The federal government has ordered a shutdown of the state-run Regional Center that oversees EB-5 projects in Vermont, possibly jeopardizing the immigration status of about 200 foreign investors seeking green cards through the program.
The "Regional Center" that oversees EB-5 projects in Vermont came under a national microscope in 2016, when the Securities and Exchange Commission accused two men — Ariel Quiros and Bill Stenger — of using the program to defraud foreign investors of more than $200 million.
In a "Notice of Termination" issued last week, the United States Citizenship and Immigration Services said the Vermont Regional Center that was supposed to serve as an EB-5 watchdog failed "to provide adequate and proper oversight, monitoring, and management of its projects."
The federal agency said those failures may have allowed the alleged fraud to flourish, and that the state can no longer “demonstrate that the regional center is continuing to promote economic growth.”
Commissioner of Financial Regulation Michael Pieciak said Tuesday that the Vermont Regional Center may have had flaws in the past. But he said the shortcomings were rectified in 2014, when EB-5 oversight was transferred from the Agency of Commerce and Community Development to the Department of Financial Regulation.
“We concluded that [the Agency of Commerce] lacked the expertise, the authority, and also the resources to be able to adequately investigate the fraud and adequately oversee the fraud. They didn’t have subpoena power for example, which we do,” Pieciak said. “Our argument to USCIS is, we now have a Regional Center that has robust oversight, robust authority, expertise in this area. And there’s really no reason to have the past crimes or the past issues that have come up reflect poorly today.”
Pieciak said the state plans to appeal the order to terminate the Vermont Regional Center, and that an immediate shutdown of the program could lead to potentially severe consequences both for foreign investors and the EB-5 ventures in which they’re invested.
The federal EB-5 program offers green cards to foreigners, in exchange for a $500,000 investment in a U.S. commercial enterprise that generates a certain number of jobs.
Pieciak said if the state is forced to shutter its Regional Center immediately, those foreign investors may lose their path to legal residence in the United States.
And if those investors lose their opportunity to receive a green card, Pieciak said it’s possible they’ll be able to recoup their $500,000 investment from EB-5 projects that are already underway, including projects at Jay Peak Resort, Burke Resort and Mount Snow.
“That depends on what the documents sort of outlayed in terms of the investment documents and what the investors were promised and what their rights are under the private placement memorandum,” Pieciak said. “But that’s at least one outcome that could happen.”
Michael Goldberg, the federal receiver appointed to oversee EB-5 projects at Jay Peak after authorities uncovered the fraud, in 2016, said in an email Tuesday that immediate termination of the Regional Center would not jeopardize capital.
“The funds have already been invested in the project so it would not jeopardize the funding,” Goldberg said.
Goldberg, however, said he supports the state’s decision to appeal the federal order. And he challenged United States Citizenship and Immigration Services’ contention that the Regional Center no longer promotes economic development in the state.
“Nobody can argue with a straight face that the Jay Peak projects did not produce hundreds of jobs in the Northeast Kingdom. In peak season we employ almost 1500 people that would not otherwise be employed,” Goldberg said. “Tens of thousands of tourists come to Jay Peak and Burke Mountain each year and spend tens of millions of dollars in Vermont. Simply put these investments have significantly benefitted the local economy which is the entire purpose of the EB5 program.”
Officials at USCIS, however, said they’ve lost confidence in the state’s ability to effectively oversee EB-5 projects.
The USCIS initially notified the state of its intent to terminate the Regional Center last year. It said that “monitoring and oversight is a critical responsibility of the Regional Center,” and that charges filed against Quiros by the SEC, as well as complaints by defrauded foreign investors, “suggest inadequate monitoring, oversight, and management by the Regional Center.”
USCIS went so far as to say that “evidence in 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 [his employee, Bill] Stenger to occur.”
“[W]ith more and better oversight from the Regional Center,” the USCIS wrote, “this all might have been avoided.”
Secretary of Commerce Michael Schirling said Tuesday the state agrees with USCIS that Vermont should no longer be operating a Regional Center. He said the center isn’t taking on new projects, and that the state plans to “wind down” operations “over time.”
But he said terminating the center now, before existing EB-5 projects are completed, could present serious challenges for developers.
“It’s unclear exactly how it would impact ongoing construction. All of the fundraising has been done for those projects, so it’s a little bit of uncharted water if they were to go ahead on a faster timeline,” Schirling said. “We don’t necessarily have a direct roadmap to what happens if there’s an immediate shutdown.”
Update 12:15 p.m. This post was updated to include additional reporting.