Unpaid bills prove hardship for contractors in Northeast Kingdom EB-5 projects - VTDigger
 

Unpaid bills prove hardship for contractors in Northeast Kingdom EB-5 projects

Stateside Townhomes

Stateside Townhomes at Jay Peak. VTDigger photo

The litany of woe for contractors involved in the Jay Peak projects keeps growing. Workers have been laid off, lines of credit have been extended and assets needed as collateral have been tied up in loans.

Those are just some of the hardships faced by the more than 40 companies who together are owed nearly $7 million for work on a series of development projects at Jay Peak and Burke Mountain ski areas and a proposed biomedical park in Newport.

As the New Year approaches, many of the firms, who did everything from plumbing and roofing to siding and wiring, are struggling to remain afloat with unpaid bills from more than a year ago weighing down balance sheets.

The projects headed by Jay Peak owner Ariel Quiros and Bill Stenger, the resort’s former CEO and president, generated a boom to the economy of Vermont’s Northeast Kingdom from 2008 to 2013, as builders and tradesmen worked on construction of three hotels and three condo complexes at Jay Peak. The massive expansion of the ski area also featured a waterpark, ice arena and golf club.

The buildout of Jay Peak was nearly complete in 2014 when fraud allegations from investors began to surface in news reports, and federal and state regulators became involved.

As pressure from regulators mounted and developers were prevented from seeking more EB-5 immigrant investor funds for a period of nine months, money dried up for bills already past due for the Stateside condos at Jay Peak, a hotel and elite athletic conference at Burke Mountain, and AnC Bio Vermont, a proposed biomedical facility in Newport.

That left a slew of accounts receivable on the books for local contractors — with no available funds for payment.

Take Rob Conrad, owner of Conrad Construction of Derby. He said the unpaid bill for work his company did helping to build a new $50 million hotel that opened in September at the base of Burke Mountain has set his business back about 10 years.

“I’m definitely a smaller version than what I usually am,” Conrad said this week. “A lot of times I’ll have 25 to 30 men working for me through the summer into the fall. This year it was five.”

Conrad’s business is owed $245,237 for work that included siding and roofing at the hotel. The failure to receive that payment, he said, has not only meant fewer employees, but also struggles to make purchases and finance other jobs.

It is taking a personal toll, too.

“I’m completely, fully leveraged. My house is on the line. If they don’t pay me, I may lose my house. I took a line of credit and had to put collateral up to do it,” he said. “The fact that they haven’t paid me, basically means that I’m paying financing charges on their hotel … they’re using me as a bank.”

Conrad is hardly alone.

One subcontractor is owed nearly $800,000, another about $640,000. The rest of the unpaid bills are less than $500,000, with most between $20,000 and $250,000.

“If I get anything now, I figure it’s a bonus,” said Chip Percy, of Dale E. Percy Inc., of Stowe, who is owed about $250,000 for sitework on the AnC Bio Vermont project. “The system sucks, quite frankly.”

Burke Hotel

The Burke Hotel. VTDigger file photo

Quiros, a Miami businessman, and Stenger, a Newport resident, are accused in state and federal lawsuits filed in April of defrauding more than 700 EB-5 immigrant investors and misusing $200 million of the $350 million raised through the federal EB-5 immigrant investor program meant to fund a series of development projects.

Since the Securities and Exchange Commission brought charges against the developers, payment on the bills stopped for companies who put in the windows at the 116-room hotel at Burke Mountain and dug the sewer and water lines for AnC Bio Vermont, a biomedical research facility that never came to be in Newport.

About $4.6 million is owed to subcontractors for work they did at Jay Peak and Burke Mountain, according to documents filed in federal court in Miami.

Contractors and subcontractors who put in water, sewer and power lines at AnC Bio Vermont are owed $2.1 million, court records show. Federal regulators say the biomedical project is “nearly a complete fraud.”

EB-5 investors put up $500,000, plus an administrative fee, in a qualified project, and if that investment creates 10 jobs, the investor is eligible for permanent U.S. residency. The immigration status of more than 400 investors remains in doubt due to the alleged fraud associated with the projects and their failure to create jobs.

Contractors and subcontractors have found themselves in limbo, too, with payments for their work tied up in legal actions that has left many wondering if, as well as when, they will receive payment for the work they did.

Some say the state should have acted sooner to stop projects when it became apparent that money was not being used as outlined in investor agreements. Others say more attention has been paid to investors who face the loss of green cards, than to companies who are out the money due them for services they provided.

The Vermont EB-5 Regional Center suspended Burke Mountain and AnC Bio Vermont in August 2014.

In March 2015, at the same time state regulators began investigating Quiros and Stenger, Gov. Peter Shumlin pressed for partial approval for the projects, despite the misgivings of officials at the regional center and the Department of Financial Regulation.

The state allowed Stenger and Quiros to continue soliciting investors under the condition that any new monies had to be held in escrow and payments had to be approved by a third party administrator overseen by the regional center and the Agency of Commerce and Community Development. This arrangement led to long delays in payments to contractors who laid the groundwork for AnC Bio Vermont and completed the $50 million Burke Hotel in December last year. Payments to the Burke and AnC Bio Vermont contractors stopped altogether in the fall of 2015 when the developers ran out of money. The Stateside contractors walked off the job in the summer of 2015.

Contractors say they performed work for the developers in good faith and were not made aware that they would be on the hook as a result of the state action.

Lucy Leriche, interim secretary for the agency, did not return a phone call seeking comment last week.

Percy said he sees a big difference between himself and investors. “When you invest there is a risk,” he said. “My contract doesn’t say anything about being an investor. My contract says if I do this, I get paid that.”

Dignitaries break ground on a proposed EB-5 project in Newport last month. No state officials attended the ceremony. Photo by Anne Galloway/VTDigger

Dignitaries break ground on a proposed EB-5 project in Newport. No state officials attended the ceremony. File photo by Anne Galloway/VTDigger

Mike’s Electric of Jay, owed about $640,000 for work it did and services it provided for projects headed by Stenger and Quiros, took out a $500,000 loan from the Vermont Economic Development Authority. The state announced the loan program to assist contractors and subcontractors in June. The loans permit interest-only payments for the first year.

“It’s allowed us to move forward,” Andy Barter, a company vice president, said of the loan, adding that it has tied up $1.2 million in assets needed to secure it.

Mike’s Electric is owed $491,972 for its work at Burke, $51,366 for Stateside, and $27,729 for AnC Bio, court filings state.

The lack of payment contributed to the laying off three of the company’s roughly 60 employees, according to Barter. “Something had to give,” Barter said of the impact of having such a large account receivable on the books. “It’s been challenging, but we’re making it work at the same time.”

VHC Company Inc. is a Winooski-based company specializing in installing plumbing, piping and air systems. It’s the subcontractor with the biggest unpaid invoice, $799,421, for work at Burke Mountain Hotel and Conference Center.

David Brown, VHC’s president, said this week that while there has been a “great deal of anxiety” over the situation, “thankfully” the company’s cash flow has allowed it to get by without too much disruption.

“It’s obviously a very disappointing set of events that took place,” Brown said. “My concern, even now, is when are we going to paid.”

Brown, who is using part of a line of a credit to cover what he’s owed, said based on media reports he has seen, he expects at least a partial payment soon, and then the remainder to come when the hotel is eventually sold to a new owner, hopefully by the end of next year.

Michael Goldberg, the court-appointed receiver overseeing the properties at the center of the investor fraud cases, could not be reached for comment.

He has repeatedly said in previous interviews he expects to use funds from a recently approved $13.3 million settlement he reached with Citibank to make partial payments to the contractors. The settlement was reached to resolve a dispute between Goldberg and Citibank over a line of credit the financial institution extended to Quiros in 2015.

“I should be able to get contractors between 30 and 40 percent immediately, paid,” Goldberg said in an interview last month. “We’ll try to get them more.”

Conrad said while he also expects to get paid in full for the work he did on the hotel at Burke, a partial payment would at least be a start.

“That would definitely take some of the pressure off,” he said. “That would free up some money so I could start doing 30 percent more jobs than I’m doing now.”

The partial payment of funds from the Citibank settlement, Barter added, would provide some relief. “That would make a big difference,” he said.

Barter said he’s optimistic that at some point the bills will be paid in full, especially since the assets, including the hotels at Jay and Burke, are in “extremely good shape” and carry no mortgages.

Michael Goldberg

Attorney Michael Goldberg (left), is the court-appointed receiver in the Jay Peak EB-5 fraud case. Jeffrey Schneider is an attorney Goldberg brought in to help him with the case. File photo by Morgan True / VTDigger

Goldberg has said that in about 10 months, if the receivership is able to successfully sell the Burke Mountain and Jay Peak ski resorts, contractors will end up getting 100 percent of what they are owed.

In the months following the filing of the investor fraud lawsuits, Goldberg has worked with the contractors to obtain through the federal court in Miami writs of attachment on the properties where the contractors worked to help them collect on the unpaid bills.

The writs give the contractors no ability to enforce at this time, but it allows the company to seek repayment in the future. Under Vermont law, lienholders have 180 days after a lien has been filed with a municipality to sue. However, due to the assets being frozen through the litigation, that is not an avenue available in these cases for companies with unpaid bills to take.

In addition to using the Citibank settlement funds to make partial payments to contractors, Goldberg also asked, and was granted, approval by the federal judge presiding in the SEC case to use $1.9 million to pay the legal and professional fees that have accumulated since the start of the receivership in April.

In seeking those fees, Goldberg pointed to the complex legal and accounting work that was needed to stabilize the resorts. He also noted the reduced rates that the lawyers, accountants and other professionals have been charging for their work.

Some contractors contacted this week didn’t begrudge Goldberg and others getting paid for their work, but did wonder why lawyers, accountants and other professionals were getting 100 percent of what they were seeking while the contractors were getting far less.

“I think he knows what he’s doing. He’s a hustler. He works hard,” Percy said of Goldberg, but added, “If he gets 100 percent and I get 40 percent, I don’t think that’s right.”

Percy is owed $134,350 for sitework at Jay Peak’s Stateside condo project and $113,061 for site work associated with AnC Bio.

He also took issue with how state officials have handled the situation, saying he didn’t believe corruption was at play. However, he said, a lack of business experience and “common sense” from those in government positions made things worse and hampered them as they tried to fix it.

By allowing work to continue on projects once it became apparent that there wasn’t enough funding to complete them, Percy said, the state left companies owed money with no option but to sit tight and wait.

“The state bungled this thing,” he added.

Alan J. Keays

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  • Lisa Durstin

    In the NEK, this may be Shumlin’s legacy. How sad for a part of the state that’s already struggling.

  • Joe Torter

    Bottom line: This whole matter is simply, CRIMINAL. Douglas Hulme walked away from the stench in 2012.
    Instead of sucking the locals in with Main St – AnC bio – airport – window mfg – convention center
    smoke screens, Stenger could have prevented this local train wreck in 2012 or earlier. At that time
    his hands were on the controls.

    A simple, ‘ Pay as you Go ‘ approach to Jay/ Burke expansion could have made this area very
    successful.

  • The contractors are victims of business / political corruption of the highest score. How can you identify corruption? Just look for the white guys wearing suits. They will never face jail and they know it. And here comes the train into the station.

    • Gary Murdock

      “How can you identify corruption? Just look for the white guys wearing suits.”
      Now if I said something equally ridiculous, for example:
      “How can you identify a thief? Just look for the black guys wearing hoodies.”
      The comment would never be printed. I guess PC racism is OK.

      • More context, if it helps you understand the difference between calling out white guys in suits and “super predatora” or whatever the latest raciallized tough on crime – ism, then allow the following…

        People who think of themselves as white and thus the majority of white collar criminals cause more harm to humans through damages to life, liberty and property (see reconstruction, history of environmental racism in this country and overseas, the racial iced impact of the mortgage crises, etc.) and are rarely (like almost never) convicted of felonies, imprisoned for decades or put to death.

        People of color are routinely arrested and convicted on much smaller (drug) offenses, know flimsy evidence, often gathered by illegal searches. The ones unlucky enough to be hit with murder charges often turn out to be innocent years later (Central Park 5, Chicago Justice project, etc.).

        Jim’s comment, to me, wasn’t racist, just acknowledging history.

    • The first responsibility of the Contractors are not to become the victims. Many of these guys should and could have pulled the plug earlier. What happened to DEW Construction? I haven’t heard that they got hit by this fraud……Were they the only smart ones?

  • Neil Johnson

    In March 2015 Shumlin was still pushing for approval of partial project release? There was question, he knew then it was a scam, but he’s’ still pushing the project? And yet nobody in Vermont government is to blame for ANY of this? NOBODY?

    • Is there not enough blame to go around? I believe there is! Is our current Gov. In that mix? While not admitting to be.. what should your bet be ? Might be the same as mine. Please see this mess through…please make ALL accountable from the top of the current Administration on down the line. I feel for the contractors who are sitting on a pile of unpaids for work rendered! Get them their money!
      Yes, it does appear there was sufficient knowledge by those at the top of the mess that was accumulating!
      Just recently, our current Governor stated he was born
      “Without a fear gene”!! It’s been proven many times over!!

      • Bruce Wilkie

        “Without a fear gene”? Also without an ethics gene, with a greed gene, and with a pomposity gene.

  • Jim Christiansen

    The silence from the Governor and our federal representation is deafening. It is no mystery as to why faith in government continues to decline.

  • Neil Johnson

    Thank you for doing an article about the contractors, they have been suffering for over a year and what seems like another year. Perhaps they should get paid the same time as the attorneys, or visa, versa. Vermont contractors are getting the shaft on this deal….they need to be paid in full, eb5 investors need their green cards or what ever their goal was and settled via the investment for what it’s worth. There needs to be SOME accountability…please, $200 million missing and nobody is held accountable? And I’m not talking about Quiros, he’s the obvious one, but the Ponzi scheme of money was allowed by the state, and apparently pushed by Governor Shumlin as late as March 2015……..

  • judith Henault

    He knew because he had well detailed and researched information which he blew off. Despite the fact that Newport’s local officials, especially the mayor, “Were at the mercy of a single thought” as it used to be said about Reagan – the mayors single thought being, expand the grand list- concerned citizens presented all parties, Including Stenger, information, data and analysis which warned of the fraud being perpetrated. The reply: We trust Bill. No due diligence, no legal imput. Our local officials are overwhelmingly to blame for this fiasco and I’m sure Mr. Stenger knew he had putty in his hands and used it.

    • They certainly were willing participants and were easily lead down the primrose path to Stardom. Like many of the contractors, they saw $$$$$ signs and a chance of a lifetime. “Caveat Emptor”

  • Kim Fried

    It should be Shumlin and his cronies that should be responsible for taking loans to pay off the contractors after they played the political supporters for this scheme. Let’s just hope that see their day in court.

  • I thought the Miami Lawyer “Cleaned up the Mess”? In other words, he gets paid $1,900,000.00 and the contractors and towns wait to get paid from the scrapes.

    This just shows how dysfunctional the entire process was from the start. This certainly wasn’t run like a proper construction job with the proper safeguards in place. The Fraudster and the State are 100% responsible for this crime.
    – Where was the State verifying that the work was done prior to paying out the Money?
    – Were there Lien Releases used to make sure suppliers were getting paid?
    – Who was looking at the Schedule of Values for these jobs?
    – Did anyone review the contracts? Were there contracts?

    Why the Contractors ever believed the BS from Stenger will unfortunately serve as a hard lesson for many. The first and last rule among business professionals is “No Pay – No Play” because there are always people like Bill and Q out there and a fool and his money are soon parted.

    • everything you say is basically correct but let’s remember there was very little work going on up there and the contractors were trying to stay in business. We all sign paid when paid contracts and trust that the contractors will uphold their end of the bargain. Usually in VT that works, not in this case. I think this is one case where the state needs to step in and reimburse the contractors and sue for reimbursement. We did one smaller job at jay early on , after that I made thought the whole thing was a ponzy scheme and would collapse in a matter of time. Sadly I was correct.

      • You and a few others were smart. I realize in an economically depressed area (NEK) it’s easier to prey on the hard working people then in a economically vibrate area..That’s why this crime is particularly bad. I think the purchase of the Mountain was a way to exploit the EB5 system and the area.

  • Peter Ohlweiler

    I thought that Senator Leahy was an advocate for this project . Has anyone contacted him to hear his thoughts . That would be interesting .

    • He’s knee deep in this standing on Shumlins shoulders.

  • In her job as Secretary of Commerce and Community Development, Patricia Moulton was responsible for providing the oversight of the EB-5 program that the state was required to do. She completely failed to do the due diligence that the Governor told prospective investors was being done. As a reward for her failure to ensure proper oversight of the program, Vermont State College chancellor, Jeb Spaulding, gave her the job of interim president of Vermont Technical College. Chancellor Spaulding was Shumlins Secretary of Administraion before resigning to become the chancellor. Round and round it goes. No reprimand, no consequences, no accountabilty, just another cushy job.

    • Neil Johnson

      And the alarm bells were totally going off at 2012…..without question. Leadership should have said, Woah, we got a problem here, let’s fix it. But know it was compounded instead. Bad things happen, they always will, mistakes will always be made, but when you find out about them, that’s what makes the difference. How do you deal with it? That rug is kind of bumpy for a reason, bunch of stuff under it.

    • Its called Government….defined as the Vermont Banana Republic.

  • Sad story which seems to repeat itself time and again. When will Shumlin, Lahey, Moulton, and the rest of the incompetents be brought to justice? Probably never. Shumlin leaves the governorship unscathed, Lahey gets reelected and Moulton gets a cushy job at VTC. Sooner or later the working class people will have had enough and there will be a revolution.

  • Contractors should be paid before anyone else, lawyers included. The public always gets stuck.

  • Jeff Graham

    Maybe the prudent thing to do in the future is to have the developer place 10 % of the project costs in an escrow account to be governed by a neutral third party to protect the good faith efforts of contractor and service providers so this can’t happen again. Vermont should stop looking like East Podunk to the rest of the world and learn from prior mistakes then provide protections before they ruin companies.

    • Neil Johnson

      See, Vermont was and did have all the money in escrow before the project started. That was their job.

      They allowed the money to be released, shuffled and put into all sorts of accounts, that apparently had nothing to do with actually building the project. This could not have been done without Vermonts permission.

    • Massive Failure on the States part. They were handing out money without looking at the progress on the project or how the money was being paid to.. The Fraudsters submitted a draw and the State funded it. If the State had required the job to run like a regular large construction job, there would be accountability, checks & balances and “skilled” over site.of the pay outs.

      • Darin Gillies

        which is why the state should reimburse the contractors and then go after the guilty parties for the money. The state was tasked with ensuring the project was funded correctly and they failed at their job.

  • This whole thing is a travesty of justice and common sense, but is not unusual when government people ‘oversee’ but have no skin in the game as individuals. Inept bureaucrats continue to receive their salaries (along with the come lately lawyers, accountants, etc) no matter the result of their actions or non-actions.

    My company did “emergency repair work for USDA FHA (now FSA) Middlebury, VT & Colchester, VT and have not been paid and our statements, phone calls, & letters have largely been ignored. There has never been any serious investigation, that included me, of this fraud committed by Rodney F Haggett who told me he was in charge of the office and the money to pay for the work that he as an official of USDA FHA was requesting us to do. He repeatedly told me that he/FHA guaranteed that we would be paid for our work.

    This fraud and subsequent cover-up by VT USDA FSA office is criminal.
    I have more names, dates and other info available on request.

  • lolly arena

    Funny one would think this offense is on the hands of the Atty General office!
    Who else????

    • AG’s office may be after the fact as part of the cover up?

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