State increases scrutiny of EB-5 projects, obtains first settlement

State increases scrutiny of EB-5 projects, obtains first settlement

EB-5 Visa, EB5 Visa, EB-5 Investment

The most recent news to hit Vermont indicates that state regulators are paying greater attention to the details of EB-5 projects in the aftermath of the problems besetting certain Northeast Kingdom EB-5 projects. They are also meeting with success in their investigations of fraudulent use of EB-5 funds.

The developer of the SouthFace Village at Okemo — located on the upper southeast slope of Okemo Mountain Resort — has been ordered to stop soliciting EB-5 investors until changes are made revising language describing the risks of investing in the project. Changes to a Memorandum of Understanding with the State of Vermont are also being required, and escrow release changes must be made, according to news accounts.

The developer of the SouthFace Village project is the Rossi Group, not Okemo Mountain Resort. Okemo spokeswoman Bonnie MacPherson noted, “Okemo’s only role is an operationally supportive one.”

The Rossi Group not only owns the land upon which the village is being built but also the new quad chairlift which connects the village to the base of the existing South Face chairlift. (From that area it is possible to access the main resort from existing ski trails.)

Okemo installed the chairlift and built the trail under it, MacPherson said, adding the mountain’s role is to maintain and operate the chair.

Whereas Okemo had previously handled marketing for the project, that was taken over by the developer earlier this year. One building of 8 residential units has been constructed to date with units presold. MacPherson said that presales for other project phases are continuing.

The Act 250 permit for the village was granted in Sept. 2013. The application was for the entire project rather than for phases of a master plan. At that time, attorney Andrew Becker, VP Administration and General Counsel for the Rossi Group, commented that although the village buildout could take 10 years or more, the decision had been made “to plan, design, and engineer the entire project at once” so that they could be ready to build it when the economy turned around.

The permitted project includes 208 residential units and a base lodge as well as ski lifts and trails on a portion of a 266.80-acre property. (Buildings and trails to be on about 30 percent of the property with 145 open acres for green space and the rest dedicated to protecing wildlife.)

Meanwhile, Peak Resorts, Mount Snow’s owner, received approval from the United States Citizenship and Immigration Services (USCIS) for its EB-5 program on May 25, 2016. (Vermont Regional Center approvals were received in 2014.)

In total, there are $52 million in improvement projects (announced in 2014) which include a snowmaking pond and a new base lodge at Carinthia. Currently Peak Resorts is awaiting an investor petition approval. This requires the first I-526 Petition, which has to be submitted by an investor in the Mount Snow EB-5 offering, being approved by USCIS. This step typically follows the program approval and once approved, escrow funds can be released to the projects.

Over $12 million was spent in constructing the West Lake (snowmaking pond) last summer. Those funds will be reimbursed upon the authorized escrow release and the completion of the project will follow.

EB-5 program brings progress to Vermont ski resorts

Run by the Vermont Agency of Commerce & Community Development in partnership with the Vermont Department of Financial Regulation, the EB-5 program grants a green card to a foreign national who invests $500,000 in a project that creates 10 direct and indirect jobs within the Vermont EB5 Regional Center (as opposed to $1 million for standard EB-5 projects that create 10 direct jobs in the US). The successful creation of jobs then leads to a Visa for the investor and his family. There is a provision for the return of the investment but as with any investment there are no guarantees so documents must clearly spell out the risks of any investment project.

The EB-5 projects at Sugarbush, Jay Peak, and Burke Mountain have brought great progress to all three resorts. Sugarbush owner Win Smith utilized the EB-5 program to fund recent development projects at Sugarbush, commenting on how difficult it had become to obtain funds for construction projects and how EB-5 made rural development possible in Vermont.

Peak Resorts VP of real estate and business development Dick Deutsch noted, “The recent negative news about the program has tainted its image, but its real purpose shouldn’t be forgotten. The project approval is excellent news for a company, a resort, and a community that view the EB-5 program as an opportunity to better the guest experience, add jobs, and improve the local economy.”

Peak CEO Tim Boyd added that hopefully Mount Snow’s project approval would be good news that would help to change the current “negative EB-5 dialogue.”

SEC Complaint

Boyd and Deutsch were referring to the “bad news” from the SEC’s 82-page Complaint alleging the misuse of EB-5 funds by Ariel Quiros, owner of Jay Peak and Burke Mountain. The charge of fraud resulted in the SEC taking over the resorts and operating them under the SEC appointed receiver Michael Goldberg.

Although the original April Complaint accused Quiros of misappropriating $50 million of EB-5 funds for his own use, the amount was later updated to pilfering around $192 million ($106 for the AnCBio and Stateside at Jay projects, $20 million for Jay Peak projects, $15 million in interest, and the $50 million for his personal taxes and purchase of a Trump Tower Condo among other things.)

Bill Stenger, (now former) CEO of Jay, was also mentioned in the Complaint for “facilitating” Quiros’ fraudulent activities by not maintaining control of the EB-5 funds, thus allowing Quiros to divert investor funds for his own purposes and alleging he  “abdicated his fiduciary duty.” Charges also allege Stenger made misrepresentations to more than 700 foreign investors.

However, comments made by Goldberg in a June 29 VTDigger article by Anne Galloway indicate that Stenger himself is innocent of any illegal use of EB-5 funds. (Stenger released the funds to Quiros’ accounts at Raymond James in Florida, hence the facilitation allegation.)

Stenger has been co-operating with the SEC investigation and has requested an extension of the hearing of his case to August 19 as settlement talks are ongoing.

In fact, Stenger was hired by Goldberg to continue to work at Jay and help the company which Goldberg hired to run the resort (Leisure Hotels & Resorts) manage the area. Goldberg characterized his work as “extremely helpful over the past two months.”

Galloway also quoted Goldberg as telling an investor, “Our forensic analysis indicates that Bill Stenger never diverted or otherwise personally transferred investor money to himself other than his salary . . . This is much different from Quiros who wrongfully diverted investor money for his personal benefit.”

DFR obtains settlement with Raymond James

In a press release of June 30, Vermont Department of Financial Regulation (DFR) Commissioner Susan L. Donegan announced that the DFR had reached a $5.95 million settlement with the Miami-based securities broker-dealer firm Raymond James and Associates Inc.

That was the firm where Ariel Quiros, who lives in Florida, established multiple accounts for receiving escrow funds for the various North East Kingdom EB-5 projects. EB-5 regulations govern releasing those investor funds for the appropriate EB-5 projects as payment for project costs is due. Any other use is prohibited.

“As the result of its investigation of securities concerns in connection with the sale of interests in Vermont limited partnerships tied to Jay Peak-related EB-5 projects, DFR found multiple instances of non-compliance with supervisory requirements and Vermont law,” leading to the further investigation of the role of the Raymond James Miami office.

The factual findings of a Registered Representative participating in improper activity and not being properly supervised led to the settlement agreement.

The agreement includes “the payment of $4.5 million to the appointed federal receiver in the case SEC v. Quiros for the purpose of reimbursing possible claims by investors;” $200,000 to be paid to DFR for the cost of the investigation; and a $1.25 million penalty to be paid to Vermont’s general fund.

In its factual findings, DFR states, “RJA failed to obtain adequate documentation establishing Quiros’ authority to act on behalf of the limited partnerships.”

The investigation also found that RJA’s “Registered Representative permitted Quiros and the Limited Partnerships under his financial control to set up margin accounts collateralized by short term treasury bills purchased by the limited partnerships, with funds derived from the EB-5 program.”

Most damaging was that “On June 23, 2008, the Registered Representative allowed Quiros to direct the transfer of $13 million in Limited Partnership funds to purchase the Jay Peak ski resort despite written instructions advising that investor funds were not to be used for that purpose.”


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