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

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  • Dick Livesey

    This “reporting” is mystifying at best, and deliberately misleading at worst. The practice of only putting selective words in quotes continues your practice of implying that somehow this project is nefarious. The stories by VPR and the Caledonian Record this week report that the project has been cleared to break ground and resume marketing efforts. When you read deeper into your story, you discover that the project hasn’t been “partially cleared,” but rather fully cleared provided two stipulations are met: the financial review by DFR OR the investor receiving I529 approval, something that if you look for old stories about these developers past projects, you find they have had something like a 99% success rate. Their investors do receive this approval from the United States Customs and Immigration Service and their funds do flow into projects.

    What is this site’s agenda? There are some commentors who consistently laud the reporting, but I have yet to come across anything laudatory. I would suggest you mirror the reporting practices of the two other outlets who presented balanced reporting of this facility, one that seems to hold a tremendous amount of promise for Newport. Can we maybe get a story on the scientists and what this place will be doing once they open…since it has been approved.

    • The selective words in quotes are from state officials. Questions were raised about the word suspended used in a previous story. I wanted to make it clear that the word “suspended” came from state documents. It’s not a word I used arbitrarily. The same is true of “partially cleared,” which comes straight from Susan Donegan.
      My objective is to offer a complete picture. The stories from the Caledonian-Record and VPR are based on a press release from Jay Peak. I waited to write a story about the approval of the PPM until I obtained memos from Donegan on Friday.

      • Dick Livesey

        I appreciate the use of quotes in a story as they help in presenting multiple sides to a story. But if your goal is to “offer a complete picture”, provide the complete quote when first using it and attribute it so that context can begin to be set. Not doing so sets a skewed tone a la Fox News.

        The Caledonian Record story has a byline of Robin Smith and it offers complete quotes from Susan Donegan, the director of the Department of Financial Regulation. In fact, Ms. Donegan offers the most succinct summation of what’s happening: “They can put a shovel in the ground,” referring to the status of AnC Bio. Are you saying that Jay Peak put out a press release with a quote from Ms. Donegan, or did the Record reporter just take the time to do some Old School reporting and pick-up the phone to get the facts?

        • To my knowledge, the Cal-Rec has not placed public records requests for memos, emails and letters from DFR and ACCD. The VTDigger stories, including this one, used state documents as a predominant source of information.

          To help put the phrase “partially cleared” in context, I have added more quotes from Donegan.

        • Fred Moss

          Fox news Dick?? You mean like, CNN, ABC, CBS, MSNBC.

          Check the coverage of the Clinton email scandal for proof of that.

    • Janine Thompson

      I tend to agree with you Mr. Livesey. I started following this story last week and I’ll admit that I did so because it does have a salacious slant to it. But I too heard the VPR story and read Robin Smith’s story in the Caledonian Record. Those two outlets do seem to do more reporting and strike an objective tone. I commented last week on what you mentioned of wanting to see something about what this facility is going to be producing.

      Biotechnology is a complex science. Combine that with the fact that Vermont’s EB-5 Regional Center is a partnership of government and private business and all of these Digger stories that imply some sort of malfeasance are in fact just two entities working through a complex landscape of science and law to arrive at a destination that brings some much needed economic diversity to our state. I am excited this project is breaking ground soon and look forward to it helping to put Vermont on the Scientific map. We need more than just tourism and agriculture.

    • Relaying press releases is not reporting at all. If you want uncritical, context-free coverages, there’s plenty of other outlets for that.

  • Judith Henault

    Sounds to me like you are doing your job, Anne. We’ve been running on press releases and broken promises here in Newport for far too long. These projects are without adequate funds, allied with a major player in So. Korea which has been auctioned off for non-payment of taxes and standing debt. Quiros and his Florida company buy land for the project at 3.1 million and then sell a small portion of it to the investors for 10 mil. When does it stop?
    Thank you, Anne, for the investigative reporting. Five years from now, this community will wish it had paid much better attention and cared.

    • Charles Merriman

      I agree with you, Judith. Anne is decidedly in the lead on this story. I have not seen any investigative work by any other news source–print, radio, or television–yet. The rest are just reporting that DFR has agreed to allow investment to continue, provided it is escrowed. That tells us nothing and is little more than a press release. Thank you, Anne!

      • Janine Thompson

        I guess my question is how is she decidedly in the lead? What is the lead? WCAX, NECN, and the Burlington Free Press all have quite lengthy stories running right now. The Free Press and NECN go into a bit of depth on the science and products that this facility will bring to Vermont. That strikes me as the lead for this story: a group of individuals who are working to diversify the economy of this state and bring high-tech to Vermont. Isn’t that what this state has been trying to do for the last eight years, or so? STEM??

        The scientists interviewed for today’s stories talked about some pretty cutting-edge stuff coming out of AnC Vermont. Why wouldn’t we want them to succeed? Why isn’t the hope this project holds the lead of this story?

        • VTDigger posted the story on Friday. We were shut out of the press conference WCAX, NECN and the Free Press were invited to on Monday.

          • Janine Thompson

            I apoogize; I missed the science story you posted last Friday. I know I was the one last week who was advocating that you dig up your contacts from when Digger ran the story back in 2012 on the facility. I only did a quick scan of the site. Did you conduct an interview with this Dr. Ike Lee? He seems like a fascinating individual. I am interested to see what kind of team he’s going to build for this facility and what Day One of this place being in operation is going to look like.

          • I haven’t written a science story yet. I plan to.

  • Randy Koch

    Two points I found interesting in this exchange: 1 the outrage that the press would fail to play the role of booster for Stenger & Cronies. Does it take more than a modicum of skepticism to sense a Cargo Cult in the making around this whole operation? 2 the absence of any debate over whether selling green cards is a good immigration policy. Why chose rich foreigners over poor? Who are these rich foreigners? Is there any reason besides their money to give them preferential treatment?