Anatomy Of A Scandal
Public Records Show Start, Rise And Fall Of EB-5 Program
Posted: Wednesday, April 9, 2014 10:28 pm
By Bob Mercer State Capitol Bureau | 0 comments
PIERRE — The need for more dairy cows led to South Dakota’s original decision to seek immigrant investors.
That one-man effort ballooned into a global program that attracted hundreds of millions of dollars into South Dakota projects from investors in China and South Korea, at a time when the nation’s and world’s financial markets were teetering.
For $500,000 apiece, plus additional fees for lawyers and services, a successful investor could make a loan to a project and, if enough jobs were created, receive federal immigration clearance for the investor and family members to live any where in the United States.
Eleven years after its start, Gov. Dennis Daugaard decided the EB-5 program had to be shut down in South Dakota, because of what was unearthed about its operations and management.
One man is dead. Others have been hurt or wiped out financially. One project failed horribly. One business solidified itself. Two energy projects paid less for their financing. Another casino was built.
And former Gov. Mike Rounds finds himself answering questions about what happened on his watch from 2003 through 2010, as he now runs for the U.S. Senate.
Here is a long look, assembled from public documents, into how the program began, grew and destructed.
On May 31, 2003, the newly created state Department of Tourism and State Development formally applied to the federal Bureau of Citizenship and Immigration Services.
Joop Bollen, director of the South Dakota International Business Institute at Northern State University, prepared the application for the department.
The application noted the support of the state Department of Labor, the state Department of Agriculture and two NSU faculty members, Keun Ho Lee and David Savitski.
The application sought designation of regional center status to SDIBI to be responsible for all export and foreign direct investment for the state government of South Dakota.
The Davisco cheese plant at Lake Norden was under construction. Recruited to South Dakota by previous Gov. Bill Janklow, the plant would require 65,000 more dairy cows.
Bollen told the federal agency that he had been recruiting dairy investors and operators in the Netherlands since 2000 and in the United Kingdom since 2002.
Bollen sought designation of 12 northeastern counties as a dairy economic development region. Their unemployment rates qualified as high under federal regulations.
That meant foreign investors needed to put up $500,000 apiece to participate rather than $1 million.
The state Department of Labor certified that all of South Dakota except for Sioux Falls and Minnehaha County, Rapid City and Pennington County, and the cities of Aberdeen and Watertown, met the high unemployment criteria.
The 12 counties initially proposed and accepted for the dairy region were Brookings, Clark, Codington (outside of Watertown), Deuel, Grant, Hamlin, Kingsbury, Lake, McCook, Miner, Moody and Roberts.
Letters of support came from Gov. Mike Rounds, state Labor Secretary Pam Roberts, state Agriculture Secretary Larry Gabriel, Daviscos’ Mitch Davis, Valley Queen Cheese’s Mark Leddy, Land O’Lakes’ Steven Krikava and several county officials.
Federal approval came in a letter dated April 8, 2004, from the federal bureau’s associate director, William Yates. He directed Bollen to contact Morrie Berez, a senior adjudications officer, with any questions.
The first expansion
On May 4,2005, Bollen sought a major modification for the dairy economic development region. He asked the federal bureau to allow all counties in South Dakota east of the Missouri River to be part of the region as well as Gregory and Tripp counties west of the river.
Bollen asked for various restrictions to be lifted. He described them as self-imposed. They included:
• Eliminating the requirement that an investor be at least a 51 percent owner;
• Eliminating a prohibition against pooling investments;
• Eliminating the requirement that approximately 80 acres be purchased per facility; and
• Eliminating the restriction that an investor could invest only approximately $600,000 in a 300-cow dairy operation or $500,000 in a 3,000-heifer operation.
Bollen said in his letter the changes would allow pooling of investments for larger operations. He said SDIBI “naively included” the restrictions in the original application.
He again credited the state Labor Department, the state Agriculture Department and the two NSU faculty members for their support.
The federal bureau approved the amendments on June 13, 2005.
On April 6, 2006, Gov. Rounds appointed Richard Benda as secretary of tourism and state development.
On Dec. 10, 2006, Bollen sent a letter on SDIBI letterhead to Berez, chief adjudications officer for the investor and regional center unit at USCIS.
This letter was the first request from Bollen to expand the scope of EB-5 in South Dakota. Bollen wanted to add meat processing and feedlots for livestock.
The specific reason stated in the letter was the project that would become known as Northern Beef.
The letter’s opening three sentences summarized the situation.
“As discussed in our phone conversation of a couple of moments ago,” Bollen wrote to Berez, “SDIBI is working on a very exciting beef processing project that would bring at least 700 new jobs to the Aberdeen, South Dakota area.
“The proposed processing plant would be constructed outside the city limits and need approximately 60-70 new foreign investors at $500,000 per investor to be constructed.
“In addition to this processing plant feed lots will have to be attracted to the vicinity of the proposed new plant.”
Within two days the federal bureau approved the expansion into meat processing on Dec. 12, 2006.
Several years later Berez retired from USCIS and became an EB-5 consultant. One of his clients became Bollen and the South Dakota regional center.
The other company
Meanwhile another company, Darley International, based at Orinda, California, contracted with the Hanul law firm on Oct. 7, 2007, to provide recruitment services for SDIBI on EB-5 projects.
Darley was allowed to work on one proposal, a tilapia farm, but it didn’t move forward.
Bollen meanwhile had begun arranging in late 2007 to create his own company.
Darley brought an arbitration action in July 2009 against Hanul and SDIBI in an attempt to recover. Darley subsequently has broadened its legal action to cover Bollen and the new company he formed in 2008.
The court case in California is still going. Bollen is scheduled to appear via video-conferencing April 17 for a deposition by attorneys representing Darley.
Lawyers for Darley claim that SDRC reached agreements with agents Darley was using overseas.
Expansion beyond livestock
On Nov. 8, 2007, Bollen sent another application to the federal agency seeking further expansion of the South Dakota EB-5 program — and a name change.
He asked that the remaining 18 counties of western South Dakota be added, other than the metropolitan area of Rapid City.
He further requested that new categories of economic development be allowed.
They were utilities; machine manufacturing; food, beverage and tobacco manufacturing; petroleum and coal products manufacturing; chemical manufacturing; professional, science and technical services; and amusement, gambling and recreation.
He also asked for a name change. The dairy economic development region (DEDR) would be officially renamed as the South Dakota Regional Center.
Federal officials requested further evidence to support the expansion requests. After Bollen responded, the expansions were approved June 25, 2008.
He specifically credited support again from the state Department of Tourism and State Development, the state Labor Department and the state Agriculture Department.
“The DEDR to date produced over $100,000,000 in new dairy projects and $52,000,000 in a new beef packing plant that is currently being constructed,” Bollen said in the application.
“This success resulted in requests and political pressures to expand the regional center activities to include additional industries and to expand the economic opportunities to Western South Dakota,” he added.
Later in the application Bollen specifically referred to “electric power generation including such as windmill energy generation which currently is expanding rapidly in South Dakota.”
He also noted “South Dakota is courting the first oil refinery project to be built in the USA during the last 30 years” and referred to “casinos” expanding in western South Dakota and on Indian reservations.
“The new proposed industries have tremendous opportunities for South Dakota if EB-5 capital can be made available,” Bollen wrote.
The new organization
In the Jan. 24, 2008, response to USCIS, Bollen explained the role of his new company, SDRC Inc.
He said SDRC was being created to screen projects seeking EB-5 funding and to serve as the general partner for the loan pools that would be created.
A specific limited partnership would be created for the foreign investors for each project. SDRC would serve as the general partner for each of the limited partnerships and would receive 1 percent ownership of each limited partnership.
Wrote Bollen: “SDRC Inc will be controlled by Hanul Professional Law Corporation, a law firm, which has been directly involved in all DEDR projects to date.”
Bollen said a similar arrangement had been previously approved by the federal agency for other regional centers such as PDIC, the Philadelphia Industrial Development Corporation.
Bollen included with this latest expansion application a memorandum of understanding between himself as director for SDIBI and James Park as director for SDRC.
Park worked for the Hanul law firm based in Los Angeles and South Korea.
The maneuvering in SDRC
SDRC Inc. was registered as a corporation in South Dakota on Jan. 10, 2008. The filing was made by a Burbank, California, law office. The only incorporator listed was Bollen.
There was no mention of Park on the corporate filing, even though Bollen identified Park as president of SDRC two weeks later in the letter to the federal agency.
There was no mention of Park a year later either, when Bollen listed himself as president, secretary and treasurer for SDRC on Jan. 1, 2009, when Bollen filed the required annual report with the South Dakota secretary of state.
But on April 7, 2009, Hanul Professional Law Corporation of Los Angeles filed a change in the corporate personnel for SDRC.
The document from Hanul designated James Park as the new registered agent for SDRC, replacing Bollen.
Further, Park signed the document and listed himself as president.
On further review
The situation changed again less than two months later.
Jeffrey Sveen, an Aberdeen attorney, filed articles of amendment to SDRC’s corporate structure on June 1, 2009.
Now SDRC was to be governed by a board with at least one director and not more than five directors.
Bollen was the only director listed by Sveen.
The annual report for SDRC filed on Dec. 8, 2009, listed Bollen as president and as registered agent. There was no mention of Park ever again.
On Jan. 3, 2013, the SDRC annual report added the name of another man as vice president. He was Pyush Patel of Griffin, Ga.
Bollen and Patel were listed again this year as president and vice president for SDRC.
Feds begin closer look
On Dec. 1, 2009, the U.S. Citizenship and Immigration Services sent a five-page letter to Bollen asking for detailed documentation of SDIBI’s activities in the EB-5 program.
Bollen responded on Dec. 20, 2009. He said he would be the principal point of contact for SDIBI only up to Dec. 22, 2009.
Bollen said he would be resigning that day from SDIBI and wouldn’t be responsible for operation of the EB-5 regional center any longer.
Bollen said the duties of SDIBI would be transferred to Benda in his role as the state secretary of tourism and state development.
Bollen’s letter detailed the complexity of relationships between Benda’s department, SDIBI, Hanul law firm, SDRC and Brookings Bank and Trust.
He said Benda’s department reviewed all prospective projects for selection.
SDIBI then forwarded business plans for the projects to Hanul.
Bollen described Hanul as “an immigration law firm with offices in Seoul, Shanghai and Los Angeles.”
Promotional materials and legal documents were forwarded to “our established network of agents for investor recruitment purposes,” Bollen wrote.
He said Hanul was responsible for foreign investors’ immigration petitions and for educating the recruitment agents and the South Dakota general partners.
The EB-5 projects
Records show that SDIBI and SDRC had already gathered $250 million from EB-5 and other types of immigrant investments as of Bollen’s December 2009 letter.
The projects included 16 dairies, the Northern Beef Packers processing plant in Aberdeen, a company called Newark Veal Inc., and three limited partnerships under SDRC.
The initial SDRC projects were loan pools for the Dakota Provisions meatpacking operations in Huron, the Deadwood Mountain Grand hotel and casino at Deadwood and a utilities project.
Bollen, Benda and Sveen actively sought projects and investors. They traveled to China at times. Park made trips.
From January 2008 through June 23, 2011, SDRC arranged 11 sets of limited liability companies and limited partnerships using EB-5 investments, according to records filed with the secretary of state.
A report filed with the Governor’s Office of Economic Development shows this lineup of loan pools were created or attempted:
Three for Dakota Provisions (the third in 2011 was rejected by federal officials);
Two for Northern Beef (in addition to the earlier package put together by SDIBI);
One for Deadwood Mountain Grand casino (a former state commissioner of economic development during the Janklow administration, Ron Wheeler, was involved in the project’s creation and during the EB-5 work, but said has since sold his interest);
Two for the Basic Electric gas-fired electric generation project, known as Deer Creek Station, in Brookings County;
One for NextEra Energy’s Day County II wind farm; and
One for Iberdrola Resources’ wind farm, known as Buffalo Ridge II wind, in the Deuel County area (the use of EB-5 was later disallowed by federal officials).
A fourth loan pool was sought for Northern Beef but GOED refused to authorize it in 2013.
The state contract
In 2009 Benda and Bollen reached agreement on a contract designating SDRC as the state’s administrator and marketer for EB-5 projects and work.
Sveen, representing SDRC, and Tim Engel put together the contract. Engel is a private attorney who does legal work for the state department.
Benda and Bollen agreed on the contract Dec. 22, 2009. They adopted a revised version on June 4, 2010.
One set of the contract’s provisions covered fees that SDRC was to charge. Portions of the fees were to be set aside for EB-5 work expenses and some were to be eventually remitted to state government.
Under the contract, state government didn’t share in any fees from the early dairy projects and from the original Northern Beef investments.
A reduced fee also was set in the contract for the two EB-5 loan pools that were used for Dakota Provisions’ operations.
Sveen is lawyer for many Hutterite colonies in South Dakota, including some that supply turkeys to Dakota Provisions. He also has been chairman of the board for Dakota Turkey Growers, which does business as Dakota Provisions.
The state-SDRC contract was scheduled to run through June 30, 2014.
At the end of 2010, the governor-elect decided he was splitting apart the Department of Tourism and State Development. Daugaard returned to a stand-alone Department of Tourism and raised the Governor’s Office of Economic Development back to Cabinet level.
He also decided against retaining Benda.
Out of a state job, initially Benda went to work for SDRC to focus on the Northern Beef project. The plant opened in 2012 and then closed in 2013, when the managers ran out of money to buy cattle.
Benda subsequently went to work for the Lloyd Companies, a property management and development business in Sioux Falls.
In the fall of 2013 he began work in community development for the Heartland Consumers Power District at Madison.
Meanwhile, in March of 2013, the governor’s office received a subpoena from a federal grand jury regarding Benda’s travel records and other topics that haven’t been publicly disclosed.
State Attorney General Marty Jackley began an investigation at the request of the governor.
Reaching the end
On Sept. 19, 2013, the current commissioner for the Governor’s Office of Economic Development, Pat Costello, terminated the state’s contract with SDRC. There wasn’t a public announcement at the time.
Under the contract, state government received $28,240.03 that remained in the SDRC expense account and will receive, six years from now, $1,132,919.74 that was in the SDRC state-indemnity fund.
At the governor’s direction, in early October, Costello contracted with a private accounting firm to look at the Future Fund grants program within GOED, which was a sub-agency within Benda’s department.
Approximately two weeks later, on Oct. 22, after he had missed work, Benda’s body was found at a Lake Andes area farm.
The official cause of death was listed as an Oct. 20 suicide from a self-inflicted shotgun wound to the abdomen.
Subsequently a letter from Jackley to the governor in November revealed that three instances had been found of Benda receiving duplicate reimbursements for airline trips.
It also was learned that a check for a December 2010 grant approved by Rounds for Northern Beef for $1 million was hand-delivered by Benda to Northern Beef in early January of 2011 after Benda had left state government.
Northern Beef transferred $550,000 from that check to an escrow account for SDRC. The money was reportedly to pay a $225,000 annual salary to Benda to serve as the EB-5 loan monitor for Northern Beef.
A state audit completed this year found that Benda had increased the amounts of two other Future Fund grants that were made to the South Dakota Development Corp., a quasi-government agency. The money was intended to assist the Northern Beef project.
A spokesman for Rounds said Rounds didn’t authorize those increases. One was for $550,000.