No special scrutiny for AnC Bio

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Bill Stenger.  Photo by Richard Creaser
Bill Stenger. Photo by Richard Creaser

copyright the Chronicle March 25, 2015

by Joseph Gresser

NEWPORT — Despite reports to the contrary the AnC Bio biomedical project is not being given special scrutiny by the state.

State regulators are taking a closer look at all EB-5 projects in Vermont in light of stronger federal requirements and increased use of the visa program by Vermont businesses.

Last summer Governor Peter Shumlin asked the Department of Financial Regulation to get involved in overseeing EB-5 projects in the state, said Pat Moulton, commissioner of the Agency of Commerce and Community Development (ACCD), on Monday.

The request was due to the growing complexity and increasing number of the projects, not due to questions about the AnC Bio facility financed by Jay Peak, she said.

Both Commissioner Moulton and Secretary Susan Donegan of the Department of Financial Regulation (DFR) said that the AnC Bio project is getting a normal amount of scrutiny.

Ms. Donegan said her department’s involvement in the EB-5 process is an attempt by the state to do for that program what it already has accomplished with the captive insurance business.

Corporations can insure themselves against risks by creating wholly owned insurance companies. Under the administration of Governor Howard Dean, Vermont worked to persuade corporations to register their captive insurance companies in Vermont.

One of the attractions of this successful effort was the sophisticated regulatory structure provided by the DFR.

“We set the gold standard,” Ms. Donegan said of the state’s work with captive insurance companies.

She said her department hopes to do the same with EB-5 operations.

Vermont is one of two states that oversees all EB-5 offerings, and over time it has increased the amount of information it asks for from project developers. Ms. Moulton said the state began by using a form provided by the federal government as a model for a memorandum of understanding outlining a project.

The state has added to the list of information required, and the memorandum form is now about 14 pages long, Ms. Moulton said.

Brent Raymond, who has overseen the program on behalf of ACCD for several years, said he asked for support from the DFR early on in his tenure. Although he has experience in the field of bond regulation, Mr. Raymond said that “allowed me to know what I didn’t know.”

While it took longer than he hoped for the arrangement between the two entities to be completed, Mr. Raymond said he is delighted to have the DFR’s expertise applied to EB-5 projects.

The federal government has also increased its demand for information from program participants.

The EB-5 visa program, which allows foreign investors to get a green card and path to citizenship in exchange for a $500,000 investment in a job creating business, originally had only a minor focus on the investment portion of the program.

Project developers were able to seek investors outside the regulatory structure provided by the Securities and Exchange Commission. Several projects elsewhere in the country went badly wrong, and the (USCIS), which oversees the program on the federal level, brought in financial experts to take a closer look at business plans before allowing the sponsors to take money from investors.

The added oversight slowed down approval of projects, which eventually led to the reexamination of the AnC Bio documents.

Each EB-5 project sets forth the terms of its investment offering in what is called a private placement memorandum. Due, in part, to the slowdown of project approvals by the federal government, the AnC Bio private placement memorandum expired before all the needed money was raised.

The state asked Jay Peak to stop signing up new investors and produce a revised memorandum.

Biotechnology is a rapidly changing field, unlike real estate or the hotel business, and a close look at the company’s plans in light of present circumstances were in order, Ms. Moulton said.

One of AnC Bio’s more valuable assets is a clutch of patents purchased from AnC Pharm, a South Korean firm connected with the original AnC Bio in Seoul. While that company has no connection with its U.S. namesake, Ms. Moulton said there was some concern when the South Korean company hit financial troubles, because it might suggest the patents owned by AnC Bio Vermont were worth less than originally thought.

In addition to a revised memorandum and updated figures on project costs and expected profits, state regulators asked for a new marketing study showing the projected worth of both the patents and the building AnC Bio plans to build.

The building is designed to provide clean rooms for the company’s research into medical treatments using stem cells and similar research by academics who require a controlled environment for their work.

Jay Peak hired Frost & Sullivan, a Texas-based consulting firm to conduct the study, which Ms. Moulton said was “barely finished.” Bill Stenger, Jay Peak’s president and co-owner, provided the Chronicle with a copy of the executive summary of the report.

According to the report, the designs produced by AnC Bio of Korea for mechanical blood pumps, kidney dialysis, and liver dialysis machines have substantial advantages over competing units. These, the report says, include lighter weight, easier setup, and lower cost.

The proposed clean room project also received the study’s approval. Stem cell technology is moving from the research stage to the production stage. AnC Bio in Newport can take advantage of that trend, assuming it balances the rental portion of the business, which offers the potential to spot new medical advances before other companies are aware of them, with the production of stem cell treatments, which offers a higher rate of return.

Mr. Stenger expressed confidence Monday that the state will agree that AnC Bio is a good investment opportunity and will give its approval to the updated investment documents in the near future.

Ms. Donegan said she is unable to comment at all on the oversight process.

Construction for the AnC Bio project is expected to begin when weather allows. Mr. Stenger said he expects to start building on schedule.

EB-5 money has already paid for three hotels and numerous other amenities at Jay Peak as well as a hotel now under construction at Q Burke Mountain. Jay Peak has also talked about expanding the ski resort into an area it calls the West Bowl.

A preliminary development proposal was made to the state, Mr. Stenger said, but the resort has been asked to hold off on going forward with preparations for an EB-5 offering until it was closer to a final business plan.

In a statement sent out to the press, Mr. Stenger wrote that the West Bowl project was always scheduled for 2017-’18, and Jay Peak is very willing to wait because it still needs to get environmental permits before it can go ahead with its plans.

The Spates Block on Main Street in Newport, is rapidly being reduced to dust. EB-5 money is to be used for its replacement — a hotel and retail complex called the Renaissance Block.

If regulatory approval for that project is not in hand in time to raise money this summer, there could be a bit of a delay. Authorization for the EB-5 project is due to run out in September. Mr. Stenger said earlier that he is confident that the program will be renewed, but nothing will happen in Congress until the very last minute.

contact Joseph Gresser at [email protected]

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