Almost half of the immigrant investors in a development at Jay Peak Resort have filed a formal complaint with the state of Vermont, alleging they were treated unfairly by the lead developers.
Fifteen investors claim the owners of Jay Peak Resort improperly changed the terms of the deal where they invested $500,000 each in the construction of the Jay Peak hotel and adjoining facilities.
The Tram Haus Lodge project, which opened in 2009, was the first of several large-scale projects planned in the Northeast Kingdom by developers Bill Stenger and Ariel Quiros. They have raised more than $500 million through a federal program called EB-5 that allows foreigners to gain U.S. residency in return for a financial investment.
In the complaint filed with the state Department of Financial Regulation late last month, 15 of the 35 investors in the project said they won’t get their money back as quickly as originally promised and that they were not properly notified when Stenger and Quiros changed the terms of their investment.
According to Tony Sutton, a spokesman for the disgruntled investors, they went to the state regulators after the state agencies that promote and oversee the EB-5 program rejected the investors’ concerns.
“Despite our best efforts to communicate our concerns to the Vermont Regional Center it became clear that (Commerce Secretary) Patricia Moulton and (former EB-5 regional director) Brent Raymond saw no wrong in anything that was taking place with investor funds through the Jay Peak EB-5 program and took the questionable position that Bill Stenger was acting within his remit as General Partner and refused to examine just how he should be acting as a fiduciary,” Sutton said.
Susan Donegan, commissioner of the Department of Financial Regulation, did not respond to a request for comment about the complaint. DFR recently took over regulation of the EB-5 projects in Vermont and has undertaken a financial review of several other projects planned by the developers for which they are currently trying to raise money.
Moulton also declined comment on a “pending matter.”
Stenger said he was unaware the most recent complaint had been filed with DFR. He said the Tram Haus investors would receive all of their money back, and the new deal is more secure than the original one the investors made, which some of them dispute.
Stenger has acknowledged failing to tell the investors about the change in the deal until long after it happened, calling that “a mistake,” but he maintains that he had the legal authority to change the deal.
“I have heard nothing of this subject from any Phase I [Tram Haus] investors or from DFR,” Stenger said. “We continue to focus on the repayment of our Phase 1 investors and are on schedule for their next payment in January 2016. They will be totally repaid by January 2018.”
Thirty-five immigrants sought permanent residency in exchange for a $500,000 investment in the Tram Haus Lodge project as part of the EB-5 program. The investments are called “at risk,” and investors understand there is no guarantee they will be repaid.
According to Sutton, the investors were to receive interest on their investment and get all of their original $500,000 back by the end of 2013.
The Tram Haus investors were the first to invest with Stenger and Quiros. They say their ownership stake was converted into a loan without their knowledge on Aug. 31, 2013. They also said they weren’t notified of the change until January 2014 and were not sent the new agreement and loan details until May 2014.
Under the new deal, which is not backed by a collateral property at the resort, the investors are to receive $21,500 per year for four years and the remaining balance in 2018. The first two payments toward the $500,000 principal have been made, according to Sutton. The investors say the original deal was more secure and they would have received their investment back sooner.
When the Tram Haus ownership-to-loan conversion was made public in August 2014 in a VTDigger story, Stenger apologized for the lack of communication with investors and acknowledged he made a “mistake.”
In addition to state regulators, the federal Securities and Exchange Commission is reviewing some of the Jay Peak-related projects. The scope of that investigation is unclear. Jay Peak principals Stenger and Quiros have been subpoenaed, and the SEC has asked the developers for financial information.
Stenger and Quiros have raised $545 million to expand Jay Peak Resort and the Q Burke ski resort, and to build a biotech facility that would manufacture medical devices. They say their projects will be a huge economic boost to a depressed region of the state. More than 800 immigrants have invested in eight of their projects. Six have been completed; two are slated for or under construction, and two other planned developments do not have approval for EB-5 funds through the Vermont EB-5 Regional Center.
Sutton says the investors he has been working with are frustrated that state officials did not listen to their concerns. He also says it has been difficult to file the complaint with state regulators.
A group of 20 investors have been seeking assistance from the state and say their attempts to draw attention to the way Jay Peak handled their investment was rebuffed. The disgruntled Tram Haus investors sent emails in May 2014 to the Vermont EB-5 Regional Center and the Department of Financial Regulation.
Sutton says months went by and investor complaints were not addressed by the regional center, which is a part of the Agency of Commerce and Community Development. Responsibility for fiscal oversight of EB-5 projects was transferred from the regional center to the Department of Financial Regulation in January.
Investors then filed multiple complaints with DFR, Sutton says, but these, too, were ignored. It wasn’t until late September this year that officials from the department told Sutton that each of the investors needed to fill out a formal complaint form in order for the department to review the allegations.
Sutton says the investors are now waiting for the complaints to be passed to the SEC for a formal investigation. The Tram Haus investors are now being contacted by investors in the other phases of the Jay Peak development who, Sutton says, are “alarmed at the news that is being communicated to them by Jay Peak in relation to their exit strategy and repayment.”
According to Sutton, in addition to changing the financial terms, Stenger and Quiros also did not consult with investors about two other changes made to their limited partnership agreement. One of the amendments gave Quiros an ownership stake in the hotel. Neither alteration was approved by investors, and Stenger has said he did not need to consult with the 35 limited partners in the Tram Haus because he had the legal right to amend the agreement and dissolve the partnership.
While the scope of the federal regulatory review is unclear, Donegan has said state regulators are looking forward, not backward, at Jay Peak projects, focusing on whether financial statements support allowing investments in two projects not yet built or completed: AnC Bio Vermont, the biotech facility, and Q Burke, a ski resort under construction in West Burke. Both projects were suspended by the regional center last summer when Stenger and Quiros did not provide requested financial information.
While neither project has been fully reinstated, the state has allowed Stenger and Quiros to solicit funds from foreign investors for AnC Bio and Q Burke with the stipulation that the money must be held in escrow. Funds for Q Burke have been released for construction expenses under the purview of a third party administrator who is reviewing expenditures.