Newport, Vt., shaken by 'Ponzi-like' scheme
NEWPORT >> When Mike and Laurie Desautels opened a UPS store in downtown Newport in September, they expected their business to steadily grow.
The Desautelses set up shop in the Main Street storefront adjacent to a razed city block planned to be the future home of the Renaissance Block project, which would include shops, offices and a hotel — one of a slew of development projects in the area spearheaded by Florida investor Ariel Quiros and local businessman Bill Stenger.
"It was a good time to go into business," Mike Desautels said Friday afternoon.
But the couple's faith in the future of their business was shaken last week with the announcement that Quiros and Stenger are facing federal and state civil charges over what regulators described as a "Ponzi-like" scheme.
The news may mean the couple need to reduce their five-person staff by one, Mike Desautels said.
"Now you've got to try to make do with what's here," he said. "And Newport is a poor town, so you've got to work that much harder to try to make your business survive."
In the wake of Thursday's news, Newport locals reacted with a mixture of disappointment, anger and a few I-told-you-sos. But many retained faith that the community will be able to weather the challenges.
The site of the Renaissance Block project is a part of daily life for many locals. A chain link fence, draped with banners promising redevelopment, runs along the southern side of Main Street.
Behind the fence, the sidewalk drops off into the foundations of buildings that are no longer standing. On the far side of the lot stands the one structure that was not razed: a brick chimney that, once upon a time, belonged to a bakery.
In December, 2013, Quiros purchased that entire block in downtown Newport for $2.85 million, which he and Stenger intended to develop with money from foreign investors through the EB-5 visa program.
The two said they planned to plow hundreds of millions of dollars into the block to build a mixed-use development with retail and office space, as well as a hotel that was meant to provide long-term rentals for workers at AnC Bio Vermont, the planned U.S. wing of a Korean biotech company Stenger and Quiros also hoped to bring to Newport.
Stenger and Quiros collected nearly three-quarters of the money to build the $110 million biomedical research center, which was in reality "nearly a complete fraud," according to the Securities and Exchange Commission.
Quiros bought the Renaissance Block property through G.S.I. of Dade County Inc., which is among the companies whose assets were frozen and placed into receivership by a federal judge in Miami last week.
G.S.I. of Dade County is a company Quiros formed in 1994, according to documents filed with the Florida secretary of state. Quiros remains the sole director.
Neither project is likely to be completed anytime soon, because of the asset freeze and the fact that the SEC says "there is little money left" in the AnC Bio accounts for construction, as a result of Stenger and Quiros' alleged misuse of investor funds.
In the meantime, the entire block, which had been home to nine historic buildings and several small businesses, was cleared in March 2015 with state approval, leaving a gaping hole in downtown Newport.
Merry Hamel used to work in a building on that block. Her workplace, which she preferred not to identify in this story, was evicted to make way for the Renaissance Block project. Many people who lived in the apartments there had to relocate too, she said.
Now, the empty lot on Main Street is "disheartening," especially given that many locals worked hard on building up and improving the downtown, Hamel said Friday.
Hamel recalls that the community was told many times over that Stenger and Quiros' projects would bring a tide of jobs and economic growth. That fostered a lot of hope among people looking for stable employment and jobs closer to home, she said.
"I think that the loss of that hope and the disappointment is the biggest impact on this area," Hamel said.
Ultimately, Hamel expects lower- and middle-income residents of the area will feel the brunt of the loss of the projects.
"The people who can come here and ski and use the water park (at Jay Peak resort) can still continue to do that and have fun, and it's not really going to have any kind of negative impact on them," Hamel said. "The people that get hurt the most are the folks that are already struggling."
Brenda Simons, who grew up in Newport, considers the situation "a total disaster."
Simons opposed the proposal for the Renaissance Block long before the news broke last week — largely, she said, because she did not see the development as being accessible to locals who likely could not afford the services there.
In the meantime, she is disappointed by what the downtown area has become.
"I don't see any reason why anybody would even come here anymore," Simons said, citing a lack of shops and restaurants downtown.
Seeing beyond the latest blow
Manfred Rieder, a working artist who spent Friday afternoon volunteering at the MAC Center for the Arts on Main Street, said he predicted more than two years ago that Stenger and Quiros' projects would collapse.
"I see a Ponzi scheme and I smell one," Rieder said.
Rieder said he feels bad for people who invested money in the projects, but he does not think Newport will be much worse off.
The jobs at the AnC Bio facility were unlikely to go to locals in the long run, he said, and many of the positions at the nearby ski resort would have been part-time and seasonal.
Though not a fan of the fenced-off hole in the center of town, he does not see it as a bad thing. Many of the buildings on that block needed to be taken down anyway, he said, and he likes the prospect of converting the lot into a park, which the developers are required to do if they don't start construction on the project by Sept. 1, 2017.
Steve Mason, a consultant based in town, was born in Newport. He returned 10 years ago after spending more than three decades away. He said the town is resilient.
"We've been through the death of the small farm. We've been through the death of the railroad," Mason said. "This is just another pebble in the road."
Mason said he was very supportive of the projects. Though he was disappointed and surprised by the news and the allegations of misconduct, he is hopeful that the companies will fare well under the receivership.
He also said other exciting, positive things are happening in the area.
"The town still has all the assets it did before," Mason said.
Greg Hamblett, co-owner of the Pick and Shovel, noted that the news leaves downtown Newport with a sense of uncertainty about what will come next.
"It's kind of too bad that someone let it happen," Hamblett said. "Somebody drank the Stenger Kool-Aid and jumped on board."
Mayor Paul Monette said Friday that in the wake of the news, his priority is figuring out what will happen to Main Street.
"That's a big chunk of downtown," Monette said.
Monette said that what comes next is a question mark. He's been in contact with Gov. Peter Shumlin and hopes to be meeting with him this week to figure out the next steps.
"We don't know right now," Monette said. "It's very preliminary. We're letting the dust settle."
But Monette was quick to emphasize that the projects headed by Stenger and Quiros were not the area's only economic development options. The town "didn't have all our eggs in the basket with EB-5," he said.
He said there have been inquiries from other companies, though he said he could not provide specifics.
For now, Monette is trying out a new phrase: "You've heard of 'Vermont strong.' Well, we're 'NEK strong.'"
Elizabeth Hewitt is the criminal justice reporter for VTDigger. She can be contacted at email@example.com. Morgan True is VTDigger's Burlington bureau chief covering the city and Chittenden County. He can be contacted at firstname.lastname@example.org.
TALK TO US
If you'd like to leave a comment (or a tip or a question) about this story with the editors, please email us. We also welcome letters to the editor for publication; you can do that by filling out our letters form and submitting it to the newsroom.