Crime and Justice

UPDATED: Vermont commerce agency rebuffs federal shutdown of EB-5 center

Dignitaries break ground on a proposed EB-5 project in Newport in May 2015. Photo by Anne Galloway/VTDigger

[T]he state is appealing a federal decision to terminate the Vermont EB-5 Center.

The administrative appeal, filed Wednesday by an outside law firm, alleges that the U.S. Citizenship and Immigration Services termination decision “is not based in federal law or USCIS guidance documents.”

Gov. Phil Scott and his administration have pushed for a “wind-down” of the center and, as promised, appealed the decision in order to protect Mount Snow, a ski resort in Dover, Vermont, and von Trapp Brewery in Stowe, which are the last EB-5 project operating under the aegis of the state-run program, and investors in other projects. The brewery has sought to raise $22 million in immigrant investor funds.

The federal government says the state did not do enough to stop a $200 million fraud at Jay Peak Resort, a ski resort in the Northeast Kingdom, and has pulled its center designation.

Lawyers from Baker Donelson representing the Vermont commerce agency allege that the USCIS decision to shut down the state-run EB-5 center was “inappropriately supported by press articles rather than more reliable evidence.” Read the administrative appeal here.

USCIS in July determined that state officials misled federal officials and investors when they signed off on documents attesting that a biomedical company had FDA approvals for artificial organs — E-Liver, C-Pack and TLPS to replace liver, kidney and heart and lung functions — that were to be manufactured in a Newport plant paid for with immigrant investor funds. Bill Stenger, the CEO of Jay Peak, and Ariel Quiros, the owner of the resort never applied for FDA approval. Read the Notice of Termination here.

Baker Donelson argues that the Vermont EB-5 Regional Center has “consistently made comprehensive and accurate representations” in its filings and “helped to stop the fraud when it was discovered.” The lawyers say 924A forms with information about projects submitted to USCIS were accurate.

The state-run EB-5 program was responsible for management and oversight of a $400 million development of AnC Bio Vermont, Jay Peak Resort and Burke Mountain, which the Securities and Exchange Commission determined in April 2016 were part of a massive Ponzi-like fraud scheme. AnC Bio Vermont was described by federal regulators as “nearly a complete fraud.” In all, about $200 million was misused and Quiros allegedly stole about $50 million, federal regulators said. The SEC case was recently settled.

More than 800 investors put up $500,000 each in the developments in exchange for green cards.

In addition to citing material misrepresentations, the federal immigration agency says the state did not adequately monitor the projects, that the fraud stymied required economic development measured by employment quotas, and that regulations do not allow for a wind-down scenario for the center, as the state has proposed.

In its appeal of the decision, the state’s lawyers say that abruptly terminating the center is “arbitrary and capricious, and outside of legislative authorization.”

Further, the state says the shutdown would further hinder economic growth and inflict harm on innocent investors. Investors in von Trapp Brewery, and more than 400 in Jay Peak Resort projects, have not yet been able to obtain green cards because of the fraud.

Under federal policy, the shutdown of a regional center automatically results in the denial or revocation of green card petitions for investors.

Termination of the center could make legal residency for these investors a distant hope.

Upon announcing its decision to close the center, the USCIS said the fallout from the decision was the state’s problem to deal with, as it had failed to ensure proper oversight in the first place.

Baker Donelson says it is “arbitrary” of the federal government to destroy “the immigration process for innocent investors and projects.”

The state says EB-5 projects have resulted in an investment of more than $500 million in foreign capital in Vermont and the creation of 3,700 jobs. Lawyers tout economic growth at von Trapp’s and Mount Snow, which has formed its own EB-5 regional center in the wake of the fraud. Former employees of the Vermont EB-5 Center, Becky Fu, who served as a manager of international trade, and Brent Raymond, who was the director of the program, are part of the two last projects. Fu is married to one of the owners of von Trapp’s; Raymond runs the EB-5 program at Mount Snow.

In addition, Baker Donelson writes that USCIS did not impose specific obligations on regional centers “to administer, oversee or manage” EB-5 projects.

In the next breath, the lawyers say the Vermont EB-5 Regional Center “engaged in a robust program of both investor and project-specific oversight.”

The state says officials comprehensively reviewed EB-5 project offering documents, project materials, and economic impact reports. In the appeal, Baker Donelson says the center revoked an MOU with the American Dream Fund project, which it determined did not meet state standards. VTDigger investigated the Dream Fund project and found that one of the principals had a history of alleged development frauds in Quebec. The state canceled the MOU shortly after the story was published.

Baker Donelson says the center expanded its scope of reporting in October 2012, when commerce secretary Lawrence Miller approved the AnC Bio Vermont project. This enabled state officials to require compliance with federal and state securities laws, the lawyers say.

AnC Bio Vermont was approved five months after Douglas Hulme, a former business partner of Quiros and Stenger, warned Miller in a telephone conference call that Quiros and Stenger were engaged in a massive fraud scheme at Jay Peak. Hulme had issued a letter to 100 immigration attorneys in February that year that he no longer had faith in the financials at Jay Peak. After he spoke with state officials in May, Miller sent a note to Stenger, assuring him that we are “on the same page” here. In June, the state attacked Hulme’s credibility and forced him to leave the state and forgo involvement in the Mount Snow project where he was working to help the resort solicit foreign investors.

It wasn’t until 2014, that Brent Raymond, the director of the center, suspended the MOUs for the Burke Mountain Resort (which was illegally purchased by Quiros with investor money) and AnC Bio Vermont. The state did not begin its investigation of Jay Peak until March 2015, according to an interview with Michael Pieciak, the commissioner of the Department of Financial Regulation. Gov. Peter Shumlin reversed the decision to suspend the MOUs in March 2015 and allowed the developers to continue soliciting investors right up until the SEC brought charges of securities violations and fraud in April 2016.

Lawyers for the state say that Quiros’ diversion of investor funds that resulted in a $50 million looting of the projects, and misuse of $200 million was solely “the result of a secret, orchestrated fraud perpetrated by actors outside the Vermont Regional Center.”

Baker Donelson takes issue with USCIS’ citation of reports in VTDigger that the center did not require Jay Peak to submit quarterly reports. The media report “lacks the evidentiary veracity required for USCIS to use as a basis for findings.”

The state says the Jay Peak developers used delays and obfuscation to thwart oversight.

The lawyers also assert that the federal government misread lawsuits filed by the Securities and Exchange Commission and in Washington Superior Court against the developers of Jay Peak.

The commerce agency pushes back on the USCIS assertion that the state did not provide adequate administrative oversight.

“By attributing to the VRC the misrepresentations and concealments of project principals, USCIS improperly imposes a strict liability standard upon the VRC and its other projects for the secret diversion of funds by the Jay Peak Project developers and their agents,” Baker Donelson lawyers write.

The fraud, the state insists, was perpetrated on investors, contractors and the state.

“Abrupt termination of the VRC would not solve certain EB-5 project problems of the past, but would only strip the remaining projects of the VRC oversight currently in place,” the lawyers write.

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Anne Galloway

About Anne

Anne Galloway is the founder and editor of VTDigger and the executive director of the Vermont Journalism Trust. Galloway founded VTDigger in 2009 after she was laid off from her position as Sunday editor of the Rutland Herald and Times Argus. VTDigger has grown from a $16,000 a year nonprofit with no employees to a $2 million nonprofit daily news operation with a staff of 25. In 2017, Galloway was a finalist for the Ancil Payne Award for Ethics, the Al Neuharth Innovation in Investigative Journalism Award and the Investigative Reporters and Editors FOIA Award for her investigation into allegations of foreign investor fraud at Jay Peak Resort.

Email: [email protected]

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