Marlboro Music campus. Photo courtesy Marlboro Music Festival, by Pete Checchia
by C.B. Hall, Vermont Business Magazine The saga of troubles that followed Marlboro College's 2019 announcement that it was closing may have reached its denouement, and a happy one at that.
On September 24, Democracy Builders Fund (DBF), which purchased the 533-acre campus and its 52 buildings in 2020 for a pittance in cash, conveyed the property to Potash Hill, Inc, an entity under the control of the Marlboro School of Music (MSM), popularly known as the Marlboro Music Festival.
MSM, which has staged its summer festivals on the campus since 1951, paid DBF $2.74 million for the real estate. If certain conditions are met in the future, MSM will also release DBF from paying the $1.5 million it owes to MSM for improvements to the property.
The property is assessed at $3,771,600 but was appraised at $10.4 million in 2018, the year before the college announced it would close.
In July 2020, soon after its last commencement exercises, the college sold the real estate to DBF for $225,000 in cash and the assumption of the $1.5 million construction obligation.
The cash proceeds went to Boston's Emerson College, which simultaneously accepted transfers from some of Marlboro's students and received all of its remaining endowment, totaling more than $21.7 million.
The bargain-basement cash price reflected Emerson's lack of interest in owning the property.
Randy George, a Marlboro alumnus who served on the so-called Campus Working Group that advised his alma mater on the sale, said that, "Emerson was allowing the Marlboro College community, which is what the working group was representing, to decide what sort of organ they would like to occupy the campus in the future, with the money not being a concern."
The college's decision to sell to DBF opened a legalistic Pandora's box that wearied residents of the Windham County town and generated work, by VBM's count, for at least six law firms.
DBF intended to launch a hybrid secondary-post-secondary educational program called Degrees of Freedom on the campus, but that dream withered in the wake of the pandemic, financial woes, and the arrest of DBF's guiding figure, Seth Andrew, in April 2021.
He is facing federal charges of wire fraud, money laundering, and making false statements to a financial institution.
Andrew, an educational entrepreneur who served as an advisor in the Obama administration, and who had been living on the campus prior to his arrest, has moved out of Vermont as he awaits resolution of his case.
For DBF, Bills To Pay
In part because few details about DBF's finances were publicly available, the organization's wherewithal became the subject of controversy even before DBF purchased the campus.
In an IRS filing dated May 16, 2021, and posted online by the investigative journalism organization ProPublica, the organization, a nonprofit formed in Delaware but headquartered in New York City, reported expenses in excess of revenues - a loss, that is - of $737,744 over the tax year from July 1, 2019, to June 30, 2020.
The reported net assets - that is, assets minus liabilities - of $132,053 as of the latter date, three weeks before DBF purchased the campus for the $225,000 in cash.
A December 31, 2020, statement of accounts found that DBF's liabilities totaled $2,820,016, including the debt to MSM.
Whether the $2.74 million in cash paid by MSM can cover DBF's outstanding obligations is unclear.
"There are quite a few creditors," DBF attorney Mark Oettinger told VBM. "If every creditor were to get 100% of the money they are presently claiming, there would probably be a modest shortfall. The biggest creditor is the US government, in the form of two PPP loans. One question is whether one or both of those loans are going to be forgiven."
He referred to two Paycheck Protection Program loans, of $943,364 and $312,107, that DBF received through federal pandemic relief legislation.
The loans are backed by the Small Business Administration. The larger one, as VBM reported in a May 2021 article, has raised questions because DBF's application for it claimed that the cash infusion would save 270 jobs, while VBM's investigation found no evidence that more than 41 individuals benefited.
The smaller loan was approved early in 2021; its application claimed that only 18 jobs were at stake.
Like any other debt incurred - or any obligations disposed of - in 2021, it is not included in the 2020 end-of-year accounting.
DBF applied for forgiveness of the larger loan, apparently in April 2021, as allowed for under the pertinent federal legislation. Whether DBF has applied for forgiveness of the second loan is uncertain, but a knowledgeable source, who requested anonymity, said that neither loan had been forgiven. The source said that DBF's debts amounted to "millions."
Oettinger and DBF "are trying to resolve this as effectively as possible, so that the stakeholders can walk away as best they can, and DBF can be dissolved," the source said.
"There's no future for DBF. There's been no payment on anything... [Oettinger and DBF] want to resolve this in a manner that's happy and fair for all the stakeholders, including the Marlboro community. There's been a lot of collateral damage."
Given the significant role of the SBA loans, and the time that federal agencies can take in making decisions, a final resolution of the outstanding debts could take months.
In an interview in May, a representative of one of the first loan's ultimate recipients recounted a visit from FBI agents on the morning of April 27, the day Andrew was arrested. The agents posed two hours of questions about the larger loan and related matters.
A second source, who like the first requested anonymity, confirmed that the recipient in question had been cooperating with the federal investigators.
As the PPP's administrator, SBA does not comment on pending investigations. The program approved almost 11.5 million loans, totaling nearly $800 billion, according to the agency's website.
"The magnitude of the fraud [in PPP and related programs] we are seeing is unheard of - unprecedented," SBA inspector general Hannibal Ware stated in an August 5 ABC News report.
The claims against DBF also include one from William Kaplan of Montpelier. The website of the Montpelier Development Corporation, whose board he chairs, describes him as a commercial real estate developer.
The claim stems from a May bill to DBF for vaguely described services aimed at "creating a path forward" for DBF and Degrees of Freedom.
On September 3 Kaplan filed a copy of the bill, with the amounts in question and some other wording redacted, with Marlboro town clerk Forrest Holzapfel.
With the bill, he also filed a document headed "Recording of Obligations," which states that the amounts due on the bill "must be paid in full before or upon any transfer of real property" owned by DBF.
In an interview for this article, Holzapfel described the filing as "an incredibly weird instrument."
He said that Kaplan presented the documents by appearing at the former's home on a Sunday afternoon.
"I opened it and it said 'Democracy Builders' - and I wasn't surprised."
Both Oettinger and MSM president Christopher Serkin stated, however, that the claim submitted by Kaplan did not impede the property's sale; all the claims are now DBF's responsibility to settle out of its own resources.
Kaplan was also retained by Marlboro College's Campus Working Group to facilitate the 2020 sale of the campus to DBF. He could not be reached for comment.
MSM's road from campus tenant to campus owner has had its twists and turns.
The organization made an offer on the campus when the college originally offered it for sale. That offer was rejected, but the music people reentered the story early this year.
In January, while DBF struggled to get Degrees of Freedom rolling on the scenic rural campus, a Toronto-based entity called Type 1 Civilization Academy bought the campus - sort of.
In a complex sale-and-leaseback deal valued at $9.4 million, DBF, over Andrew's signature, gave Type 1 quitclaim deeds for the property's many parcels. Per the purchase-and-sale agreement, Type 1 also committed itself to giving DBF a "founder's wallet" in an amount not to exceed $10 million as part of a cryptocurrency venture, under the terms of a letter dated August 1, 2020.
That letter has not come to light.
The purchase-and-sale agreement released to the public by the Vermont attorney general's office following its legally required review of the sale documents refers to the communication as a schedule to the agreement, but the schedule, as released, is devoid of text.
What is apparent, however, is that, within days of DBF's purchase of the campus, it was on its way to a new owner.
But barely a month after DBF's sale to Type 1 closed, Andrew took another quitclaim deed - this one conveying the property back to DBF - and recorded it at the Marlboro town office.
This deed had been signed back in January by Type 1's principal figure, Adrian Stein. DBF appeared to be acting much a bank might in repossessing a property - under circumstances best summarized as bewildering.
The deed appeared "questionable," town clerk Holzapfel told VBM in a subsequent interview. Stein described Andrew's action as "a fraudulent reconveyance."
MSM, whose summer events take over part of the campus under a 99-year lease, was thus left wondering to whom it needed to pay its rent in the wake of the DBF-Type 1 head-scratcher.
On May 12 the music festival therefore filed a complaint in Windham County Superior Court that demanded that DBF and Type 1 settle the ownership question.
As an outgrowth of that action, the lawyers for MSM, DBF and Type 1 came to a meeting of minds: DBF owned the property, and would sell it to the music festival. MSM announced the agreement on July 21. Judge Katherine Hayes approved it six days later.
On September 2 the attorney general's office, per the statutes, issued a notice of no objection to the conveyance.
Throughout the tribulations in Marlboro, the town continued to list DBF as the campus's owner. The organization's personnel occupied the premises until shortly after Andrew's arrest, which ushered in the collapse of the organization's dreams for the campus.
It is unclear how much money, if any, Type 1 may have lost in the resolution to the bizarre sequence of events - or may have recouped in conjunction with the sale to MSM.
Under the agreement negotiated between the attorneys in July, Stein's entity renounced all claims to a "break-up fee" enforceable against DBF, under a Type 1-DBF agreement made last December, if DBF were to sell the property to the music festival.
That agreement described the breakup fee as 4% of the price paid by the music festival, plus unspecified expenses incurred by Type 1 in - ostensibly - acquiring the property in January, just before the music festival's right of first refusal on the property was to take effect.
Stein had no comment on the details of the sale to MSM, or on the labyrinth of events leading to the transaction.
In a September 18 email, he did however report "that things have been satisfactorily settled and that the Marlboro Music Festival will have a long term secure home on Potash Mountain [sic]. I remain on very good terms with the soon to be new owners and the door remains open to potentially utilizing the Campus for some of Type 1 Civilization Academy's activities as circumstances dictate."
Anticipating the deal in a September 9 interview, MSM attorney David Dunn referred mildly to "the complexity of the transaction."
Other witnesses to the unfolding events have used stronger language.
Alumnus George said in a September 21 interview, "If there's any one thing that all sides agree on, it's that it's a convoluted, messy thing."
While the music festival has as yet given no inkling of any plans for the campus, DBF's misadventure on Potash Hill is over, marking a turning point for Marlboro.
Holzapfel called the music lovers' acquisition of the property "a great thing for the town" - a sentiment that everyone contacted by VBM appeared to share.