Don Keelan: The nonaudit of Vermont’s EB-5 center

On Sept. 4, the Vermont State Auditor’s Office published a 32-page report titled, “Interim Report on EB-5 Program.” The information was meant to address the findings of an audit conducted by the auditor’s office. 

The audit was requested because of two significant events: The Vermont EB-5 Regional Center was closed by the federal government and the largest fraud in Vermont history was perpetrated at real estate projects monitored by the Vermont regional center. 

The EB-5 fraud began as far back as 2006 and was uncovered by the Securities and Exchange Commission in 2012-13. According to the audit report, 854 investors invested over $427 million. All of the investors were foreigners, mostly Asian, looking to obtain green cards that could eventually lead to U.S. citizenship. 

Approximately $250 million of the investments were defrauded, and the principal fraudster pleaded guilty to a series of federal charges in August. Several of his associates were also charged with criminal indictments but are still awaiting trial in federal court. Additionally, the state civil charges brought against the alleged fraudsters were settled for minor amounts, and litigation brought by investors is still pending. No state criminal charges were ever filed. Furthermore, no state employee was terminated for what took place (or what should have) at the Vermont EB-5 Regional Center. 

And therein lies the problem. What is described as Vermont’s largest loss ever to a fraud scheme, carried out while a state agency had oversight, resulted in no investigation by the Vermont Legislature. And now, key government officials receive a 32-page report described as an audit, but it is not an audit of what transpired. It is merely a printout of the dates, agencies, federal and state laws/regulations, and players during the fraud’s seven-year history and its unfolding between 2013 and 2020. 

The state report notes, “We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives.” The fact is that there are “no findings” in the report; furthermore, the conclusion is, “While some of the hardship caused by the EB-5 scandal has been mitigated for some investors, the fallout of this alleged fraud on many of the investors and Vermont is ongoing.” Now, that is quite the understatement. 

In the report’s cover letter to the state auditor, it notes, “Vermont’s Attorney General requested that we audit the State’s involvement with the Jay and Burke projects (the geographic area where the fraud took place). We agreed to conduct this audit, to provide Vermonters with an independent and clear account of the State’s role.” Why not include the devastation that occurred in Newport? 

The state auditor wrote, “However, on the advice and request of the Attorney General’s office, we agreed to defer interviewing current or former State employees until certain legal proceedings were resolved since they may be called as witnesses.” Once he received this advice, the state auditor should have closed up his audit bag and gone home — such advice and request are entirely unacceptable to an auditor. 

In an accounting career as a CPA that spanned over 50 years, including time with one of the world’s largest auditing firms, I never witnessed nor heard of an auditor continuing an audit engagement when told by “the client” that one may not interview any of the entity’s personnel. 

The whole objective of having the state auditor look into this scandal was to search out how the state missed such a fraud. At best, what we have now is an “interim whitewash” or, at worst, a cover-up to protect the state from litigation and outright incompetence and negligence. 

It is no secret that if this fraud had been directed at Vermonters instead of wealthy foreigners there would have been a completely different outcome. 

https://vtdigger.org/2020/09/20/don-keelan-the-nonaudit-of-vermonts-eb-5-center/

Mentions

• Vermont EB5 Regional Center
• UNITED STATES SECURITIES AND EXCHANGE COMMISSION

States

• Vermont