Looks like Vermont EB-5 programs will be getting a little more regulatory scrutiny. This past Friday, in an online press release (some people may actually have seen it) the Vermont Agency of Commerce and Community Development (ACCD) announced a “collaboration” with the Department of Financial Regulation (DFR) on EB-5 issues. Among other duties, the ACCD is federally approved to administer the EB-5 program in Vermont. The DFR oversees banking, securities, and insurance and captive insurance statewide. An interagency agreement Memo of Understanding (MOU) on EB-5 compliance was finalized last December between these two agencies.

For those unfamiliar with it, the federal EB-5 program is an investment scheme that grants permanent visas to foreign investors who invest in approved private businesses development. Federal/state sanctioned private projects are supposed to provide jobs and an economic boost to specific areas of the state. The hundreds of millions of dollars worth of EB-5 projects in the Northeast Kingdom, engineered by Bill Stenger (owner of Jay Peak) and his partner Ariel Quiros, are perhaps the best known of the EB-5 funded efforts in the state.

One of several setbacks they encountered last summer included a controversy that erupted between Jay Peak and dozens of foreign investors. A group of EB-5 investors were angry with the way major terms of their existing $500,000 investment arrangements had been changed by Jay Peak partners Stenger and Quiros. Investors weren’t officially notified by the pair until five months after the fact. Disgruntled by this, the investors raised questions about the quality of oversight and the conflicts in the dual role the ACCD plays to promote and oversee EB-5 in Vermont.

Friday’s online press release announcing the inter-departmental agreement notes the growing need to upgrade state methods for determining securities law compliance of EB-5 projects. The expanded DFR duties include requiring quarterly reports, site visits, audits and document reviews of EB-5 projects. The division of tasks between the ACCD and the DFR agencies are spelled out in a memo noted in the press release :

This [MOU] will also allow us [ACCD] to significantly increase marketing and promotional activities which is critical in the highly competitive market for EB-5 investment. This is similar to how ACCD and DFR share responsibility for Vermont's gold-standard captive insurance program.

A timely upgrade to VT's EB-5 oversight

And it seems not a minute too soon. This week Bloomberg reported that the SEC is continuing to expand scrutiny of the EB-5 program. The SEC is now focusing on immigration lawyers collecting illegal fees. And the DHS will soon release a report that ABC News says may be critical of EB-5 and raise concerns over fraud, money laundering, even espionage.

In the past, the SEC investigated and halted EB-5 programs outside Vermont for fraud and security risks. Vermont’s EB-5 programs were rated as among the best run in the nation for 2014. This rating, though, is from Invest in the USA (IIUSA) a friendly non-profit EB-5 advocacy group whose stated primary mission is permanent authorization of the EB-5 Regional Center Program.

Not to be forgotten,and perhaps slightly reassuring potential foreign investors is the contention that Quiros made when questions were raised by unhappy investors, that Jay Peak’s transactions are “200% ethical” – could be the tagline for all EB-5 programs someday.

Despite this (or maybe because of it) someone in the state has decided to expand EB-5 oversight –even if they are doing it so discreetly no one may  even notice. But the odds of Vermont businessmen successfully fleecing some visa seeking foreign investor have just decreased, although perhaps not enough.