Thread: VT - UPDATED: Feds closing state’s EB-5 regional center

UPDATED: Feds closing state’s EB-5 regional center

By Anne Galloway and Alan J. Keays
Aug 21 2017, 7:11 PM


Gov. Phil Scott. File photo by Mike Dougherty/VTDigger

The federal government is shutting down the state’s EB-5 regional center, which is under the cloud of the largest investor fraud case in the history of the EB-5 visa program.Gov. Phil Scott issued a statement Monday saying the state received notice Friday that U.S. Citizenship and Immigration Services, the federal administrator of the EB-5 program, intended to “terminate” the center.

The action is a result of concerns raised by alleged fraud involving hundreds of millions of dollars in EB-5 investor money by two Vermont developers over an eight-year span, according to the notice sent to the state. Jay Peak’s former owner Ariel Quiros and its former president Bill Stenger are accused of perpetrating a “Ponzi-like” scheme in which they misused $200 million invested by foreigners in seven of eight projects through the EB-5 program.

Federal authorities have not yet brought criminal charges in the case.

The 27-page notice is a stinging criticism of past operations of the regional center, including a lack of action and oversight as Stenger and Quiros raised money from immigrant investors. The EB-5 program offers foreigners permanent residency in exchange for a $500,000 investment in qualifying projects. Each investment must create 10 jobs.

USCIS officials say the regional center “failed to properly engage in management, monitoring and oversight of the program for many years, as required by the program.”

“It appears that for years (the Vermont Agency of Commerce and Community Development Regional Center) relied excessively — if not primarily — on third party project managers to perform oversight functions rather than taking on those responsibilities itself,” the notice reads.

“Even where a regional center has an outside party providing management services — as occurred here — the ultimate responsibility for compliance with the relevant statutes and regulations, remain with the regional center itself.”

Ultimately, USCIS has determined that “by a preponderance of the evidence that the Regional Center no longer serves the purpose of promoting economic growth.”

Quiros and Stenger are accused in lawsuits by federal and state regulators of misusing $200 million of $350 million raised from immigrant investors for seven projects through the EB-5 program. The two developers raised money from 890 investors totaling $489.5 million, including an eighth project and administrative fees, according to new information from USCIS.

Read VTDigger’s nationally recognized reporting on EB-5 here.

The money was meant to fund massive upgrades at Jay Peak, a hotel and conference center at Burke Mountain, and two other projects that never got off the ground in Newport, including a $110 million biomedical research center. The developers began to run out of money in 2014, and by the time the SEC filed charges in April 2016 about 400 investors in three incomplete projects had not received green cards.

The notice of termination by USCIS follows action in July 2016 when the federal agency asked the state to submit an interim application for renewal of the Vermont EB-5 Regional Center designation in light of the fraud allegations against the developers.

VTDigger first reported on allegations of fraud and the state’s cozy relationship with Quiros and Stenger in 2014. Officials defended the developers and the state commerce agency secretary blasted coverage of investor complaints in October that year.

The news organization sued over access to the state’s communication with USCIS last year. In March, records released by the Scott administration showed that USCIS had threatened to terminate the Vermont Regional Center. In response, the Shumlin administration defended its oversight of the EB-5 program. After the state responded, USCIS continued to approve investor green card petitions in Vermont projects.

The news of the termination on Monday coincided with the results of a review the Scott administration began in July of the future of the Vermont EB-5 Regional Center.

That report recommends “winding” down the regional center, the governor’s release stated.

Michael Schirling, the commerce agency secretary, said the Scott administration agrees “that the center should ultimately be closed.”

“It is clear from our review that state government was not, and is not, the best-suited entity for managing the EB-5 program,” Schirling wrote in a release issued by the governor’s office.

State officials say they will respond to the notice of termination before the deadline of Sept. 16 with information in the report, detailing how “a staggered closure” would “minimize any adverse economic impact and ensure investors in existing, viable projects are protected.”



Susan Donegan, the former commissioner of financial regulation, speaks at a news conference on April 14, 2016, about the state’s fraud case against developers Bill Stenger and Ariel Quiros. Behind her is former Gov. Peter Shumlin. Photo by Erin Mansfield/VTDigger

After the SEC brought charges against Stenger and Quiros last year, the Vermont Regional Center retained oversight of four remaining projects, none of which were associated with Jay Peak.

USCIS says, however, the allegations of fraud at Jay Peak have “dampened the future ability of [the regional center] to sponsor projects and promote economic growth.”

Mount Snow Resort is the only one of the four that had been approved by the federal government. The company began construction of a $22 million ski lodge in June and plans an additional $30 million in projects. Mount Snow officials have said they will not work with the state on future EB-5 projects because of “troubles” related to Jay Peak. Dick Deutsch, the CEO of Peak Resorts, has said the company will seek its own designation as an EB-5 regional center in order to complete multi-phase projects at Mount Snow.

In May, the Vermont Regional Center asked USCIS to withdraw the application for Stowe Aviation, a proposed $20 million development at a regional airport in Lamoille County that included an aircraft hanger, flight academy, aircraft maintenance and regional charter air transportation services. Russell Barr, the owner of Stowe Aviation, told USCIS that the allegations of fraud at Jay Peak Resort hampered marketing for his project. Barr ended his relationship with the regional center last spring. He is now suing state officials on behalf of investors for effectively acting as partners in the Jay Peak fraud.

The federal agency denied an amended application in June that was submitted by developers of South Face Village who planned to use $34 million in EB-5 money to develop condos at Okemo Mountain Resort in Ludlow.

A Trapp Family Lodge application for EB-5 funding to support the development of a $20 million restaurant and brewery has yet to be approved by USCIS.

Information about how much money is at stake in each of the four projects and how many investors would be affected by the termination of the regional center is unknown.

The Vermont Regional Center program began in 1997 and launched its first project at Jay Peak in 2006. Over the course of a decade, the state had oversight of 21 developments, most of which were of a much more modest scope than the eight Jay Peak projects.

The state claims to have created more than 10,000 jobs over the history of the program.


Gov. Peter Shumlin, Jay Peak CEO Bill Stenger, Ariel Quiros, the owner of Jay Peak, and his son Ary Quiros at a ribbon cutting. Photo by Hilary Niles/VTDigger

USCIS notice of termination

Federal officials make a case for closing the regional center based on the SEC lawsuit and the state’s civil suit against the developers, a case lodged by Tony Sutton and other EB-5 investors against the state and press reports about allegations of fraud at Jay Peak.

After considering “a preponderance of the evidence” provided by the state, the feds determined that the regional center is no longer in compliance with EB-5 program requirements.

Under federal law, the regional center was required to monitor all investment activities.

USCIS officials say that the evidence shows the state’s oversight of the Jay Peak projects was inadequate and “allowed the alleged malfeasance by Quiros and Stenger to occur.”

The feds cite a story by VTDigger about questions raised by a whistleblower in 2012 about financial irregularities at Jay Peak. Despite these red flags, Gov. Peter Shumlin and other high level officials went on to promote Jay Peak projects overseas and at press events. During this period, regional center staff did not require Stenger and Quiros to submit quarterly reports to the state as mandated.


Former Secretary of the Agency of Commerce and Community Development Patricia Moulton. File photo by Erin Mansfield/VTDigger

In particular, USCIS points to the regional center’s willingness to allow the marketing of AnC Bio Vermont, a proposed biomedical center in Newport, despite concerns about the project that emerged in 2013. In 2014, the state suspended the project, only to reinstate AnC Bio in March 2015 under pressure from Gov. Peter Shumlin. The developers at that point were allowed to continue fundraising for the project. Later that year, the state, as the result of its own investigation, became aware that it was likely that funds raised for “various Jay Peak projects” were diverted.

The state commerce agency and the Vermont Regional Center, however, continued to allow the marketing of the AnC Bio Vermont and other projects right up until the SEC brought charges in April 2016 against the developers.

The SEC, in its lawsuit, described the proposed biomedical facility as “nearly a complete fraud.” Most of the $50 million that Quiros allegedly stole outright came from investors in AnC Bio Vermont. A total of $80 million from the proposed biomedical facility was misused, USCIS writes.

USCIS concludes that the Vermont Agency of Commerce and Community Development “may have allowed marketing to occur for a project suspected of serious malfeasance.”

The state’s willingness to allow the developers to fundraise for the Burke Mountain Resort project also “seems improper” because Quiros “wrongly used $7 million from investor funds to buy the resort.”

USCIS acknowledged that the state took actions to improve monitoring and oversight of the regional center programs, but says that the more rigorous compliance program instituted in December 2014 by the Vermont Department of Financial Regulation and the Vermont Agency of Commerce and Community Development came too late.

Based on “a preponderance of the evidence,” USCIS determined that the regional center failed to properly engage in management, monitoring and oversight for many years, as required.”

State review of EB-5

Starting in July, the Scott administration undertook a review of the Vermont EB-5 Regional Center conducted by the Vermont Agency of Commerce and Community Development and the Vermont Department of Financial Regulation. The two state agencies released a report on Friday, the same day state officials received the USCIS notice of termination. The review was led by Michael Pieciak, the commissioner of DFR, and Michael Schirling, the commerce agency secretary.


Mike Pieciak, commissioner of the Department of Financial Regulation. Photo by Erin Mansfield/VTDigger

Pieciak and Schirling revisit the history of state’s role in helping the SEC develop its case against Quiros and Stenger as part of a DFR investigation that began in March 2015. As a result of the state’s action and settlements with Raymond James and Citibank, about $163 million has been recovered — most of which has been used to maintain operations at Jay Peak, to repay vendors and contractors who were owed more than $11 million and to repay about 100 of more than 800 EB-5 investors.

They argue in the report that because the state stepped up compliance requirements and enforcement in 2015 the Vermont EB-5 Regional Center should continue operating long enough to wind down the Trapp Family Lodge and Mount Snow projects.

Pieciak and Schirling argue that closing the regional center immediately and either stopping all center activities or transferring the center’s activities to a private entity is “not legally viable.” Nor is it viable to continue the regional center as is, they write in the report.

“We believe the best course … is winding down the [regional center] over time, fulfilling all obligations for existing projects but not taking on new ones,” they write.

This approach would enable the state to fulfill its commitments to existing projects and investors, Schirling and Pieciak say.

Other EB-5 nonprofit centers in the region could continue to provide Vermont developers with access to the federal program, they conclude.

In a recap of the history of the Vermont program, state officials say that funds raised for Jay Peak totaled $423 million. Projects not involving Jay Peak totaled $109 million. The state spent $1.3 million to administer the program from fiscal year 2008 through July 2017.

Commerce agency oversight prior to DFR’s involvement consisted of visits to Jay Peak Resort, according to the review. The state did not conduct financial audits, nor were any provided by the developers — despite representations in a 2013 promotional video for Jay Peak featuring former Gov. Peter Shumlin in which he attested that all of the projects were audited.


Mike Schirling, secretary of the Agency of Commerce and Community Development. Photo by Erin Mansfield/VTDigger

When Douglas Hulme, who solicited investors for Quiros and Stenger through his company Rapid USA Visas, issued a public statement that he no longer had faith in the financials at Jay Peak, the commerce agency requested “pertinent” information from Quiros and Stenger. The developers, however, did not provide the information, and the commerce agency “ultimately determined that it lacked clear legal authority under the existing MOU to force the projects to do so.” The state required the developers to sign a revised MOU in October 2012 that called for securities compliance.

Not long after, John Kessler, general counsel for the agency, sought expert advice from a law firm in Boston. Two years later, state officials became concerned about whether the developers had provided all of the material information about AnC Bio Vermont and Burke Mountain Resort. Both projects were suspended in summer 2014.

After a VTDigger article was published in October 2014 about the state’s failure to require Jay Peak to file quarterly reports, the state began requiring regional center projects to provide financial and accounting information for all projects, payment histories for vendors and contractors and any material changes to projects.

In December 2014, DFR took over the formal oversight role of the EB-5 program in conjunction with the commerce agency, which had run the regional center for 17 years up to that point. The Burke Mountain and AnC Bio Vermont projects were reinstated after DFR became involved in compliance efforts and an investigation into the developers in 2015.

As part of an agreement with the developers, DFR required that Quiros and Stenger hold new money in escrow and mandated that a third party oversee payments for construction. This prevented money from new investors from being commingled with accounts that were used to perpetrate the alleged fraud.

In April 2016, state officials unveiled a “spaghetti map” that outlined thousands of transactions using margin loans, Treasury bills and 100 bank accounts used by Stenger and Quiros to cover up the fraud. Pieciak, who was then a deputy commissioner, led the investigation and testified in U.S. District Court in Miami on behalf of SEC litigators.

https://vtdigger.org/2017/08/21/scot.../#.WZxcnvh96po

Judge quashes whistleblower deposition in EB-5 investor case against state

By Anne Galloway
Aug 6 2017

A judge has ruled that, for now, defrauded EB-5 investors in a class action lawsuit against the state cannot take the deposition of a key whistleblower in the case.Lamoille County Superior Court Judge Thomas Carlson quashed the plaintiffs’ request for the deposition of Douglas Hulme, citing state rules prohibiting discovery until the defense has an opportunity to respond.

The plaintiffs allege that the state was complicit in allowing 800 investors to be systematically defrauded by Bill Stenger, the CEO and President of Jay Peak, and Ariel Quiros, the owner of the resort and other properties.

Read more about the Jay Peak investor lawsuit against the state here.

Barr and Associates, which is representing the investors, has asked for depositions of 10 individuals, starting with Hulme on July 27, and the release of all records pertaining to the EB-5 program.
The Vermont Attorney General’s office asked Carlson to block the depositions and the records release in a motion on July 18.

Carlson ruled that the plaintiffs’ requests violated legal procedures.

Bill Griffin, the chief assistant Vermont Attorney General, said in an interview that it was “inappropriate” for the plaintiffs to file a request for depositions and documents before the state responded to the investors’ complaint, which was filed in June.

The AG’s response, which must be filed by September 8, will be a motion to dismiss on the grounds that the state is protected from civil lawsuits under the doctrine of sovereign immunity, Griffin said.


Rapid USAs Visas CEO Douglas Hulme (left), a representative of Shen law firm (center) and Jay Peak CEO Bill Stenger (right).

Three state entities and 10 individuals are named in the class action lawsuit, including members of the former Shumlin administration who are no longer in public office. The AG’s office is representing current officials named in the lawsuit, and the Vermont EB-5 Regional Center, the Agency of Commerce and Community Development and the Vermont Department of Financial Regulation.

Russell Barr, the lead attorney for the plaintiffs, says his firm wanted to get Hulme, who is now 74, on the record as soon as possible.

“The state quashed whistleblower Douglas Hulme when he attempted to tell them the truth about Jay Peak in 2012 and they are doing so again by quashing his deposition now,” Barr said. “What are they so fearful of? The truth?”

Hulme, of Rapid USA Visas, worked as a consultant for Jay Peak CEO Bill Stenger and resort owner Ariel Quiros from 2006 through 2011. In that role, Hulme solicited investors for the Jay Peak projects. In February 2012, he broke off his relationship with the developers and publicly announced that he no longer had faith in the financials at Jay Peak.

Later that year, Hulme told officials with the Vermont EB-5 Regional Center that Stenger and Quiros, who were looking to use nearly $800 million in EB-5 immigrant investor funds for a series of developments in the Northeast Kingdom, were misappropriating funds, according to the plaintiffs’ lawsuit.

Under the federal EB-5 program, immigrants who put up a $500,000 in risky developments in poor rural areas are eligible to receive green cards.

The Vermont center, the only one of its kind nationally, was responsible for monitoring, overseeing and reviewing financial documents for the Jay Peak EB-5 projects.

Instead of investigating Hulme’s allegations in 2012, the Vermont Regional EB-5 Center vouched for the developers and forced Rapid USA, which had other clients in Vermont including Mount Snow Resort, out of the state.

Before and after Hulme blew the whistle on the developers, state officials told investors that the projects promoted by Stenger and Quiros were safe investments. In marketing materials, the two developers, and Gov. Peter Shumlin, claimed the projects were audited by the state. Shumlin, U.S. Sen. Patrick Leahy, D-Vermont, and U.S. Rep. Peter Welch, D-Vermont, promoted Jay Peak to potential investors in China.

Despite Hulme’s warning to state officials in 2012, the fraud continued through April 2016 when the Securities and Exchange Commission charged Quiros and Stenger with misappropriating $200 million in immigrant investment funds.

Many investors say it was the state’s stamp of approval that gave the projects legitimacy. More than 800 were allegedly defrauded by Stenger and Quiros, according to the SEC.

In the civil complaint against the state, five immigrants, including Tony Sutton, a British investor in the Tram Haus Lodge, and Wei Wang, a Chinese investor in AnC Bio Vermont, a proposed biomedical facility, charge that state officials were at best “grossly negligent” and at worst intimately involved in a conspiracy to cover up their joint improprieties with the developers.

Sutton and his attorneys allege that the state effectively acted as partners in the alleged fraud at Jay Peak Resort.

The 16-count class action lawsuit alleges that the state failed to perform due diligence in reviewing the projects, failed to monitor the projects, violated securities laws, profited at the expense of investors, misrepresented its oversight role to investors, and failed to follow up on red flags that would have uncovered the scheme.

Sutton, in 2014, asked Pat Moulton, the former secretary of the Agency of Commerce and Community Development, to investigate allegations that the developers had illegally used investor funds to purchase the Jay Peak Resort in 2008.

Moulton came to the defense of the Jay Peak developers and ignored Sutton’s request.

Moulton is named in the class action investor lawsuit, as is James Candido, Brent Raymond and Eugene Fullam, the former directors of the regional center; Joan Goldstein, the interim director of the center; William Carrigan, deputy commissioner of the Securities Division; Michael Pieciak and Susan Donegan, the current and former commissioners of the Department of Financial Regulation; Lawrence Miller, former secretaries of the commerce agency; and John Kessler, general counsel for the commerce agency.

Donegan refused service of the plaintiffs’ lawsuit, according to an affidavit.
https://vtdigger.org/2017/08/06/judg.../#.WZxczvh96po

The Breakthrough: How a Small News Outlet Brought Down the State Hero

by Jessica Huseman
ProPublica, Aug. 11, 2017, 8 a.m.

Bill Stenger was a local hero. One of Vermont’s most important businessmen, he had created hundreds of jobs with mega-developments across the state. In 2011, the Vermont Chamber of Commerce named him “citizen of the year.” And, for years, a sign hung on the door of the City of Newport’s offices that read, “Thank You, Bill Stenger.”

But not all of Stenger’s businesses were what they seemed, a small nonprofit news organization revealed.

Anne Galloway is the founder and editor of VTDigger. When she launched the online outlet in 2009, she was its only employee. Today, she has 11 reporters and an annual budget of $1.3 million. Much of her newsroom’s success has stemmed from its dogged investigation into Stenger, his Miami-based business partner Ariel Quiros and their project, Jay Peak ski resort.

When the multimillion-dollar development was announced in 2012, it immediately smelled fishy to Galloway. It was to be built in a region known as the Northeast Kingdom — an impoverished area of the state near the Canadian border, mostly known for dairy and Christmas tree farms — and it promised 10,000 jobs.

“It just seemed too good to be true,” she said. “It seemed too big.”

She was right.

Galloway and her team dug deep, fought multiple legal battles over records and worked to gain the trust of investors losing confidence in the project. They chronicled complaints that this development was starting to feel like a scam, and reported on the cozy relationship Stenger had with state oversight authorities.

Four years and dozens of stories later, the Securities and Exchange Commission announced federal fraud charges against Stenger and Quiros in what they called a “massive eight-year fraudulent scheme.” It was a “Ponzi-like” operation, in which they collected millions of dollars from foreign investors, pocketed some and paid for past projects with the rest, according to the complaint. Newer projects were left incomplete, and investors were left bilked. Galloway and her team knew about almost all of this — they just couldn’t get anyone to go on the record.

With their investigative authority, SEC officials said they were able to determine Stenger and Quiros misused $200 million of the $350 million that had been invested. Quiros, they said, probably pocketed $50 million for himself. Stenger, who denied culpability, reached a settlement with federal regulators over the civil charges. Quiros’ case is still ongoing. Both remain under a federal criminal investigation.

Hear how it all began on The Breakthrough, the ProPublica podcast where investigative reporters reveal how they nailed their biggest stories.
https://www.propublica.org/podcast/i...the-state-hero

Close them all. Shut it all down for several years.

I understand immigrant investment, but how much does the government have to do with it?

Is it funded, in any way, by taxpayer dollars - tax deductions or outright monies?

We don't need immigrant investment.