Gov. Phil Scott’s administration and the federal government concur that the Vermont office that oversees the state’s scandal-ridden EB-5 Immigrant Investor Program ought to be closed, but they differ on the timing — phased-out or immediate — and the reason. The latter difference is significant because it suggests that the state has yet to fully come to terms with the facts of its own role in the massive fraud alleged to have occurred in connection with a cluster of development projects associated with Jay Peak in the Northeast Kingdom.
The federal EB-5 program grants permanent U.S. residency status to foreign citizens who invest $500,000 or more in qualifying projects that create at least 10 permanent, full-time jobs. It was a sleepy backwater among government programs until the Great Recession of 2008, when access to domestic capital dried up. The program’s subsequent growth was explosive; with it came instances of abuse and new scrutiny from the U.S. Securities and Exchange Commission. This is the context in which the SEC and the state of Vermont last year filed complaints alleging that over eight years, the owner of the Jay Peak projects, Ariel Quiros of Miami, and the chief executive, William Stenger of Vermont, misused $200 million of the $350 million they raised from foreign investors under the program, including $50 million Quiros misappropriated for his personal benefit. The resulting mess is now being untangled by a federal receiver; Stenger has reached a settlement with the SEC, the full terms of which have not been made public, while a lawyer for Quiros recently said he would not contest the SEC charges and will litigate only the damages.
In light of the scandal, Scott in July asked the state Department of Financial Regulation (DFR) to undertake a review of the Vermont Regional Center, which administers the EB-5 program in the state. That report, dated Aug. 18, notes that from 1997 to 2014, the Regional Center was operated exclusively under the auspices of the Agency of Commerce and Community Development. It was responsible for screening projects and for marketing, as well as for monitoring compliance with legal requirements.
In 2014, as problems began to surface at the Jay Peak properties, the compliance responsibilities were shifted to the Department of Financial Regulation to address what should have been a glaring structural problem from the beginning — an inherent potential for conflict when a single entity is responsible for both promotion and monitoring. Up until 2014, the Regional Center conducted periodic site visits to the Jay Peak projects but did no financial audits. According to the DFR report, it lacked the authority to do so under state law. Given the underlying mission of the Agency of Commerce and Community Development, one also wonders if it had sufficient expertise and motivation to monitor financial compliance.
The DFR report says that while the involvement of state financial regulators now provides adequate safeguards, the Regional Center ought to be phased out because it doesn’t represent the best use of state resources and because its role can be effectively filled by the private sector.
The U.S. Citizenship and Immigration Services Aug. 14 notice of its intent to terminate the Vermont Regional Center is a stinging rebuke. It concludes that “the evidence of the record indicates that the Regional Center’s failure to provide adequate oversight and monitoring of its projects allowed the alleged malfeasance by Quiros and Stenger to occur . . .” It also raises the specter that the Regional Center may have permitted marketing for one of the projects to continue after 2015 even though it strongly suspected financial irregularities. And the notice cites a press report from last fall that then-Gov. Peter Shumlin and other high-level officials “went on to promote Jay Peak projects overseas and at press events in Vermont in 2013,” despite questions having been raised about the projects in 2012 by a former business partner and others. The bottom line is that the federal government proposes to close down the Regional Center immediately; the state plans to contest the closing timeline.
Perhaps the scope of the state report commissioned by Scott was limited to making a recommendation about whether the Regional Center should continue in operation, but several material questions related to the EB-5 scandal still remain to be answered: Why did no one recognize and act on the Regional Center’s potentially conflicting roles until 2014? Did elected officials and staff of the Regional Center ever turn a willfully blind eye to possible problems with the Jay Peak projects in their enthusiasm for creating jobs in one of the state’s most economically distressed regions? What is the state’s responsibility to the foreign investors who were damaged by its failure to exercise adequate oversight, or even any oversight? This whole affair needs to be investigated thoroughly and independently, perhaps by a lawyer with expertise in complicated financial transactions, and the results publicly aired. We urge the Scott administration or the Legislature to take this sorely needed next step.
- Vermont EB5 Regional Center
- U.S. Citizenship and Immigration Services
- Vermont Agency of Commerce and Community Development RC
- UNITED STATES SECURITIES AND EXCHANGE COMMISSION
- Ariel Quiros
- Bill Stenger
- Peter Shumlin
- State of Vermont vs Bill Stenger & Ariel Quiros
- UNITED STATES SECURITIES AND EXCHANGE COMMISSION vs Ariel Quiros & Bill Stenger
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