The 35 Chinese investors suing the State of South Dakota and South Dakota’s EB-5 czar
Joop Bollen for losing their EB-5 visa investments in Northern Beef Packers claim that the state and Bollen misrepresented the financial viability of the ill-fated Aberdeen beef plant. To substantiate this claim, the investors include in their opening complaint two exhibits, versions of the written offerings Bollen’s EB-5 management company SDRC Inc. used to recruit EB-5 investors for Northern Beef Packers:
Both offerings are about the same length, 21 pages. Exhibit 2 attaches a 44-page business plan for Northern Beef Packers.
In October 2014, I reported on some truth-stretching in the January 10, 2010, offering. Let’s similarly analyze the representations the November 15, 2009, offering made about Northern Beef Packers, which include :
The following points stand out from this summary of Northern Beef Packers:
- NBP’s “waste water treatment plant” is cited as an asset adding more value to the plant. This sewage lagoon, constructed three miles southeast of the plant, was seen by some local officials as a potential hazard and a violation of trust.
- The November 2009 offering indicates NBP would open in “Spring of 2010.” A completion date just six months away suggests the plant was almost done. NBP did not open until October 2012.
- This offering says the total plant budget, including first-year operating loss and working capital, is $94 million. By the time NBP got through its first and only year of operation, it had gobbled up $95 million in EB-5 investment out of a total of $167 million in capital gone poof in the bankrupt beef plant.
- This offering claims that “a major Asian bank’s capital arm subsidiary is providing up to USD $30 million in financing for the construction and operation of the plant….” This claim appears to refer to the weird financing deal inked by Northern Beef Packers and Epoch Star on March 18, 2010. Epoch Star was not a bank and was not owned by a bank… or so the South Dakota Division of Banking ruled on July 1, 2010 to allow Epoch Star and NBP to avoid paying bank franchise tax. According to the Division of Banking, Epoch Star was fewer than ten investors, incorporated in the British Virgin Islands as a single-purpose entity, providing NBP with a bridge loan without which the plant could not be completed.
- The offering says NBP would be the “back bone” of the South Dakota Certified™ Beef Program, which Governor Mike Rounds signed into law in 2005. This claim turned out to be quite accurate: without NBP’s output to make it sizzle, South Dakota Certified™ Beef fizzled.
- More importantly, this offering tells investors that the State of South Dakota itself “will be guaranteeing the source and age verification as well as the quality” of NBP’s product. Alongside the statement that the state and local governments were supporting the plant with over $20 million in grants, loans, and tax financing, this offering suggests to investors that they can rely on South Dakota government to keep their investment safe, just like their comfy controlled economy back home in Communist China.
Both the November and January offerings promised that Northern Beef Packers would create 563 beef-processing jobs by 2010.
The January 2010 offering tacked on a claim that those 563 jobs would generate five to eight times as many indirect jobs in Aberdeen.
A January 2008 business plan for NBP predicted the plant would open in 2009 and hire 702 workers on first shift and maybe 650 more for second shift:
During its operation from October 2012 until bankruptcy in July 2013, Northern Beef Packers employed at most 400-some workers. As it restarted the beef production line for test runs in October, NBP’s new owners, New Angus, had hired 122 people.
The court will have to sort out hindsight from reasonable statements at the time to determine whether Joop Bollen and his EB-5 team told the Chinese investors whoppers about Northern Beef Packers’ financial position and prospects. Maybe if the Chinese investors had paid attention to small details, they never would have gotten into this mess. For one thing, the November 2009 and January 2010 offerings look like they were typed up by third graders. Check out this blessed abandonment of hyphens and sensible line breaks:
I know I make my share of typos and format flops in my writing, but holy cow, if I’m asking someone for $530,000, I will proofread a couple-three times! If a guy can’t take the time to realize that his computer has fouled the line breaks on an entire page of a prospectus being mailed out to high rollers, can investors trust that guy to run a beef plant right?
Attentive investors might also have caught this hilariously self-referential paragraph masquerading as an investment strategy:
Remember that SDRC Inc. is Joop Bollen. The “General Partner” is SDIF LLC 6, which is an affiliate of the “Promoter,” SDRC Inc. The “Project” is Northern Beef Packers, which was being run in 2009 by Joop Bollen. Properly translate this “investment strategy,” and you get, Joop introduced Joop’s project to Joop, and Joop recommended that investors invest in Joop.
And that, my friends, is why Joop and the state are in court.