Jay Peak bombshell

[VTKilarney]

Where does it say that they didn't look closely at the internal documents/business plan?

I think this is what people are referring to (from the VT Digger article):
Before now, the regional center did not require any formal reporting, even though MOUs with all the EB-5 projects include a clause that quarterly reports are to be submitted.

Are the MOUs they are referring to between the developer and Vermont's EB-5 Regional Center?

 

[noreasterbackcountry]

2) Structure things so that there is no recourse for investors who are not paid back. Changing their status to unsecured creditors is an example.

Except that the article indicates the latest offer includes a security interest, which is an improvement over their original unsecured position when they first invested.

I suspect that no creditor in their right mind would touch Jay Peak with a ten foot pole from here on out. Even if they don't have to pay their debtors back, they still have massive amounts of debt on their books.

If there are no secured lien holders over the assets (which you suggested in a previous comment) they should have no problem getting additional financing up to the value of the unsecured assets- given that they would get priority over any unsecured debt holders.

3) Revenues don't meet the expenses of running all of these new facilities. (Based on my anecdotal observations, this is possible.) Water parks and golf courses aren't cheap to run. Hotels need customers more than five months out of the year in order to break even.

It's easier if you're paying 1% interest on the money used to build the infrastructure... but you've got a point. At some point it has to become a profitable enterprise or it will go away, like any business-- except banks.

First of all, anyone can sue anyone.

For the most part this is true, but remember that the money flows though the regional center. This complicates the calculus as my understanding is that the regional center is a state entity and has some immunity from suit.

More to your point though, even if they can't tie up the investments in Court, the allegations of impropriety from disgruntled investors are enough to discourage future investment and derail the regional development plan.

 

[noreasterbackcountry]

I think this is what people are referring to (from the VT Digger article):
Before now, the regional center did not require any formal reporting, even though MOUs with all the EB-5 projects include a clause that quarterly reports are to be submitted.

That makes no sense given the reporting requirements I've read about. In addition the article also says, "He [Stenger] said Jay Peak provided quarterly reports and required documentation throughout the limited partnership, and the company is now responding to requests for detailed financial accounting."
[FONT=Georgia, Times New Roman, serif]
The author doesn't reconcile this inconsistency in the article, and I'm inclined to believe, given the USCIS and regional center requirements, that it was a misstatement, much like the false impression given that investors originally had a secured position.[/FONT]

 

[thetrailboss]

Where does it say that they didn't look closely at the internal documents/business plan?

What I see is that the regional center received complaints from disgruntled investors who felt they weren't being paid back fast enough and were being converted to unsecured note holders (from unsecured ownership interests), the Center read the agreements to see - lo and behold- everything that Jay was doing was called for in the contract, and told the investors what they found- Jay had a right to do what they were doing.

I see this as investors who were probably given rosy projections on how quickly they would be paid back, ignored any language in their agreements about the "at risk" nature of their investment, and are now throwing around allegations of fraud to try and leverage a better payback schedule (and secured status) knowing that Jay and QBurke are highly sensitive to public perception.

Well....not exactly.

The Partnership Agreement did provide that the GP could unilaterally make such a change to the agreement without notice or consent. Apparently, JPR as the GP opted to change the LP's ownership interests and did not give them notice or the ability to consent to the move.

JPR, for whatever reason, finally notified the LP's (the investors) of the change from (1) equity ownership to unsecured ownership, and (2) from a 5-year exit plan to a 15 year exit plan. Those are pretty big changes that I think any investor would be concerned with.

The article states that, at least one side, claims that the VT authorities merely directed complaints to Jay; another part has an admission that JPR, though within its power to make these changes, did not act with the "best accepted practice".

Of course what is implied is that the reason for the change was because of financial problems. We can only wait and see if that is the case.

As to reporting, you're right that the system does have oversight over the investors, but the issue here is what is going on with their money. The article I believe says that VT is only now requiring JPR to provide quarterly reports.

 

[thetrailboss]

All the more reason to be in favor of the EB-5 program. They allow for development that investment bankers view as too risky. Although you should also note that per the article there is private equity investment in Jay--- so somebody did think it was a decent opportunity, albeit not to the tune of $600 million.

I think that these "private investors" are actually Messrs. Quiros and Stenger.

The point is that Jay is in a much better position than those companies that leveraged themselves to the teeth with loans. I'm guessing that 1% rate to the investors is much better than the interest other places are paying on their loans.

This assumes that JPR can actually make good on its plan to pay back its EB-5 investors. I think folks are questioning that assumption.

 

[thetrailboss]

Except that the article indicates the latest offer includes a security interest, which is an improvement over their original unsecured position when they first invested.

That's not correct. They originally had equity ownership. That was converted to unsecured loans. Now, apparently, it is something different.

For the most part this is true, but remember that the money flows though the regional center. This complicates the calculus as my understanding is that the regional center is a state entity and has some immunity from suit.

From my understanding, "regional centers" do not have to be operated by state government. Some are done in other forms. Vermont decided to have its Economic Development folks run one.

 

[BenedictGomez]

All the more reason to be in favor of the EB-5 program. They allow for development that investment bankers view as too risky.

Hardly. EB-5 is the artificial monkeying with small-scale economies, and it will have negative unforeseen consequences with very little real local benefit. The "jobs created" metric, for instance, is obscenely fraudulent and laughable.

At the end of the day, this is nothing more than wealthy foreigners skipping the long-line of immigrants trying to gain access to America legally, and simply "paying" to be here. In my opinion, it's loathesome, and worse, it's will prove to be financially harmful, not beneficial.

The biggest problem is that by doing this the EB-5 gig is up for Jay Peak. Nobody in their right mind is going to fork over $500,000 to these folks from this point forward. So what you see is what you are going to get. And it gets worse. I suspect that no creditor in their right mind would touch Jay Peak with a ten foot pole from here on out.

It could get much worse. And lets not forget the genesis of them being able to get all this money wasn't 100% about Jay Peak Ski Resort, there was also a very big carrot being waved in front of the rabbit to help Newport and that region's economy, to create much needed jobs, etc... That's likely not going to come to fruition now (which I was skeptical about from day 1 with the big Biotech company, etc...).

That makes no sense given the reporting requirements I've read about. In addition the article also says, "He [Stenger] said Jay Peak provided quarterly reports and required documentation throughout the limited partnership, and the company is now responding to requests for detailed financial accounting."

The author doesn't reconcile this inconsistency in the article, and I'm inclined to believe, given the USCIS and regional center requirements, that it was a misstatement, much like the false impression given that investors originally had a secured position.

You're not reading it right.

AFAIK, Stenger's comments ONLY refer to the very first project, the Tram Haus, and not the others. That, project, by the way was the smallest of the EB-5 concerns in terms of money at only $17.5M. LOL. The second clue was the "and the company is now" part.


And there's plenty of CYA work going on with the State of Vermont right now, because:

Moulton said Friday the center has been monitoring Jay Peak “right along.”

Does NOT jive in any way shape or form, with:

Recently, the center put the resort “on notice,” and is now requiring the company to submit quarterly reports. Before now, the regional center did not require any formal reporting

You cannot in one breath say you've been "monitoring" an entities finances, and in the next breath acknowledge there's no formal reporting in place. ≠

I guarantee you there are some people in Montpelier right now sweating and praying everything is on the up-and-up here.

 

[noreasterbackcountry]

That's not correct. They originally had equity ownership. That was converted to unsecured loans.

Which is to say that they were converted from an unsecured interest to an unsecured interest. Given that their equity interest was in the form of a limited (and non-voting) partnership interest, I can't see that they've lost much. And even if they did, the change was authorized in their partnership agreement.

Having buyer's remorse about the agreement that allowed for this type of change is a long way from fraud.

Also, having an issue with the way in which this change was communicated is a long way from fraud.

This assumes that JPR can actually make good on its plan to pay back its EB-5 investors. I think folks are questioning that assumption.

I'm actually not assuming that. I'm saying that it is easier to make good on the plan to pay back EB-5 investors at 1% then it is to make good on an agreement to pay back a bank at 5%+. Plus, if you fail to pay the bank they can seize the assets, whereas if you fail to make your expected returns to investors or pay back unsecured note holders their options are much more limited.

The point being that Jay is in a better position than those companies that have to pay back higher interest rates on the money they borrowed to build infrastructure.

 

[BenedictGomez]

JPR, for whatever reason, finally notified the LP's (the investors) of the change from (1) equity ownership to unsecured ownership, and (2) from a 5-year exit plan to a 15 year exit plan. Those are pretty big changes that I think any investor would be concerned with.

Oh, the "whatever reason" for the numerous month delay is quite obvious.

As VTKilarney noted, the foreign money moving into Jay Peak is going to slow substantially now.

By intentionally stalling for 5 months it gave Jay Peak 5 more months to lock up more investors to the tune of $500,000 apiece! Of course, the journalist cant come out and SAY that, but I think it's pretty obvious. In fact, if you're one of those $500,000 folks who signed on during that 5 month delay, I'd say you have suitable grounds for a lawsuit. Material change in contract non-disclosed.

 

[noreasterbackcountry]

Hardly. EB-5 is the artificial monkeying with small-scale economies, and it will have negative unforeseen consequences with very little real local benefit. The "jobs created" metric, for instance, is obscenely fraudulent and laughable. At the end of the day, this is nothing more than wealthy foreigners skipping the long-line of immigrants trying to gain access to America legally, and simply "paying" to be here. In my opinion, it's loathesome, and worse, it's will prove to be financially harmful, not beneficial.

Our immigration system is based on preferences. Spouses of citizens get preferential treatment over spouses of permanent residents. Adult brothers and sisters of citizens have to wait longer than children of permanent residents. And cooks have to wait longer than people willing to invest a half million dollars to create jobs. It's far from perfect, but its hardly "loathsome". Remember that immigration laws themselves are a barrier to pure free market capitalism. In a true libertarian society, people would be allowed to freely immigrate and invest- but we (understandably) have barriers against that. How people move through those barriers is a reflection of our priorities and we prioritize those who are willing to put up $500k to create jobs over those who are apple pickers. I'm okay with that. Ideally, I think both should be easier, but that's just me.

I also think your "artificial monkeying" argument is a bit overly dramatic. Is it any less artificial when a bank loans the money for a project? The folks in investment banks who make decisions on where to invest are just as prone to screwing up as folks who work in the EB-5 centers. If recent history is any indication, they are MORE prone to error.

 

[thetrailboss]

Which is to say that they were converted from an unsecured interest to an unsecured interest. Given that their equity interest was in the form of a limited (and non-voting) partnership interest, I can't see that they've lost much. And even if they did, the change was authorized in their partnership agreement.

So going from an equity ownership interest to an unsecured "IOU" was no big change?

And the issue, again, was the long delay in letting folks know.

Having buyer's remorse about the agreement that allowed for this type of change is a long way from fraud.

:roll: That is NOT what they are saying.

Also, having an issue with the way in which this change was communicated is a long way from fraud.

So waiting over a year to inform your partners of the change is not a big deal? Generally speaking in a partnership partners owe a duty of loyalty to each other. I think that the implication here is that JPR was not on the "up and up" with this move.

I'm actually not assuming that. I'm saying that it is easier to make good on the plan to pay back EB-5 investors at 1% then it is to make good on an agreement to pay back a bank at 5%+. Plus, if you fail to pay the bank they can seize the assets, whereas if you fail to make your expected returns to investors or pay back unsecured note holders their options are much more limited.

The point being that Jay is in a better position than those companies that have to pay back higher interest rates on the money they borrowed to build infrastructure.

You're on a different wavelength. Folks are saying that this change and the kerfuffle may be a sign that revenue to pay back said investors is just not there and that this is a move to perhaps delay the inevitable.

Oh, the "whatever reason" for the numerous month delay is quite obvious.

As VTKilarney noted, the foreign money moving into Jay Peak is going to slow substantially now.

By intentionally stalling for 5 months it gave Jay Peak 5 more months to lock up more investors to the tune of $500,000 apiece! Of course, the journalist cant come out and SAY that, but I think it's pretty obvious. In fact, if you're one of those $500,000 folks who signed on during that 5 month delay, I'd say you have suitable grounds for a lawsuit. Material change in contract non-disclosed.

Yeah, that would be my "whatever reason" because, as you said, they don't want to scare folks away.

 

[VTKilarney]

By intentionally stalling for 5 months it gave Jay Peak 5 more months to lock up more investors to the tune of $500,000 apiece!

Bingo. IMHO, it was also to give him time to lock current investors in, such as with the Burke hotel. If the Burke hotel investors caught wind of this before the project started, how many of them would have pulled their money out?

The first concrete chink in Stenger's armor was when Pomerleau came out of the shadows. Ever since then, Stenger has been in full on damage control mode. He's been insisting that everything is rosy. Now that game is up. He has lost all credibility and he's going to be getting pressure from every possible angle. Quite simply, this project has now changed from expansion to mere containment.

Perhaps the key to Jay Peak's future is if Stenger is ultimately seen as a genius who tried his best or if he is seen as a snake oil salesman. If it's the latter, he's going to have no friends for support. He'll have absolutely no room for error as far as operations are concerned.

One question: Is there any possibility of securities violations/fraud with EB-5 fundraising? Or is EB-5 fundraising outside of the purview of those regulations?

Remember Rapid USA Visas, the former marketing agent for Jay Peak Resort’s EB-5 visa projects? They look pretty damn smart now. I'd hate to be a marketing agent that subsequently offered these EB-5 investments. Those people are probably shitting a brick right now, especially since at least one firm proved that they should have done due diligence. People like this guy ought to be scrubbing their websites: http://www.eb5fullservice.com/blog/2232/

 

[VTKilarney]

Gotta love this quote from here: http://www.eb5fullservice.com/blog/2232/
James Candido, the principal overseer of State of Vermont EB-5 projects, stated to me that he inspects Jay Peak’s financial records at least four times per year and that he has not seen any financial irregularities or problems in Jay Peak’s finances.

 

[BenedictGomez]

I also think your "artificial monkeying" argument is a bit overly dramatic. Is it any less artificial when a bank loans the money for a project?

Yes. Dramatically so. Good lord in heaven, they're not even remotely similar.

The former is made chiefly due to the fact that it's likely a poor investment.
The latter is made chiefly due to the fact that it's likely a good investment.

And that's just for starters.

The folks in investment banks who make decisions on where to invest are just as prone to screwing up as folks who work in the EB-5 centers. If recent history is any indication, they are MORE prone to error.

As someone who used to be a "folk" who worked at an investment bank, I can assure you you're wrong. On its' face, your comment is ridiculous even if you intended it to by hyperbolic (which I dont think you did).

Investment banks do not make money by "screwing up", and if you repeatedly "screw up" even so much as a little bit at a bulge bracket player, you'll likely be out on your ass. I can assure you, it's about the least safe working environment anywhere in America for "screwing up", with the possible exception of surgery. I'm also fairly certain you likely don't understand what caused the "banking collapse" that you've now alluded to multiple times in this thread, but I'm just as certain that you think that you do. Spoiler Alert: The crisis was decades in the making, there's plenty of blame to go around, and it certainly wasn't all the banks fault. Not hardly.

 

[VTKilarney]

Here is another gem of a quote from Stenger in the article I linked above:
As it happens, the exit strategy issue may be a moot point as regards Phase I investors. Stenger volunteered during our discussions that the revenue trends on Phase I residences are looking so good “that we are seriously considering buying out the Phase I investors ourselves.”

Stenger better have records to back this statement up. If not, these are the kinds of things that support a subsequent investor's allegation of fraud.

 

[thetrailboss]

Here is another gem of a quote from Stenger in the article I linked above:
As it happens, the exit strategy issue may be a moot point as regards Phase I investors. Stenger volunteered during our discussions that the revenue trends on Phase I residences are looking so good “that we are seriously considering buying out the Phase I investors ourselves.”

Stenger better have records to back this statement up. If not, these are the kinds of things that support a subsequent investor's allegation of fraud.

Optimism? Yes. Misrepresentation? Maybe. Fraud? I don't think so. I don't think there is any misallocation or wrongdoing going on. I think it is more just a reflection of what they do.

Anyone who has followed Jay knows two things. First, they always push the envelope when it comes to marketing because they had to given their location. There's nothing wrong with that and it's a reflection of the industry (think of the OLD Killington and their marketing). Ask anyone in the NEK who skis about the "Jay Ruler" for snowstorms and you'll get the idea. Almost irrational exuberance. Second, the previous ownership were real cheapskates. They invested hardly ANYTHING in Jay and took all the money out. This left Stenger, who was never short on ideas, very hungry. Now he's got access to capital. You can kind of see how we got to where we are.

 

[VTKilarney]

I can now see why the investors were pissed. Apparently they were led to believe that they would acquire fractional ownership of units that they could sell on the open market. This was pitched as the exit strategy. There is a big difference between being able to sell an ownership interest in a unit and being an unsecured creditor. Even if they become secured creditors of the resort (whatever that means), this is not nearly as appealing as their original expectation.

 

[BenedictGomez]

Optimism? Yes. Misrepresentation? Maybe. Fraud? I don't think so.

Optimism would be naive. Misrepresentation is certainly factual.

Fraud I think would be very difficult to prove, but I'm not a lawyer and I haven't even played one on TV.

But there's no doubt now that Stenger made those statement's knowing full-well that they'd be digested by future potential investors. In other words, he was totally full of crap regarding how well the "investments" were looking. That's a heckuva lot worse than telling people your 6" storm is 9".

 

[thetrailboss]

Optimism would be naive. Misrepresentation is certainly factual.

Fraud I think would be very difficult to prove, but I'm not a lawyer and I haven't even played one on TV.

But there's no doubt now that Stenger made those statement's knowing full-well that they'd be digested by future potential investors. In other words, he was totally full of crap regarding how well the "investments" were looking. That's a heckuva lot worse than telling people your 6" storm is 9".

Certainly have to agree. That's the reason for some of the securities laws.

 

[dlague]

I might be wrong, but Sugarbush was in the $80 range. Let's face it though because of Jay's distant location they have to be a bit lower price.



I see myself moving increasingly more to this POV, especially considering the (lack of) oversight and issues that are appearing.

Yup top of the 80 range - 89 on weekends.


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