Business & Economy

Regulator 'partially clears' AnC Bio project

AnC Bio Vermont

The proposed AnC Bio plant to be built in Newport.

The state’s chief financial regulator has "partially cleared" a proposed biotech facility in Newport.

Susan Donegan, the commissioner of the Department of Financial Regulation, says the state "has partially cleared one of the Jay Peak projects to start building with conditions."

"The condition is any new money raised is put into safe escrow," Donegan said in an interview. "We’ve allowed the project to take a step forward with investor protection. That’s because we’re not done reviewing the project, which has not been approved."

The biotech project, known as AnC Bio Vermont, is to be funded by EB-5 immigrant investor funds.

The partial clearance allows Bill Stenger and Ariel Quiros, the developers of Jay Peak Resort, to solicit more funds from immigrant investors and begin construction of the AnC Bio project in Newport. Under the EB-5 program, immigrants can invest $500,000 in certain developments and in exchange receive a green card and eventually permanent residency in the United States. The $110 million AnC Bio Vermont project will come from 220 immigrant investors. In press reports, Stenger has said the AnC Bio Vermont project is “90 percent” funded. He has also said the project is 75 percent subscribed.

AnC Bio Vermont plans to conduct stem cell research, manufacture artificial organs and operate clean rooms for research and development at the Newport facility. The company does yet not have U.S. patents or FDA approval for the biotech products. A recent market study the developers commissioned shows that AnC Bio’s products, which include a portable dialysis device, will be in global demand.

Stenger says the market for the company’s products and services will be more than $4 billion by the year 2020. AnC Bio Vermont will create 2,300 jobs and inject “much needed funds into Newport.” In previous media reports, Stenger has said the biotech plant could create 3,000 jobs.

The developers say they welcome state review of AnC Bio Vermont.

“To be able to say to a potential investor that Vermont is one of only two places where the state has close oversight, and policies and procedures for all projects to adhere to makes us stand out and gives the investor a greater sense of security,” Stenger said in a statement.

The developers’ agreements with the Vermont Regional EB-5 Center for the AnC Bio Vermont and Q Burke Mountain Resort projects were “suspended” on June 27, 2014, according to documents from the state. The center, which is part of the Agency of Commerce and Community Development, also canceled the West Bowl expansion at Jay Peak Resort.

As previously reported by VTDigger, the suspension of AnC Bio was prompted by the court auction of an affiliated company’s headquarters in Seoul last year. State officials were concerned about the relationship of the South Korean company to the Vermont biotech project and they wanted to know whether information about the financial condition of AnC Bio Korea should have been disclosed in a 2012 agreement with investors.

Suspension of AnC Bio’s memorandum of understanding, or agreement with the state, has not been lifted. Full approval is contingent on a full financial review of AnC Bio, according to Donegan. All EB-5 projects in Vermont are now subject to review by the department, which regulates securities.

The private placement memorandum for AnC Bio Vermont, a legal document that details the risks and terms of an investment agreement, was approved on March 27. The PPM for Q Burke, which is under construction, has not yet been approved by the department and cannot be “disseminated to investors,” according to a memo from Donegan. The developers say the project is 60 percent completed, and the department agreed last week to push the Q Burke financial review ahead of AnC Bio.

Donegan said in an interview that the private placement memorandum for AnC Bio Vermont now provides investors with adequate disclosure.

“What you want, and again this is not for me as a regulator to dictate, this is disclosure that a project gives investors so that material information, important information that assists them in making a decision about whether they wish to assume that risk, put their money at risk and invest in the project,” Donegan said.

Memos from the state show approval of AnC Bio’s amended private placement memorandum comes with two conditions: Money from any new immigrant investors must be held in escrow; and those funds may not be released until the department has completed a full financial review of the project or “on an investor-to-investor basis upon I-526 petition approval by USCIS, in order to put the funds ‘at risk.’”

“I believe it’s prudent to protect investor funds until there is approval, and if there is not approval, the money gets returned to the investors,” Donegan said in an interview. “This is really about investor protection, it’s not about the project, it’s about protecting the state of Vermont and consumers, investors.”

Bill Kelly, an attorney for the developers, said in an email to Donegan that the company was in the process of setting up escrow accounts for investors and would be holding a groundbreaking ceremony for the AnC Bio project in the near future.

In addition, Kelly said Gov. Peter Shumlin had suggested that "the state will cooperate with project developers to issue a joint press release or joint media response within the next few days to clarify and correct inaccuracies that were published by VTDigger in their recent articles."

The financial review

The Department of Financial Regulation will be submitting a request for AnC Bio accounting records. In a memo, Donegan said the department is “focused on understanding the flow and use of funds for the projects as well as making sure disclosures are adequate.”

DFR is not the first state agency to make inquiries into AnC Bio's finances.

Brent Raymond, the director of the Vermont Regional EB-5 Center, questioned whether the developers had adequately explained the relationship between affiliated companies, the principals of those companies and how investor funds were to be used.

State officials began raising questions about the finances of AnC Bio Vermont last summer after the sale at public auction of the headquarters of a company that is closely tied to the Vermont project.

Some of the money from investors in AnC Bio Vermont has already been spent, according to memos between the state and the developers. The investors agreed in the original private placement memorandum to purchase land, $10 million in distribution rights and $44.5 million in stem cell research and manufacturing equipment. Information about how much immigrant investor money has been spent is not publicly available (the documents from the state were redacted).

Typically, immigrant investor funds for Vermont EB-5 projects are kept in escrow until construction.

“If you listen to what the project has been saying, money has already been spent,” Donegan said. “If it’s been spent what am I going to be doing, so I’m trying to protect the new money that’s coming in. They claim that they’ve purchased intellectual property and land and all sorts of stuff, so they’ve used that original money. I can’t get that back and put it in escrow right now. So I want to make sure no more money goes into it until I’m pretty clear that it’s OK.”

The regional center had asked for an independent appraisal of the real estate in Newport that is to be sold to investors. The plant is to be built on land originally purchased by GSI of Dade County, Florida, a company owned by Quiros. GSI bought the former Bogner plant and 25 acres in Newport for $3.1 million in September 2011, according to land records. Investors entered into a purchase and sale agreement for seven acres of the land as part of the 2012 offering memorandum, which was verified in a statement from Quiros. The agreement lists the price as $6 million, and the payment was to be made by Jan. 31, 2013.

Editor's note: This story was updated at 9:55 a.m. April 4. Additional quotes from Donegan were added at 2:03 p.m.

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Anne Galloway

About Anne

Anne Galloway is the founder and editor-at-large of VTDigger. 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 $2.8 million nonprofit daily news operation with a staff of 32. 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]

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