Years later, reflections on an EB-5 scam in Vermont, once promoted as a model. "The whole program, it turned out, lent itself to dishonesty."

A recent New Yorker article (described below) recounting the scandalous saga of Jay Peak Resort in Vermont, site of a major fraud related to the EB-5 investor visa program, reminded me  how Jay Peak was once ballyhooed as a model--and how I was among the skeptics.

Here's December 2011 coverage of a Senate hearing, where Jay Peak promoter Bill Stenger was introduced as a personal friend of Sen. Pat Leahy.

“The EB-5 Program is a win-win-win program for all involved,” Stenger asserted, citing benefits to Jay Peak, to local workers in an area of high unemployment, and to foreign investors seeking green cards.

Here's March 2012 coverage of growing industry skepticism about Jay Peak.

Here's April 2012 coverage, from Seven Days Vermont, which questions whether it was shady business, and quoted me on a larger question, “There’s almost no one looking out for the public interest, to ensure that not only the letter but the spirit of the law is being met in terms of creating jobs.”

Here's September 2014 coverage, citing VTDigger as saying some immigrant investors "are incensed."

Here's October 2018 coverage rounding up a VTDigger article describing how Vermont officials failed to investigate "financial improprieties and self-dealing" related to Jay Peak.

From the New Yorker

The New Yorker article posted Jan. 29, The Rural Ski Slope Caught Up in an International Scam, is subtitled "A federal program promised to bring foreign investment to remote parts of the country. It soon became rife with fraud."

Here's a key paragraph:

But, in the early two-thousands, Stenger developed a scheme to expand the resort and create jobs. He raised money using the EB-5 visa program, which aimed to channel foreign investments into businesses that created jobs for Americans, especially in rural or economically depressed parts of the country. For five hundred thousand dollars (the amount has since risen to nine hundred thousand), foreign investors and their families became eligible for green cards, so long as that money succeeded in creating at least ten jobs. “On balance, it’s a good program,” Stephen Yale-Loehr, a law professor at Cornell, said, “in that projects that couldn’t find traditional bank financing have been able to use EB-5 money to get their projects off the ground.”

That's an unfortunate summary, because Yale-Loehr is no neutral academic expert. While he does teach at Cornell, his biography acknowledges he "is of counsel at Miller Mayer in Ithaca, New York. He also founded and was the original executive director of Invest In the USA, a trade association of EB-5 immigrant investor regional centers."

In other words, he makes and made money from EB-5 investment. Miller Mayor, as I wrote, was involved in the first Atlantic Yards EB-5 fundraising (among many others), and its performance--representing both the middleman regional center and investors--raised questions about a conflict of interest.

The EB-5 boom

That said, much of the New Yorker article is savvier, describing the fraud, the history of the EB-5 program, and why it became popular:

Congress allowed for pooled investments—the combining of funds to finance larger, potentially more lucrative developments. It also made the job-creation requirement more flexible: a foreign investor could now claim that jobs were created “indirectly” because of the money. After the 2008 financial crisis, banks and other institutions pulled back on their lending, leaving entrepreneurs desperate for cash. Those familiar with the EB-5 program saw this as an opportunity. An army of middlemen—legal advisers and brokers—began scouting for projects in need of funding, recruiting foreign investors, and, when the deals went through, earning finders’ fees amounting to tens of thousands of dollars per investor on a given project.

There were some worthy projects, but there was a lot of gerrymandering so-called Targeted Employment Areas to ensure that the project was purportedly in a high-unemployment zone.

"Bed-Stuy Boomerang." Graphic: Abby Weissman

Remember the "Bed-Stuy Boomerang," used to qualify the first (of three) EB-5 investment in Atlantic Yards, linking high-unemployment census tracts to the Atlantic Yards site in Prospect Heights?

The big picture

After recounting the convoluted Jay Peak saga, complete with state officials bending over backwards to help, New Yorker writer Sheelah Kolhatkar reaches a conclusion:

The whole program, it turned out, lent itself to dishonesty. Faraway investors were desperate to get to the U.S., and didn’t keep close track of where their money was going. The lawyers and brokers got large transaction fees and had little incentive to point out potential wrongdoing. “Everybody was making millions of dollars, but very few people wanted to speak the truth about the riskiness of these investments,” [Michael] Gibson, the EB-5 adviser, said. There was almost no governmental oversight built in. Although regional centers were supposed to monitor spending, there was no mechanism to insure that they were doing it. Moulton, the former commerce secretary, said, “As one who’s worked with a lot of federally funded programs, this was probably the loosest and least regulated federal program I’d ever encountered.”

(Emphasis added)

That dishonesty was evident in Brooklyn from the start, in 2010. See my "Anatomy of a Shady Deal" series regarding the first round of EB-5 funding for Atlantic Yards.

Today, investors in the second and third rounds of EB-5 funding for Atlantic Yards are seeing the consequences, as is developer Greenland USA, which is poised to lose control of the project pending a foreclosure sale in its interest in six towers over the railyard.

So too are the residents of Brooklyn and the city and state officials who encouraged EB-5 investments but did too little, if anything, to keep watch.

Atlantic Yards likely wasn't fraudulent in the same way. The money wasn't misappropriated for other projects. But evidence suggests, as I've written here and here, that the money was improperly spent.