Courts & Corrections

Judge OK’s payment option for unpaid EB-5 contractors, subcontractors

Burke Hotel
The Burke Hotel. VTDigger file photo

Many of the contractors and subcontractors owed money for their work on EB-5 funded developments projects in Vermont’s Northeast Kingdom will soon have a decision to make about how they will start getting paid.

Michael Goldberg, the court-appointed receiver overseeing the properties following allegations of massive fraud against project developers in April, filed a motion Tuesday laying out the plan to start paying contractors and subcontractors some of the money they are owed. Judge Darrin P. Gayles approved it late Wednesday afternoon.

The companies can opt to get paid for 33 percent of what they are owed, and hope they will be made whole in the future with proceeds from the sale of the property where they performed work. Or, according to the filing, they can take a onetime 60 percent payment now of their total bill, and write off the other 40 percent.

“(T)he Receiver intends to immediately contact each Stateside and Q Burke contractor with an undisputed claim to select the option it prefers,” Goldberg wrote in the filing, “and upon receiving written confirmation from each contractor, the Receiver intends to issue immediate payment based on such chosen option.”

The filing adds, “In the event too large a number of contractors elect Option 2, and the Receiver determines that it is not prudent to expend such a large amount of cash at this time, the Receiver intends to pay any contractors he deems advisable pursuant to Option 1.”

Goldberg could not be reached Wednesday for comment.

Michael Goldberg, Peter Shumlin
Michael Goldberg, left, the receiver for the Jay Peak and Burke ski areas, and Gov. Peter Shumlin. File photo by Anne Galloway/VTDigger

The lack of payment has hit many of the subcontractors hard, forcing some to lay off employees, take out loans, and extend lines of credit. Goldberg has repeatedly said previously that he expected the initial payments to the contractors and subcontractors to be in the 30 percent to 40 percent range of their total amount owed.

Shortly after the filing of the judge’s order, Vermont Gov.-elect Phil Scott issued a statement saying he was pleased with news of the payment plan for the contractors and subcontractors.

“This progress is a welcome step toward ensuring small businesses are compensated for the work they provided as fairly, and as quickly, as possible,” Scott, a Republican, said.

He added, “As governor, I will work closely with our Department of Financial Regulation and all involved in this matter to continue to help the community and affected businesses and families rebuild.”

The payment plan is for the more than 30 companies that worked on the Burke Mountain Hotel and Conference Center, which opened in September, and a condo village at Jay Peak, called Stateside, which is incomplete because the developers, Ariel Quiros and Bill Stenger, ran out of money.

Goldberg wrote in his filing that contractors and subcontractors who worked on a proposed $110 million biomedical center in Newport, AnCBio Vermont, are not included in this round of payments. Only site work for that project took place. Federal regulators later said the project was “nearly a complete fraud.”

Contractors and subcontractors for that project are owed more than $2 million, court records state.

“At this point in time, the Receiver does not yet know what he will do with the AnC Project, and ultimately, he may determine that allowing the contractors to foreclose their lien rights is in the investors’ best interests,” Goldberg wrote. “Therefore, at this time the Receiver does not want to use his limited cash to pay the AnC Contractors.”

Rob Conrad, owner of Conrad Construction in Derby, said Wednesday he hasn’t decided which option he will take. He is owed $245,237 for siding and roofing work at the Burke hotel.

“I don’t know yet, it’s too early to tell. I’ll have to get some advice,” Conrad said. “I really haven’t had time to digest it.”

PeakCM served as the general contractor for the Burke and AnC Bio projects, and DEW Construction was the general contractor for Stateside.

Sandy Fead, PeakCM’s attorney, said Wednesday he hasn’t yet had time to talk to his client, Jerry Davis, the company’s president.

“We’re happy to see that there will be some cash available to contractors and subcontractors,” Fead said. “Each of them will have to think about which approach will be better for them. This approach does give them a possibility to cash out and move on.”

According to court records filed in the case, PeakCM is owed $3,919,903, which includes $3,699,121 due to the subcontractors for their work building the Burke Mountain Hotel and Conference Center.

Also, court records in the AnC Bio case state, PeakCM is owed $2,170,649, including $278,750 for subcontractors.

DEW Construction Corp. is owed $2,198,201 for it work at Stateside, including $1,010,993 due to subcontractors, according to court records.

In addition to the general contractors choosing one of Goldberg’s options, the subcontractors will have the same choice.

The money to start paying the contractors and subcontractors will come from the proceeds of an $13.3 million settlement Goldberg reached with Citibank, a financial institution used by one of the developers, Jay Peak’s owner Ariel Quiros. The settlement resolved a dispute between Goldberg and Citibank over a line of credit and which entity was entitled to the assets Quiros put up as collateral.

Quiros, who owned Jay Peak, and Bill Stenger, the resort’s former CEO and president, raised money through the federal EB-5 immigrant investor program to fund their series of projects over an eight-year span. Those projects include the ones that left the contractors and subcontractors with the unpaid bills.

Federal and state lawsuits against the two developers allege they misused $200 million of $350 million raised from EB-5 investors for seven out of projects, not including the Burke ski area. Those investors each put up $500,000, plus an administrative fee in a qualified project. If that investment leads to the creation of 10 jobs, the investor becomes eligible for permanent U.S.residency.

Goldberg’s payment plan was filed in federal court in Miami, which is where Quiros lives and many of his businesses are located. Gayles, the presiding judge, issued a three-page order approving the use of the Citibank settlement funds for the payments.

“Although the Citibank Settlement Proceeds are significant, the Receiver still lacks the necessary funds to pay all contractors, trade creditors and other creditors in full,” Goldberg wrote. “Moreover, the Receiver needs to utilize a significant portion of the Citibank Settlement Proceeds to supplement the Jay Peak Resort and Burke Hotel’s operations and pay for the administrative expenses of the receivership.”

Stateside Townhomes
Stateside Townhomes at Jay Peak. VTDigger photo

In addition to paying the contractors and aiding in the running of the resorts, the Citibank settlement funds are expected to help pay the roughly $2.5 million in back taxes owed to the towns where the properties are located, Burke, Jay and Newport.

Also, Gayles last month approved Goldberg’s request to use $1.9 million of the settlement funds to pay the attorneys, accountants and other professionals who have worked for the receivership since the filing of the state and federal investor fraud lawsuits in April through Oct. 31.

Goldberg cited the complex nature of the case, the largest EB-5 alleged fraud case in the program’s history, for his fee request. He added that about $600,000 of that total went to accounting fees to help untangle the intricate web of transfers that occurred as part of the alleged “Ponzi-like” scheme.

For the contractor and subcontractors weighing the two payment options, Goldberg wrote in the filing that he doesn’t know how much the Stateside condo village or Burke hotel will eventually sell for.

“Importantly,” he wrote,”there is no guarantee that the Stateside Contractors or the Burke Contractors will ever be paid in full as the Receiver cannot guaranty that the net sales proceeds will be enough to satisfy their liens when the properties are eventually sold.”

He added that Stateside contractors and subcontractors would only be paid from the sale proceeds of the Stateside project, and, similarly, Burke contractors and subcontractors would only be paid from the sale proceeds of the Burke Hotel.

The Citibank settlement proceeds do not provide any funds for investors.

“Arguably, if the contractors have valid liens, they would be entitled to a distribution of the net sales proceeds of the Stateside Cottages and/or the Burke Hotel prior to the investors in those projects receiving a distribution,” Goldberg wrote in the filing. “Accordingly, making a distribution to the Stateside Contractors and Burke Contractors at this time prior to investors receiving a distribution is reasonable.”

Then he added, “Finally, equity itself dictates that the ‘mom and pop’ contractors who helped build these properties should be paid first.”

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  • Will the EB5 investors (green card recipients) be made whole while the contractors are offered a percentage of what they are owed? If so, it does not seem fair at all. The investors knew that this was speculative while the contractors agreed to do the work expecting to be paid what they are owed. And let’s not even discuss the lawyer’s fees and how quickly they have been paid. And why are Quiros and Stenger not in the poor house? None of this seems fair to me. Seems like the contractors are getting the short end of this deal.

    • John Zuppa

      Leaving these contractors to twist in the wind is the same BS that Leahy and Co. have piled on the hard working Vermonters with their US Government sponsored programs…

      The US taxpayers in Vermont and the Nation are footing the bill for the Green Mountain National Forest destruction by a foreign company..(Iberdrola of Spain)

      The EB5 contractors and the US taxpayers have been OFFICIALLY HOSED by the same parties that could not stop megalomania from ruling…

      PAY these workers what they are OWED…NOT what they are forced to bargain for…

    • Jill Joshsoniel

      How do you know the EB5 investors will be made whole? The only thing I can see from this article is the contractors will be paid before the investors.

  • Joe Torter

    It looks like the investors are now attempting to turn the tables against the contractors, municipalities, local citizens, etc. The investment concept of Risk/Reward is out the window.
    The investors took the Risk. Why? Primarily for the Green Card Reward. Wasn’t the investment aspect of the EB 5 secondary to them ? Certainly they could have invested
    $ 500,000 elsewhere in the world and be almost guaranteed a moderate, safe return. Only after all non equity participants are made whole do the investors have claim to any residual. After all, they still have ownership of the bricks and mortar, even if it may be very little.
    Perhaps best use of future legal expenses is not attempting to carve out a refund from the settlements. Put this resource to better use through petitioning the regulatory agencies to grant them the Green Cards they so desired from the beginning.

    • Wei Wang

      the investors take the risk of losing their investment by normal and legal business operations/actions, not by fraud. No one signed a contract stating this maybe fraud but you may get your green card. Green card is the by-product of a successful investment. Don’t think this investment is buying citizenship, this is not the law says. know the fact. Goldberg is doing a good job so far at least getting the contractors paid partially considering the whole thing happened. Who told you the investors are getting all their money back?

      • Neil Johnson

        the contractors did their work too, not by fraud. It’s a real mess, and it all comes down to how they allowed the money to be handled. The money was there as promised. The contractors did as promised. The investment was it’s own risk. The state however, was in charge of how the money was to be spend and released for this project. This investment was for green cards, you couldn’t sell it to anyone else on it’s own investment merit. If the wheels of justice had any grease this would get resolved pretty quickly, but as part of a negotiating tactic, time works towards those who are pressing for a settlement (the person in charge), they will basically bankrupt all the companies with time, forcing them to take what they want them too. What a mess, this is what corruption and incompetence gets you.

  • John Tershow

    Billy is friends with the politicians. Goldberg is friends with the politicians. One of them gets paid in full, as soon as the money is available. The other is still being paid the equivalent of 100,000.00 a year. Quiros, not friends with the politicians. The contractors are not friends with the politicians. One is getting railroaded with ALL the responsibility and the others are being dangled a carrot that has major consequences! See a pattern???? How can Bill show his face around here?? You aught be ashamed of yourself. I hope you are enjoying your lakefront home and multiple condos, while these contractors are being asked to make decisions that can put them out of business and keep food out of their childrens mouths. Disgusting!!!

    • Bingo, I’ve said it more then once, seems Q is getting railroaded because he didn’t roll over. Notice his kids are being investigated but at least one of Bill’s at boys is still collecting a pay check from the resort.
      Q has a slight tough guy look.
      Bill has the amiable grandpa look.
      Why aren’t both B and Q selling assets to pay the contractors?

      • Both of Billy’s boys, god daughter, her husband (marketing guy) plus there friends all work there contributing to these short falls they have come accustomed too. They are all guilty of milking the operation like Q’s family was doing.
        Leisure must be making out big! Percentage off gross profits plus all expenses paid.
        Please tell me what they are doing up there?

  • todd spayth

    In all of the discussions, I do not recall reading about any of the creditors filing liens against the properties to prevent the sale. I believe the term is called “a cloud on the title”. Property ownership cannot be transferred until all “clouds” defects in the title are cleared. In this case it would be by seller paying creditors. Did I miss something?

  • Neil Johnson

    Clearly they are working for the big moneyed banks, who you notice got out of this the quickest and probably hurt the least, and they were part of the Ponzi scheme. Now I could understand how Phil Scott might have stayed out of the Supreme court battle, he didn’t need to fight there. But being a contractor himself and not at least fighting for the Vermont companies that are getting screwed, if this is foreshadowing we are in deep trouble.

  • “Finally, equity itself dictates that the ‘mom and pop’ contractors who helped build these properties should be paid first.” . . . After Goldberg gets his $1,900,000.00?
    This entire receivers authority sounds fishy to me. The priority should be to sell all the assets and pay the liabilities. Instead he still hasn’t drained the swamp and seems to be helping rehab Bill’s standing in the area.
    A great company is needed to purchase the Mountain and run it operationally correct. There remain some good people there, but the resort needs a big cultural change.
    It will be interesting to see the balance sheets going forward without the EB-5 slush funds.

    • Darcy Canu

      I agree, Steve Baker – the companies who invested in planning, man hours, materials, insurance coverage, equipment – all costs of doing their choices of business – should be the entities that are considered first. Concentrate on selling all assets now – there are buyers who I’m certain will see great possibilities in the continuing development of Jay/Burke. First priority – PAY the people who are being offered pennies on the dollar. Disgusting.

  • Brian Campbell

    The article says “The Citibank settlement proceeds do not provide any funds for investors” and “Accordingly, making a distribution to the Stateside Contractors and Burke Contractors at this time prior to investors receiving a distribution is reasonable.”

    Previously, the investors objected to plans that would pay the contractors first, but they later dropped their objections.

    This plan leaves some risk with the subcontractors; they need to decide to take single payment of much less than they are owed, or a smaller payment up-front with the possibility to recover the amount owed over time once the resorts can afford it. Either way, they will get paid before the investors.

    The liens were mentioned too, as a reason for the contractors being paid first: “Arguably, if the contractors have valid liens, they would be entitled to a distribution of the net sales proceed of the Stateside Cottages and/or the Burke Hotel prior to the investors in those projects receiving a distribution.”

  • Neil Johnson

    And look who got out of town just in time. No coincidence I’m sure. Phil Scott just got passed a loaded baton. Hopefully he actually fights for the Vermont contractors.

  • William Hays

    I think the settlement offer stinks. I thought “mechanic’s liens” were sacrosanct. The 33%/60% (maybe 33%, too) choice should not stand. Maybe adding equity shares on the properties for the contractors would help Those owed for the AnC Bio thingie get nothing? The EB-5 investors seem to have gotten the filthy end-of-the-stick (they deserve, in good faith, better), while the lawyers happily trot to their banks. Goldberg can come up with a more equitable plan. Maybe tap some of Shumlin’s and Leahy’s unused campaign funds, or personal equity. Fat chance!

    • Neil Johnson

      Notice how the NY investment bank got out of this first and quick. Make a quick payment and I’m out. How is this? Obviously a smart play on their part. Follow the money, follow the connections. And then ask how is justice being served? Is Justice served?

  • David White

    How much has disappeared? 250mil? All that’s left is 14 million deposit on trading account? 5 mil owed to construction companies. Where did it all go? No one has any idea? All of these businesses are running at losses? No profit to pay bills? Construction costs are not bills? Very shady . All parties walk and some still work there. I’m surprised these crews do not form a group and sue the state, Feds, and anyone else who got paid

  • Goldberg is not doing anything different than Billy and Q were. Comingiling money to keep the resort afloat. You are boasting record revenues over the recent holiday period, then why does he need money for operational expenses? Shows the business is not sustainable with current management! Lots of weak areas in your operations right now, this holiday period was rough on employees. Fustration with guest is shown in reviews.
    Q’s final goal in this mess was to sell out after all projects were done so he could backfill everything. The difference now is that the resort will take a huge loss on its value when selling. Outdated infrastructure with unfinished work does not set you up for a nice price tag.
    Goldberg wants to sell each outlet as a separate piece, why would he not sell Ponzi peak as one? It operates that way.
    Really disappointing that Billy is getting 100% of his money but the workers who did HONEST work will most likely see no more than 70% of what there owed.

    • That’s about it Dave.
      I look forward to the days when the Mountain, Maintenance, Golf Course, Ice Area, Hotel Hospitality, and Restaurants are run independently by professionals in those fields.
      We own and operate 2+ billion in multi-family residential real estate, do you think we plow the snow or paint the walls? The entire operation has been run as poorly as our state government.

  • Never mind all the haggling over who did what. Pay The DAMMED contractors who without all of their hard work none of this would have happened. Let the attorneys get in the back of the line where they belong.