Sen. Patrick Leahy stepped up efforts Wednesday to reform a controversial program that allows overseas investors to move to the United States in return for creating jobs.
Leahy held a high-profile hearing in Washington, D.C., outlining the changes he said must be made to the EB-5 immigrant investor program before he would recommend that Congress extend it.
Leahy said abuses to the program were nationwide — and for the first time said they had occurred in Vermont. The Democratic senator has been a vocal supporter of EB-5 development in Vermont, including the $500 million worth of projects promoted by Bill Stenger and Ariel Quiros in the Northeast Kingdom.
As Leahy was making his comments in Washington, a team of investigators conducted an unannounced raid at Q Burke ski resort in East Burke, one of the EB-5 projects undertaken by Stenger and Quiros.
After the hearing, Leahy spokesman David Carle said: “The bipartisan reform bill Sen. Leahy introduced last year addresses issues that have arisen in many places, including in Vermont. It will add transparency, strengthen enforcement, protect investors and require additional oversight by agencies to ensure that the program can fulfill its mission of bringing investment and jobs to distressed and rural areas.”
Asked what specific problems the senator was referring to in Vermont, Carle said by email: “The bill addresses concerns that investors have raised, in Vermont and elsewhere, about not receiving sufficient information about investments and not having enough protections if an investment goes poorly.”
Carle’s comments came before the raid at Q Burke became public.
He added: “It also responds to concerns brought to light in Vermont and across the country that projects should be more transparent and subject to enhanced financial reporting, audits and site visits.”
The Securities and Exchange Commission is investigating several projects initiated by Stenger and Quiros at Jay Peak Resort, Q Burke and the AnC Bio Vermont in Newport.
Stenger, who has been questioned by the SEC, has called the federal agency’s probe a “review.” He has said he is voluntarily cooperating and that the SEC is looking at many projects across the country because the program quickly expanded.
Stenger did not reply to a request Wednesday to respond to Leahy’s comments. In the past, Leahy has praised Stenger for “transforming the Northeast Kingdom,” for his “incredible work ethic” and for being a “visionary.”
Several issues have been raised in Vermont: Some investors have complained the developers changed the terms of their investment deal. State financial regulators say Stenger and Quiros have not fully explained how all the money they raised was spent. Two projects were put on hold until the developers disclosed more information to potential investors. And the state’s Department of Financial Regulation, the Agency of Commerce and Community Development and investors have repeatedly complained the developers have been slow to provide financial information.
Some of the projects, notably the Q Burke Hotel & Conference Center, have not been completed. The new hotel remains closed as the state and developers have been arguing over the release of money from an escrow account the state required to hold investments.
The developers have blamed the state for delays. The state’s chief financial regulator Susan Donegan has disputed that contention, saying payments were delayed because the investors were short on funds.
Donegan has questioned why the developers have not put more of their own money into the projects. She noted they have taken out a 15 percent construction management fee for the projects. Those fees are in addition to the $50,000 administrative fee the developers have collected from each of the approximately 800 investors.
One of the major abuses nationally that Leahy is trying to address involves “gerrymandering,” where developers combine wealthy areas and enough of a distressed area so that investors don’t have to come up with as much money. Under the program, investors must put up $1 million, but only $500,000 in areas that are economically depressed.
