told VTDigger. “Without Mike Pieciak, justice may not have been served.”

The assignment

Born and raised in Brattleboro, Pieciak cut his teeth at the New York City law firm Skadden, Arps, Slate, Meagher & Flom, as well as Vermont’s Downs Rachlin Martin. He had an early interest in politics, serving as a page to Gov. Howard Dean and interning for U.S. Sen. Patrick Leahy, D-Vt. In 2012, he managed then-Attorney General Bill Sorrell’s reelection campaign, helping to ward off a tough challenge from fellow Democrat TJ Donovan. 

In 2014, Shumlin appointed Pieciak deputy commissioner of the state’s Department of Financial Regulation, where he would oversee its securities division. 

By then, Jay Peak Resort owner Ariel Quiros and president Bill Stenger had spent years raising money through the federal EB-5 investor visa program to fund a series of economic development projects throughout the Northeast Kingdom. Foreign investors poured $500,000 apiece into the projects in hopes of obtaining green cards, provided their investment met job creation requirements. 

The developers were viewed at the time as saviors of an economically deprived region. In his 2013 inaugural address, Shumlin said that Stenger and Quiros “continue to shine a beacon of hope, opportunity and future prosperity” on the Northeast Kingdom. Two years before that, the Vermont Chamber of Commerce had named Stenger its “citizen of the year.”

The state played an unusual role in Vermont’s private-sector EB-5 projects. Its Agency of Commerce and Community Development operated a regional center charged with promoting the projects — but the arrangement led some would-be investors to believe that the developments had the state’s seal of approval and full oversight. Adding to that perception, Shumlin and his predecessor, Gov. Jim Douglas, as well as Leahy, all traveled abroad to promote Vermont’s EB-5 projects. 

But after investors and news organizations began to raise questions about the Northeast Kingdom developments, the Shumlin administration in late 2014 shifted oversight responsibilities from the commerce agency to the Department of Financial Regulation. 

Pieciak had worked for the department for a little less than a year when, in 2015, he was called on to lead an investigation of the projects — an assignment that crossed financial and political worlds. The scope of the assignment, he recently recalled, did not strike him as overwhelming, even if the politics were dicey. 

“When I left New York City, the last deal I worked on was a half-billion dollar transaction,” Pieciak told VTDigger. “When you look at the global financial marketplace, it’s not something that you say, ‘Wow, this is unparalleled to any type of activity anywhere in the world.’”

As part of the investigation, Pieciak and his team subpoenaed financial records related to the projects headed by Quiros and Stenger. The documents they obtained in early 2015 showed that Quiros had illegally purchased Jay Peak Resort in 2008 using investor funds earmarked for construction of a lodge. A financial statement the investigators obtained showed that $9.8 million had been moved out of an escrow account at Jay Peak Resort and into Quiros’ margin loan account. 

When Pieciak’s team asked about the transfer, he recalled, “the answer was not really satisfactory.” That, Pieciak said, became “somewhat of a red flag for me.” 

Over time, Pieciak helped develop what would become known as the “spaghetti map,” a visual representation of the developers’ apparent misappropriation of funds. Prosecutors would later allege that Quiros had raided money raised through the EB-5 program for personal use and to backfill other projects. 

Pieciak in the summer 2015 made a PowerPoint presentation to Shumlin and other top officials demonstrating how the developers had illegally commingled funds. 

“We went through it methodically,” Pieciak recalled. “I remember (Shumlin) and his team being very, sort of surprised, and, you know, just sort of overwhelmed really with the evidence of specific examples of misuse that we have pulled out — and maybe ‘shocked’ is a good word.”

When the presentation was complete, Pieciak said, the governor asked to see it again in a week “because there was so much there to digest.”

‘I had reservations’

Despite all the evidence Pieciak’s team collected, the state opted against shutting down the Northeast Kingdom developments. It would take about another nine months before the federal government stepped in to seize the properties and accuse the developers of fraud. 

Investors have since alleged that Pieciak and other state officials failed to take action and alert the public of what they had uncovered. They say the delay allowed the developers to continue raking in funds from unsuspecting foreign investors in a separate project at Burke Mountain Hotel and Conference Center.

Though the state had suspended the developers from raising money for the Burke project and a proposed biomedical facility in Newport in 2014, Shumlin and his top staffers pressured the Department of Financial Regulation in 2015 to lift the suspensions, then-Secretary of Commerce Pat Moulton later told the FBI. 

At one point, in April 2015, Pieciak’s boss at the time, Commissioner of Financial Regulation Susan Donegan, threatened to resign if the administration failed to protect new investors in the Burke and Newport projects, Donegan told the FBI. Her department ultimately lifted the suspensions and put new investor money into escrow. 

Pieciak told VTDigger in a recent interview that he disagreed with the decision to lift the Burke suspension. “I personally had — just my own personal standpoint — had some reservations about that,” he said.

According to Pieciak, he was not concerned that the Burke projects were themselves fraudulent. “But it’s still the same project developers — you know, it’s still Ariel Quiros, Bill Stenger and such,” he said. “And at this time, you know, we’re building our case for the other projects, and things are starting to not look so good in their favor.” 

He added, “You’re just going to end up getting a situation where you’re working with these people that you can’t really trust, because they seem to have had some significant issues in their other seven projects. So I had reservations about it. I think others did.”

Pieciak said that disagreement gave him pause about remaining in his post.

“You consider whether you’re continuing to bring value to the job that you’re holding, right?” Pieciak said. “So that’s something that you think about, maybe even somewhat regularly: Am I out of step with the leadership or the administration, or what if I lost the confidence of them?”

Pieciak said he ultimately felt it would have been a “dereliction of duty” to resign at that point since he was the one leading the state’s investigation. Plus, he said, the decision to lift or uphold the suspensions was not his to make. That was up to his boss, Donegan, and Shumlin.

Asked if he wished he had spoken out publicly at the time, Pieciak replied, ”I don’t know if it really would have done much good to try to raise those concerns even more loudly, because it might not have been the right decision, what I was advocating for.”

Donegan declined to comment for this story.

According to Shumlin, it was he who ultimately made the decision. It was better for all involved, he reasoned, for the Burke project to be completed rather than left unfinished. 

“As with anything that’s complicated, we had to consider all of the factors and, you know, I too was concerned about whether it was better or worse for the investors to complete the project,” Shumlin said. “But, we made the determination in the end it was better to complete it.” 

Asked if he recalled Pieciak raising the opposite view, Shumlin said, “I have no memory of that, but I can tell that Mike speaks his mind, and he’s as honest as the day is long. And if that’s what he said he said — he said it.” (The former governor is backing Pieciak’s bid for state treasurer and contributed $2,500 from a past campaign fund to his former deputy commissioner’s campaign.)

About nine months after Shumlin called on his staff to lift the suspension of raising funds at Burke, in April 2016, federal and state regulators brought civil enforcement actions against both Quiros and Stenger, with the U.S. Securities and Exchange Commission accusing the two men of dozens of counts of civil fraud.

Those enforcement actions led to the shutdown of the ongoing EB-5 financed projects headed by Quiros and Stenger, including the one at Burke, all of which ended up under the court-appointed receivership of Michael Goldberg. 

The scandal eventually landed Quiros, Stenger and a former business partner of the two men, William Kelly, behind bars for their roles in a collapsed proposal to build the $110 million biomedical research center, known as AnC Bio Vermont, in Newport. Federal regulators termed that project “nearly a complete fraud.”

Case targeting Pieciak tossed, appeal pending

Pieciak, along with a host of other current and former state officials and employees, has been named as a defendant in civil lawsuits brought by defrauded investors. One case remains pending in state court, though Pieciak is no longer a defendant. A federal judge threw out another one last month, though it is now on appeal.

Russell Barr, a Stowe attorney who represents a group of Burke investors in his lawsuit against the state, takes aim at several state officials and employees, including Pieciak.

The lawsuit filed last year in federal court alleged that the state was aware of the fraud and the commingling of funds by the developers but kept that information from the public and investors for more than a year — and then sought to cover its tracks. 

One of the more explosive accusations pointed to a state coverup. The lawsuit alleged that about 10 days before the SEC brought its enforcement action in April 2016, Pieciak drafted two affidavits for the state’s own civil complaint against the project developers. 

One affidavit, referred to in an email from Department of Financial Regulation general counsel David Casserty as the “robust” one, included accusations related to the misappropriation of funds at Burke, the lawsuit stated. A second affidavit, according to the lawsuit, omitted that information and allegations that connected that project to the fraud at Jay Peak.

According to Pieciak, he doesn’t remember drafting either affidavit and didn’t see them. 

“I don’t even know who drafted them,” he said. “I wasn’t planning to sign them. They were unsigned. They were not signed affidavits. They were drafts that were being discussed.”

Federal Judge Geoffrey Crawford, in his ruling last month, dismissed the case against the state and all of the defendants, including Pieciak. The judge wrote that Pieciak was entitled to qualified immunity, shielding him from the lawsuit because he was acting in the course of his employment and was “performing discretionary acts in good faith” within his authority.

“As this case demonstrates,” the judge added, “fraud by trusted individuals requires financial regulators and other state officials to make decisions in the midst of a complex investigation. Immunity doctrine exists because these decisions are difficult and because a decision that harms someone should not lead to personal financial ruin for the official charged with making these decisions in real time and without the benefit of hindsight.”

Barr has appealed Crawford’s ruling to the U.S. 2nd Circuit Court of Appeals. According to Barr, the judge dismissed the lawsuit mainly on technical grounds, without speaking to the merits of the allegations.

As for Pieciak’s run for treasurer or any office in the future, Barr sees EB-5 as a liability. “I personally cannot trust Mike Pieciak,” Barr said, because of “what he’s done to hundreds of investors.”

Pieciak, referring to the allegations raised in the lawsuit, said, “It’s been thrown out of court, and I think that speaks for itself.”

‘I don’t worry about it’

Pieciak said in the recent interview he didn’t expect his role in the investigation of a scandal that rocked Vermont to prove a liability for him should he run for higher office in the future.

“I don’t worry about it,” he said. “It would have been a much, much worse outcome had our department and my division and my efforts not been put to bear in this case.”

For Pieciak to face political consequences over the matter, it would likely take an opponent effectively raising the issue — and making the case that Pieciak had erred in his handling of it. So far, his Republican opponent appears to have failed to do so. 

In an interview earlier this month, Paige said the EB-5 scandal raised serious questions about Pieciak’s fitness for office. 

“I think the biggest concern is what he found out was going on and what he did about it,” Paige said. “It is my understanding that he came on board at the request of Gov. Shumlin and, in my understanding, that he was brought in there to minimize the damage to Mr. Shumlin’s reputation.” 

Shumlin freely acknowledged that the two were familiar with one another due to their shared Windham County roots, but he disputed that his administration hired Pieciak to engage in damage control. He noted that Pieciak came onboard a year before the investigation even started. 

“I knew Mike Pieciak from when he was a kid, so he was no stranger to me,” Shumlin said. “When I heard Mike Pieciak was interested, I was like, ‘Grab him. He’s as smart as they come.'”

Though Paige told VTDigger that he planned to make his opponent’s role in the EB-5 saga a part of his argument at a forum this week hosted by Burlington’s Channel 17/Town Meeting TV, he ended up largely avoiding the subject. He spoke generally about the EB-5 program and his belief that the projects’ backers had painted a rosier picture than reality, but he did not take a swing at Pieciak over the latter’s role in the investigation. 

When given the opportunity to ask Pieciak a direct question, Paige opted to focus on his opponent’s role in the state’s response to Covid-19 — not EB-5.

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