Business & Economy

VTDigger Exclusive: EB-5 investors question state watchdog’s independence

Jay Peak’s Tram Haus Lodge. Photo by Justin Cash/

Jay Peak’s Tram Haus Lodge. Photo by Justin Cash/

© Copyright, VTDigger 2014

Investors in a Northeast Kingdom development question whether a state official was watching out for their best interests. In complaints to the state, they allege that Brent Raymond, the executive director of the Vermont EB-5 Regional Center, was not playing enough of a watchdog role in his oversight of the Tram Haus Lodge project at Jay Peak.

Raymond is charged with monitoring a novel investment program being used for development in the Northeast Kingdom.

A series of emails obtained by VTDigger shows that Raymond, who is charged with overseeing EB-5 projects in the state, has a close relationship with Bill Stenger, the CEO and president of Jay Peak.

Following a recent dispute between Stenger and a group of investors, Raymond assured Stenger he was “a great man” in a July email.

Stenger and his partner, Ariel Quiros, changed the terms of a deal with EB-5 immigrant investors over money raised to build a hotel at Jay Peak.

Stenger and Quiros have said they had the right to change the deal but acknowledge they failed to properly notify their investors. Some of the investors question the legitimacy of the new deal, which was transacted without their knowledge, and have turned to the state for help. They were dissatisfied with the state’s response to their concerns, and they wonder who’s watching out for their interests and whether the state’s relationship with the developer is too close.

Raymond says his relationship with Stenger is “hardly cozy.”

Bill Stenger stands before the future Stateside Hotel at Jay Peak. He predicts it will open to guests by December, after only starting construction in April. Photo by Hilary Niles/VTDigger

Bill Stenger at the construction site of the Stateside Hotel at Jay Peak. File photo by Hilary Niles/VTDigger

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“Both myself and other Regional Center staff work long hours every day to monitor projects and do our best to protect investors required by the USCIS to be an ‘at risk’ investment,” Raymond said by email. “I know our requests and questions sometimes cause our project principals to be frustrated, but that’s our job. If I didn’t feel that I was able to be impartial and serve my duties to the state, our projects and their investors ethically, then I would resign.”

In an email to the state, one of the investors, whose name was redacted by state officials, says he can’t understand why Raymond isn’t acting in an independent capacity, “unless the representations by the state of Vermont and its Regional Center are in and of themselves misrepresentations to induce investors?”

The disgruntled investors say they worry that state officials, including Gov. Peter Shumlin, are so intent on job creation that they are not holding Stenger accountable enough. For example, the governor made comments about the state’s level of oversight of the investment program that were inaccurate and needed to be removed from a promotional video produced by Jay Peak. Shumlin incorrectly said the projects are audited by the regional center.

Shumlin has staked his reputation as a jobs creator in part on the economic development impact of Stenger and Quiros’ projects in the Northeast Kingdom. The governor has traveled to China to help Stenger raise funds from foreign investors who can obtain permission to live in the United States with a $500,000 investment.

The developments have already dramatically improved economic prospects in the state’s poorest region. For the first time, Orleans County job growth outpaced all other counties in the latest state revenue analysis.

Brent Raymond, director of Vermont's EB-5 Regional Center. File photo by Hilary Niles/VTDigger

Brent Raymond, director of Vermont’s EB-5 Regional Center. File photo by Hilary Niles/VTDigger

To date, Stenger and Quiros have attracted 1,089 investors and raised $544.5 million for the Economic Development Initiative, which includes seven projects at Jay Peak Resort, a ski area and four-season destination resort near the Canadian border; AnC Bio, a biotech company; and Q Burke, a ski area near Lyndonville.

State official, Jay Peak coordinate media response

In the wake of a VTDigger report on investor complaints, Raymond offered to help Stenger, the CEO and president of Jay Peak. Raymond wrote in an email to Stenger that he hoped “we can repair this reputational damage, and move on, but it won’t be easy.”

“You’re still a great man in my book,” Raymond continues. “Unfortunately, I don’t think there’ll be a great demand for my memoirs. :-)”

A short explainer on EB-5 projects in the Northeast Kingdom

What is the Tram Haus?

The Tram Haus Lodge was built in 2008 and is the first EB-5 project at Jay Peak. Stenger and Quiros built the $23.5 million hotel with $17.5 million from 35 immigrant investors and $6 million in private equity. Each of the 35 limited partners in Jay Peak Hotel Suites LP invested $500,000 in the Tram Haus Lodge through the federal EB-5 immigrant investor program.

The luxury hotel is phase 1 of an expansion of Jay Peak Resort, a ski area near the Canadian border, that has been transformed into a four-season destination with three hotels, three condo complexes, a water park, ice arena, club house, base lodge, and a business conference center. Jay Peak has funded the expansion with $314.5 million in capital from 629 immigrant investors.

How does EB-5 work?

EB-5 is a federal program that offers green cards, and eventually permanent residency, to immigrants who invest $500,000 or $1 million in pre-approved development projects in the United States. Each investment must generate 10 jobs.

U.S. Citizenship and Immigration Services determined the Tram Haus project created 350 jobs — 10 for each investor — and granted permanent residency to investors. Although there was never a guarantee their capital would be returned, disgruntled investors in the Tram Haus say Bill Stenger led them to believe the money would be repaid after five years.

What is the Northeast Kingdom Economic Development Initiative?

The Jay Peak Resort expansion is part of an interconnected set of developments in Vermont. The Northeast Kingdom Economic Development Initiative originally included developments at the Jay Peak and Q Burke ski resorts, improvements to a local airport, and developments in Newport, including an office building, a window factory, a biotechnology research and manufacturing campus, and a marina, hotel and conference center.

Plans to bring the German window manufacturing company Menck to Newport fell through in September 2013. The buildout of the state-owned Newport State Airport was pulled from the EB-5 pipeline in favor of private equity. The mixed-use Renaissance Block in downtown Newport and a waterfront marina, hotel and conference center on Lake Memphremagog remain in limbo months after real estate complications surfaced this spring.

The pared-down initiative, which now includes the Jay Peak Resort expansion, AnC Bio and Q Burke, is to be funded with $544.5 million from 1,089 investors.

What is the state’s involvement?

The Vermont EB-5 Regional Center is charged with monitoring EB-5 projects in Vermont. The center also promotes projects to immigrant investors. State officials have touted the Northeast Kingdom Initiative as a showpiece of Vermont’s EB-5 program.

The Vermont EB-5 Regional Center, which is part of the Vermont Agency of Commerce and Community Development, was long the only state-run program in the United States, until Michigan formed its own regional center earlier this year.

That exchange follows months of correspondence between Raymond and investors who were outraged by the way they have been treated by Jay Peak.

More than a year ago, Stenger and his partner at Jay Peak, Miami-based Ariel Quiros, converted the equity stakes of 35 investors in the Tram Haus Lodge into unsecured loans with a nine-year payback period. The investors’ limited partnership shares in Jay Peak Hotel Suites LP, the business entity for the Tram Haus were terminated as part of the transaction. The investors did not receive the redemption agreement and promissory note that sealed the deal on Aug. 31, 2013, until eight months later.

In May and June, 15 of the Tram Haus investors questioned the adequacy of the state’s oversight of the Jay Peak projects in a series of complaints filed with Raymond.

Investors say Jay Peak seized their $500,000 equity stakes in the Tram Haus Lodge without their knowledge and kept them in the dark about the finances of the project. Several investors have said that their expectation, based on the terms of their limited partnership agreement, was that the hotel would be sold after five years and they would recoup their investment with a profit.

The group of disgruntled investors say they put their faith in Jay Peak because of assurances that the Vermont Regional Center would vet the EB-5 projects.

When the investors complained to the state, Raymond told them to direct their questions to Jay Peak. The investors were outraged that he was not willing to assist them directly, and they emailed a new set of complaints to another state official over the July Fourth weekend. VTDigger published a story about the complaints on July 27.

When the story went public, Stenger apologized for what he described as an “unintentional delay” in communication with the investors. Stenger said he dissolved the partnership because a few of the investors were asking for an “exit strategy,” and he felt compelled to develop a repayment schedule. All of the investors have received permanent residency in the United States.

Discussion about the complaints, a Fortune Magazine mention, the VTDigger article and a British expatriate forum feature prominently in correspondence between the state and Jay Peak.

In the email exchange, Raymond and Stenger discuss the impact of media reports on Jay Peak and other projects planned in the Northeast Kingdom. All identifying information about investors was redacted before the records were provided to VTDigger.

Raymond assesses the potential damage from the Fortune Magazine article about an EB-5 embezzlement scheme in Chicago. The story mentions in a caption that Jay Peak had not yet paid back the first group of EB-5 investors.

“You two entrepreneurs were known internationally as the best and most honest in the EB-5 industry,” Raymond wrote. “Angered Phase 1 investors have gone to multiple media outlets, causing everything you’ve accomplished to be doubted and shrouding the entire VT RC under a cloud.”

Raymond notified Quiros and Stenger of a media request on an international forum posted by a VTDigger reporter asking EB-5 investors to share their experiences and perspectives on the program. “FYI,” Raymond wrote to Stenger and Quiros in an email with the link.

Several days later, Stenger sent Raymond a detailed description of an interview with VTDigger.

In response, Raymond says he was “blindsided” by a VTDigger reporter who contacted him after the Stenger interview. “I know you’re busy,” Raymond writes. “I really do know you’re extremely busy, but a quick courtesy heads up would have been helpful.”

In an email the following day, he tells Stenger he “sent several remarks to Pat Moulton to provide better perspective should we choose to respond.” Moulton is the secretary of the Agency of Commerce and Community Development.

Raymond said in a comment requested for this story that he has acted professionally and ethically.

“I have known Bill Stenger for a long time,” Raymond said by email. “I was the bond trustee officer for a VEDA Jay Peak municipal bond many years prior to my current role as Executive Director of the Regional Center. A position I have held for just over 2 years. We have a professional working relationship, as I do with all EB5 projects principals, but that doesn’t mean we haven’t had differences of opinion. I know that as I’ve performed my responsibilities both Bill Stenger and Ariel Quiros have sometimes disagreed with me. That’s inevitable due to the Regional Center’s role. I don’t think any project would consider their relationship with me or the Regional Center to be ‘cozy,’ but I would hope they consider me to be professional and ethical.”

Governor makes “misstatement” in Jay Peak video

State officials have long promoted the resort and other Vermont EB-5 immigrant investor projects as a way of bringing capital into the state for economic development.

Last year, Gov. Peter Shumlin and a retinue of other state officials, including Raymond and Lawrence Miller, who was secretary of the Agency of Commerce and Community Development at the time, traveled to China to help Jay Peak and other companies attract investors. Jay Peak paid for the trip. Alexandra MacLean, a former Shumlin aide who was a consultant for Jay Peak, traveled with the group and was copied on several of the emails between Stenger and Raymond.

In addition, Shumlin was filmed for a Jay Peak promotional video. He tells would-be investors that Vermont’s EB-5 projects are “audited.”

“Vermont is the only EB-5 program that covers the entire state of Vermont and is audited by the state of Vermont,” Shumlin says. “We make sure that our EB-5 program offerings are good investments for the investor, and good economic development job creators for the state of Vermont.”

The state has not conducted financial audits of the program, according to John Kessler, the general counsel for the Agency of Commerce and Community Development.

Northeast Kingdom Economic Development Initiative

The project costs cited below are approximate and do not include additional private capital. Job numbers reflect the estimated value of direct, indirect and induced employment (combined) generated by the investments.

Jay Peak Hotel Suites (Phase I)
Tram Haus
$17.5 million EB-5 money
35 investors
350 jobs (total)
Project complete, and all investors granted permanent green cards.

Jay Peak Hotel Suites Phase II
Hotel Jay and water park, ice arena, golf course, club house and commercial conference center
150 investors
$75 million EB-5 money
1,500 jobs (total)
Project complete, and all investors granted permanent green cards.

Jay Peak Penthouse Project
55 suites on the top floor of Hotel Jay
65 investors
$32.5 million EB-5 money
1,300 jobs (total)
Project complete, and all investors granted permanent green cards.

Jay Peak Phase III-A
Golf & Mountain Suites
90 investors
$45 million EB-5 money
900 jobs (total)
Project complete, and all investors granted permanent green cards.

Jay Peak Phase III-B
Lodge & Townhouses
90 investors
$45 million EB-5 money
900 jobs (total)
Project complete, and all investors granted permanent green cards.

Jay Peak Phase III-C
Stateside hotel and base lodge
134 investors
$67 million EB-5 money
1,340 jobs (total)
Project nearly complete, and all investors granted conditional green cards.

AnC Bio
220 investors
$110 million EB-5 money
2,200 jobs (total)
Project pending Act 250 and other permits. Conditional green cards have started to be approved.

Q Burke Mountain Resort
Hotels, conference center and recreation facilities
240 investors
$120 million EB-5 money
2,400 jobs (total)
Ground broken for initial construction. Conditional green cards have not yet been approved.

Granting of conditional visas comes first, and indicates USCIS has signed off on the business plan and its job creation projections. Granting of permanent residency indicates USCIS has recognized job creation.

In a statement, the governor’s office said Shumlin recognizes the agency “does not audit these projects, but provides independent oversight.” The governor says the Vermont EB-5 center has been an important tool for Vermont’s economic development and “the agency works hard to ensure projects do not wrongly characterize the state’s role in promotional materials.”

In a June 24 memo, Kessler asks Stenger and Quiros to take the promotional video down to edit out the governor’s “misstatement” and make other changes. Kessler’s email to Jay Peak was a response to a Tram Haus investor complaint about the video.

“I am glad to learn you are removing it from Jay Peak’s web site,” Kessler wrote. “I share Brent’s concern about the portion where the governor says the State audits projects. No matter how many ways one could interpret his use of the term ‘audit,’ we have consistently advised the governor and anyone else not to describe the regional center’s oversight role as involving the performance of financial audits.

“Moreover, you will recall that a couple of years ago we asked you to hire an outside auditor to do just that and you reported to us that it was too much of an expense and that you would rely upon the overall audit done on Jay Peak rather than a separate audit focused exclusively on EB5,” Kessler wrote. “So, the reality is an audit of Jay Peak’s EB5 projects is not performed by the State OR Jay Peak.”

A Tram Haus investor also took issue with claims made by Stenger.

In the video, Stenger says, “all Jay Peak projects pay back investors after the fifth year.” He also says immigrant investors will see a 4 percent to 6 percent quarterly rate of return. The Tram Haus investor says in an email to the state that the actual rate of return the resort paid out on the phase 1 project was 2 percent.

Kessler asks Stenger to remove the reference to the five-year payback in the video because “we recently learned Jay Peak in August of 2013 converted the pay back on the Phase 1 Tram Haus project to a nine-year period through an unsecured promissory note.” In the final line of the memo, Kessler says all marketing materials for Jay Peak, Q Burke and AnC Bio must now be approved by the agency.

The video, which was translated into Chinese, is still available online. A translator verified for VTDigger that the governor’s “misstatement,” the assertions that investors to date had received 5 percent to 6 percent return and claims of repayment scheduled after five years have not been removed from the Chinese version of the video.

Similar claims were made in a promotional flier for an EB-5 seminar in South Africa last year.

Regional center reporting requirements

The Tram Haus investors’ involvement in Jay Peak predates Shumlin’s video misstatement about the state auditing projects by about five years.

In a response to the first complaint he received from Tram Haus investors in May, Raymond tried to disabuse the investor of the notion that the center has ever promised to review project financials. “I’m happy to assist in your obtaining financial information from Ariel Quiros and Bill Stenger if you haven’t already received it, but want to be clear the Regional Center has not been auditing their financials – nor are we required to, or ever represented that we were,” he wrote in an email.

Disgruntled investors have said in emails to the state that they are disappointed that Raymond has not done more to protect their investment in the Tram Haus.

Moulton and Raymond have said there is little the regional center can do to help investors who are already invested in projects.

“We’ve advised investors that if you feel something is wrong you should get counsel but it’s not our purview in the regional center,” Moulton said. “As long as it’s in compliance with the SEC and USCIS, the rest is up to investors and the company. I don’t think it reflects poorly on the regional center. We have been doing our due diligence.”

While audits of the projects are not conducted by the state, Raymond has publicly touted other aspects of the center’s oversight of EB-5 projects.

Raymond told the Argus Leader in South Dakota that once a project is approved, “We actively look and we view the projects, we look for any evidence of improper marketing, any evidence of anything even becoming potentially questionable, and we quickly seek out solutions to immediately take care of any concerns that we have.”

Patricia Moulton is secretary of the Agency of Commerce and Community Development. Photo by Hilary Niles/VTDigger

Patricia Moulton is secretary of the Agency of Commerce and Community Development. Photo by Hilary Niles/VTDigger

“Because of our track record, it attracts people from all over the world that aren’t even sure what ‘Vermont’ is,” Raymond told the Argus Leader. “I think it provides comfort to a lot of investors and investor representatives that there’s an independent third party that’s approved a project, but in addition to (federal agencies) is constantly looking at the project and meeting with them on a quarterly basis.”

In the case of Jay Peak, such scrutiny did not occur.

Patricia Moulton, the secretary of the Agency of Commerce and Community Development, said an interview in July that the center has been monitoring Jay Peak “right along.”

But before the publicity about the Tram Haus deal, the regional center did not require any formal reporting, even though MOUs with all the EB-5 projects include a clause that quarterly reports are to be submitted.

Raymond was aware of the elimination of the Tram Haus investors’ partnership shares in Jay Peak Hotel Suites, LP, at the end of August last year. But Stenger did not inform Raymond about the terms of the new deal, and Raymond did not ask for specifics.

Raymond said Jay Peak representatives verbally told him the resort had agreed on an exit strategy for the immigrant limited partners. He said in July that he assumed the investors were being paid off, and that they were satisfied.

“I guess I can blame myself for making assumptions,” Raymond said.

Recently, the center put the resort “on notice,” according to Moulton, and is requiring the company to submit quarterly reports.

The agency is now mandating that all developers certify on an annual basis that no material changes have been made to limited partnership agreements. Developers must also notify the agency of any planned material changes in advance.

Raymond said in comments for this story that the regional center’s role is to monitor projects for compliance with USCIS requirements and the covenants of the Private Placement Memorandum.

“When a project’s investors contact the Regional Center we act quickly and efficiently both to answer any questions or concerns, as well as to obtain information from project principal(s) and/or the GP [General Partner] to ascertain if there have been any violation of covenants,” Raymond said.

He says the state can do little to address the root of investors’ complaints. The limited partnership agreement they signed sets the parameters for what actions the general partner, Bill Stenger in this case, can take.

“The Regional Center conducts due diligence on new projects and their principals, reviews project pro-formas, third party economic jobs analysis, the PPM and other documents to ensure they meet or surpass industry standards,” he wrote in an email. “The financial arrangements contained in any Limited Partnership – whether related to an EB-5 project or not – require the General Partner (GP) to act as a fiduciary to the Limited Partners (LP), but the GP most often yields considerable control over business decisions. The Regional Center and I cannot change legal covenants contained within a Limited Partnership Agreement between a GP and its LPs back in 2007 because some investors don’t like a seemingly allowable exit strategy.”

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Anne Galloway

About Anne

Anne Galloway is the founder and editor of VTDigger and the executive director of the Vermont Journalism Trust. Galloway founded VTDigger in 2009 after she was laid off from her position as Sunday editor of the Rutland Herald and Times Argus. VTDigger has grown from a $16,000 a year nonprofit with no employees to a $2 million nonprofit daily news operation with a staff of 25. In 2017, Galloway was a finalist for the Ancil Payne Award for Ethics, the Al Neuharth Innovation in Investigative Journalism Award and the Investigative Reporters and Editors FOIA Award for her investigation into allegations of foreign investor fraud at Jay Peak Resort.

Email: [email protected]

Follow Anne on Twitter @GallowayVTD

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