Building ski lodges is a relatively old, relatively low-tech activity, but the EB-5 promoters in Vermont, now subject to court action, were also proposing to build a state-of-the-art medical facility to manufacture artificial human organs.
The organs were to be developed in the rural reaches of northern Vermont, near the Canadian border, in an area not known for high-tech medical work.
Other aspects of this now-exposed Vermont scandal involved the apparent theft of $50 million, as we reported earlier.
The organ-replacements included, according to the Securities and Exchange Commission complaint, "a heart-lung machine called T-PLS, an artificial kidney called C-PAK, and a liver replacement device called E-LIVER." The promoters, Ariel Quiros and William Stenger, said that they would use EB-5 moneys to build and operate "clean rooms", ultra-protected areas for medical research.
The complaint continues: "From the start, the Biomedical Phase VII offering has been rampant with fraud. The original offering materials projected the facility would be complete and operating in 2014. They forecasted the project would create 3,000 jobs and achieve more than $306 million in annual revenue by 2018. However, the revenue projections were baseless."
These promises, by a pair of entrepreneurs skilled at ski lodges, should have set off a series of red flags for all concerned. The development of artificial human organs is a long-term activity simply because it is extremely difficult to do and, further, it requires approval from the Food and Drug Administration along the way.
People in the Department of Homeland Security, in the Vermont state office handling these EB-5 projects, and in the press might well have asked FDA: "How's that proposed artificial kidney research going?"
But no one asked those questions, and the FDA, busy with its own work, probably had no idea of what was being promised to another federal agency.
The complaint continues: "At the time the Defendants distributed the Biomedical Phase VII offering materials [to potential EB-5 investors] in 2012 and 2013, Stenger was heading up the company's FDA approval efforts. Stenger knew full well that the only contact he had with the FDA prior to 2012 consisted on two isolated email exchanges in June 2010 and February 2011, and a telephone call in 2010." (Emphasis in the original.)
Meanwhile, the EB-5 problems in Vermont have been thrust into Vermont's upcoming gubernatorial election. The incumbent Democratic Governor, Peter Shumlin, is not seeking re-election, which is just as well for him. Former Ambassador to Croatia Peter Galbraith is running for the Democratic nomination, presumably without Shumlin's support, as Galbraith has called for an independent commission to investigate the state government's role in the EB-5 projects.
Galbraith, who succeeded Shumlin in the Vermont State Senate a few years ago, is the son of the late John Kenneth Galbraith, the noted economist.