The Daugaard Administration caught a break from USCIS last week. In a decision issued on March 15, the USCIS Administrative Appeals Office withdrew an earlier decision to revoke South Dakota’s EB-5 Regional Center status. We aren’t in the clear; USCIS simply says it needs further proceedings to determine whether the feds can trust South Dakota to run the EB-5 visa investment program honestly and effectively.
As Seth Tupper notes, the USCIS decision recognizes that the government must weigh both the financial shenanigans that took place in the Rounds/Bollen/Benda EB-5 program and the economic good the program did for South Dakota. On the positive side, USCIS cites the “thousands” of jobs created by EB-5 in South Dakota.
“Since 2013, the State of South Dakota has worked diligently to resolve the problems stemming from the federal EB-5 program in South Dakota,” said Tony Venhuizen, the Governor’s chief of staff. “Today’s settlement and the recovery of $1.5 million from SDRC, Inc. not only compensates the state for past EB-5 related expenses, but also ensures the state has the funds it would otherwise have had under the contract with SDRC, Inc. to guard against any future claims.”
Under the terms of the settlement, SDRC will immediately pay $546,250 into an existing state-controlled indemnification account, with an additional $81,250 payment by Sept. 1, 2019. Since commencing its civil actions, the state separately recovered an additional $894,633.32 in indemnification funds owed to the state by SDRC, Inc. [Office of Governor Dennis Daugaard, press release, 2017.03.14]
The $546,250 appears to be payback for the legal costs the state incurred in the Darley case, in which a California business sued the state over monkeyshines in the South Dakota EB-5 program. The settlement appears to include no damages or penalties, only fulfillment of obligations created by the state’s contract with Bollen’s SDRC Inc.
The only legal case remaining in play on South Dakota’s EB-5 scandal is the LP6 Claimants case, in which Chinese EB-5 investors are suing the state and Bollen for blowing smoke on the value of the Northern Beef Packers EB-5 project in Aberdeen.
At last week’s press conference following the guilty plea of the state’s former EB-5 czar Joop Bollen, I asked Attorney General Marty Jackley if the state had investigated any other private entities like Bollen’s that hold indemnification funds for the state to ensure that other state contractors were leaving such funds intact and not using them as personal ATMs. A.G. Jackley said such funds are “common legal practice” but spoke of no other investigations, emphasized his complete non-involvement in drafting the agreement creating the fund Bollen managed for the Governor’s Office of Economic Development, and recommended taking any questions on the topic to the Legislature and the Governor.
I checked with Auditor General and the Bureau of Finance and Management.
In response to my question—”Do other private entities hold similar funds that in which the state has a secured interest?”—Auditor General Guindon said he is “not aware of the existence of any other indemnification accounts similar to the one held by SDRC Inc.”
In its dealings with former state employee Bollen, the state—the Governor’s Office of Economic Development under Governor Mike Rounds, whose GOED signed the contract, and Governor Dennis Daugaard, whose administration let that contract continue until the feds made them nervous—appears to have taken a unique risk that it takes with no other private entity, leaving state money in a private account over which it could not exercise direct oversight.
Bollen may not have absconded with any funds—as his attorney reminded the judge last week, Bollen replaced the funds he “borrowed” from the state within days—but the state did allow itself to lose money needlessly. As I noted in September, the state required Bollen to collect fees from EB-5 investors for the state. The GOED–SDRC Inc. contract required Bollen to hold those funds so they would not show up on the state’s books. However, by leaving those funds in Bollen’s hands, GOED left those funds subject to federal income tax liability. I don’t have the SDRC Inc. tax returns handy (O! would that I could get my hands on them!), but if those state fees collected and held by SDRC Inc. were taxed at 35%, then on the $2.6 million shown in the SDRC Inc. indemnification fund as of June 30, 2016, the state gave up $1.4 million in federal taxes.
$1.4 million—that’s a high price to pay just to keep public money out of public sight. Given that no other state agency appears to engage in such a costly practice, we should continue to ask why the Rounds/Daugaard GOED was so eager to take that risk.
In trivia from yesterday’s Aberdeen crackerbarrel…
Senator Brock Greenfield (R-2/Clark) compared his anti-refugee bill to his mom’s anti-nuclear waste bill, saying both are simply measures to expand the Legislature’s oversight. It’s funny that Republicans are working hard to expand government power. It’s not funny that Senator Greenfield views refugees the same way he views nuclear waste.
Best friends against the Muslim ban in West Palm Beach.
Senator Greenfield boasted that legislators don’t attack each other, then noted wryly that a couple of his Republican colleagues may try to prove him wrong. Brock didn’t say names, but we know who he meant, don’t we, Stace and Lance?
Addressing a questioner’s concern with transparency, accountability, and Joop Bollen’s big smile, rookie Representative Drew Dennert (R-3/Aberdeen) said the root of the corruption problem with EB-5 and GEAR UP was federal money. Hmmm… that’s like saying the root of South Dakota’s meth problem is acetone manufacturers.
Since Republicans struggle with simile and subtlety, let’s just say it: No, Drew, the root of EB-5 and GEAR UP corruption was corrupt friends of friends who thought they could take money from the till because nobody in Pierre was watching.
And in participation awards:
Representative Burt Tulson drove 120 miles to get 85 characters, including spaces.
Hmmm… 75 characters, 10 empty spaces… that’s darn near a description of the Republican caucus in Pierre.
Joop Bollen pled guilty this morning to one of five felony charges of mishandling funds related to his administration of South Dakota’s EB-5 program. Judge Portra gave Bollen a suspended imposition of sentence with two years of probation, a $2,000 fine, $104 in court costs.
Six days before Bollen’s scheduled trial, Attorney General Marty Jackley appeared in the Brown County courtroom of Judge Tony Portra to read a plea agreement freshly signed by the state and Bollen. In the plea agreement, Bollen admits that, on February 17, 2012, he took $300,000 from a fund that his corporation SDRC Inc. was supposed to hold to indemnify the state in case of lawsuits arising from the EB-5 visa investment program. Bollen purchased Tax Increment Finance bonds on Northern Beef Packers, the beef plant that EB-5 investment helped build on the south edge of Aberdeen. By taking that money, Bollen violated SDCL 44-1-12, a Class 6 felony. Judge Portra asked Bollen if he agreed the Attorney General’s statement; Bollen answered, “Yes, Your Honor.”
Under the plea agreement, the state dropped the other four charges, which included $944,000 in unauthorized withdrawals from funds Bollen/SDRC Inc. were supposed to hold for the state, money that Bollen allegedly converted to personal use. Those other funds and uses were not mentioned in today’s hearing. The state also agreed not to pursue any further charges against Bollen on this matter, to remain silent on sentencing, and not to use this plea against Bollen in pending civil litigation. In addition to his plea today, Bollen agrees to testify fully future proceedings.
Judge Portra asked Bollen a series of questions about his understanding of the plea agreement and his rights. Bollen answered, subdued but sure, “Yes, Your Honor… I do… I have… I am.” Judge Portra asked if Bollen had received any other promises to secure his plea. After a brief querying glance at his attorney, Reed Rasmussen, Bollen said, “No, sir.” Any force, need more time—“No… No, Your Honor.”
What is your plea—“Guilty.”
The defense waived Bollen’s right to pre-sentencing hearing and asked the court to render sentence immediately. Judge Portra asked the state for comment. Attorney General Jackley reiterated the position stated in the plea agreement, that the state would leave sentencing to the court. A.G. Jackley did note that the Legislature has dictated, per the 2013 criminal justice reform bill, that defendants in Class 6 felony cases like this should receive probation, not prison, and that he knew of no aggravating factors to override that presumption of probation. A.G. Jackley also noted that the defendant’s plea had averted the need for a trial.
Rasmussen acknowledged that Bollen had taken the $300,000 and, perhaps extraneously to the charge at hand, had violated his contract with the state to have $1,000,000 in that indemnification fund by the end of December 2011. Still, Rasmussen said, Bollen returned the $300,000 to the bank account within four days of the illegal withdrawal. The only victim of the crime was the state, and no money (including $2.5 million in state money still held in SDRC Inc. accounts) is missing.
Rasmussen said Bollen has already been punished with three years of the media dragging his name through the mud. “I don’t do blogs or Facebook or whatever,” said Rasmussen, but he has heard there are some terrible things out there.
Given Bollen’s lack of criminal record and good conduct since his arrest (he traveled to Europe while on bond), Rasmussen asked for suspended imposition of sentence with little or no probation.
Asked by Judge Portra if he wished to address the court, Bollen said, “I’m fine, thank you.”
Judge Portra said he found Bollen “eligible and a good candidate” for suspended imposition of sentence. Judge Portra said he has given suspended imposition to offenders with “much lesser prospects for rehabilitation.”
Alluding to the defense’s statement about media mud-dragging, Judge Portra said he was choosing his sentence in part to make clear that this case is “far less juicy and salacious” than is otherwise believed. “Benda” and “EB-5” get a lot of press, said Judge Portra, but this crime and this plea are not about Benda or EB-5.
Judge Portra thus declared jail not appropriate. Bollen could have faced two years in prison and a $4,000 fine. Instead, Bollen pays $2,104 and walks home mostly free. Judge Portra imposed two years probation, but without any restriction on drinking alcohol. Judge Portra imposed no travel restriction but noted that Bollen will need to check with the probation officer about limits on travel that may be imposed by the interstate compact on probation rules that South Dakota observes.
Court adjourned. Bollen left, making no comment to the press (even though I asked nicely).
* * *
Attorney General Marty Jackley held a press conference following the hearing (see full video from Aberdeen American News on Facebook). One theme that emerged from his statements to the assembled journalists was that A.G. Jackley views today’s plea deal as an achievement distinguishing his office from federla investigators. He noted that the Department of Justice, FBI, and U.S. Attorney had all failed to find anything in South Dakota’s EB-5 program on which to bring charges. Only his office has brought pursued indictments against EB-5 players—first Richard Benda in 2013, an arrest and prosecution averted by Benda’s untimely death; and now Bollen. Jackley said that contrast shows that the feds have failed to exercise due oversight over EB-5 and that it is up to state authorities to fill the gap with measures like his proposed conflict-of-interest measure, Senate Bill 27 (which would not appear to pertain to the activities for which he prosecuted Bollen, but hey, Jackley is also campaigning on a couple of fronts, so cut him some slack).
A.G. Jackley used this assertion of the superior performance of his office over the feds to avoid my question about whether this investigation has led him to findings or actions against any accomplices, like Bollen’s Georgia business partner Pyush Patel. A.G. Jackley gave no indication that other participants in Bollen’s mishandling of funds have been identified or investigated.
The Attorney General did not mention the oversight USCIS exercised by revoking South Dakota’s authorization to participate in the EB-5 program. When I asked whether today’s plea would help the state make the case to USCIS to reinstate South Dakota’s EB-5 status, A.G. Jackley said that’s a question for the Governor and his Office of Economic Development. He did acknowledge the positive economic impact EB-5 had on several communities.
I asked whether other private entities are holding indemnification funds for the state and whether the discovery of Bollen’s mishandling of secured funds had prompted a review of other funds to make sure no one else was turning such funds into personal ATMs. A.G. Jackley mentioned no other such investigations and said that question should go to the Legislature and the Governor.
I asked A.G. Jackley if the requirement that Bollen “cooperate and testify truthfully” differs at all from the obligation an un-pled Bollen would have had to respond to a subpoena and testify in EB-5 matters. A.G. Jackley said “If there are any future proceedings” (again, no indication of anything in the pipeline), and if Bollen failed to testify truthfully, that action could revoke the plea agreement and subject Bollen to trial. But playing nice, A.G. Jackley said he anticipates no problems with Bollen’s complying with the agreement he signed.
Attorney General Marty Jackley advises that Joop Bollen is scheduled to appear on Wednesday, February 1, 2017, at 9:30 a.m. at the Brown County Courthouse for a Change of Plea Hearing. Attorney General Jackley will be present and available for any questions after the hearing [Attorney General’s office, media advisory, 2017.01.30].
I’m bummed that I don’t get to play courtroom reporter for a whole week. Marty Jackley, Mike Rounds, and other well-placed Republicans may be glad that there will be no chance of Bollen airing dirty EB-5 laundry in the course of a vigorous defense.
We would like to blame Mr. Sveen, but we’re not going to do that.
—Reed Rasmussen, attorney for the defense, saying the second-most interesting thing I heard all day in oral argument, State of South Dakota v. Joop Bollen, 2016.12.29.
Joop Bollen did not have a good day in court. He didn’t have a rotten day; he just didn’t win on any of the pre-trial motions heard today by Judge Tony L. Portra at the Brown County Courthouse here in Aberdeen.
Bollen came to court today in jeans and a tan, hooded work jacket, with sleeves pushed up, showing the dark hair on his lean arms. He sat alone at the defense table ten minutes before the hearing’s scheduled beginning at 1 p.m. Two pews back sat his current wife, his ex-wife, and his older son. When the attorneys emerged from the judge’s chamber at 1:10 p.m., Bollen’s attorney Reed Rasmussen took Bollen out of the courtroom to converse private for five minutes. They returned five minutes later, with Bollen looking appropriately serious. Judge Portra entered a couple minutes later. During Rasmussen’s statements, Bollen frequently watched the judge intently and nodded to reinforce his attorney’s points. On one occasion, Bollen silently mouthed “No” toward the judge in response to one of Rasmussen’s rhetorical questions attacking the state’s arguments. While Assistant Attorney Generals Paul Swedlund and Brent Kempema spoke, Bollen fixed his grave gaze on them. In apparent response to the state’s statements, Bollen occasionally whispered serious and vigorous corrections and rebuttals to Rasmussen.
No Ruling Yet on Motion to Dismiss
Judge Portra took no action on the big motion heard today, the defense motion to dismiss. Bollen’s attorney Reed Rasmussen contends that the contract the state signed with Bollen to run its EB-5 program didn’t specifically create a “security interest” on the bank account from which Bollen briefly borrowed significant sums for personal use. Even if the state and Bollen had signed a contract so obligating the account in question, Bollen’s dips in the till happened in 2012, at which time there were no EB-5-related claims against the state. The money’s there now, so, no harm, no foul.
Representing the state, Assistant Attorney General Paul Swedlund said the 2009 South Dakota/SDRC contract required Bollen to have one million dollars in the bank by December 31, 2011. He argued the contract didn’t have to name bank accounts that didn’t exist yet. Establishing a security interest, says the state, only requires saying what the secured collateral is (in this case, a million bucks), not where it is (in this case, a Wells Fargo account referred to in court as “Contingency Account 3”).
Rasmussen also argued that the statute under which Bollen is charged, SDCL 44-1-12, is unconstitutional, since it does not include an intent to defraud as a condition for guilt. Swedlund responded that the defense’s interpretation hinges on dicta (a judge’s side comment, not integral to the ruling) from a civil foreclosure case and that South Dakota law says what it says: if Bollen “willfully” transferred money that should not have been transferred, he’s guilty.
Judge Portra took the arguments under advisement and promised a written ruling later.
Judge Portra did rule on several motions affecting procedure and evidence in the trial, assuming he does not grant the defense motion to dismiss. Five motions generated no controversy. Potential jurors will get a supplemental questionnaire; Assistant Attorney General Brent Kempema said the state may want additional information for background checks. Both sides agreed to provide written reports from any expert witness. They will provide witness lists and tangible evidence by January 31, one week before the trial begins. The defense also agreed to the state’s motion to exclude evidence on third-party perpetrators. Essentially, Bollen is saying he’s not going to try blaming someone else for the crime. That motion brought Rasmussen’s comment about blaming his law partner Sveen. All parties at the big tables laughed, and the motions rolled on.
State Can Tell Jury What Bollen Bought
The defense objected to the state’s motion to introduce evidence on how Bollen spent the borrowed money. Bank records in the court papers indicate Bollen used the money to buy Egyptian antiquities and some TIF bonds on the EB-5-funded Northern Beef Packers packing plant in Aberdeen. The defense argued that the state would object to any evidence that the defendant gave the money to charity, so it’s no more relevant to tell the jury that Bollen spent the money on luxuries and bonds. The defense says the state just wants to paint Bollen as “some rich guy” and thus impose an unfair prejudice on his client.
A.A.G. Kempema says the state has to be able to show the jury that Bollen used the money for purposes outside his contractual duties to the state. Judge Portra agreed, allowing the state to present its evidence to the jury. However, Judge Portra agrees with the defense that the use of the money is irrelevant to guilt and that he will consider giving the jury instructions that limit how they consider that evidence.
Portra Blocks Defense from Exposing State Corruption
The final motion considered today was the state’s request that the court block the defense from introducing evidence to the jury that the state’s prosecution of Bollen is improperly motivated. Let me emphasize: this motion is a pre-emptive strike from the state.
The defense contends that the state brought criminal charges to retaliate against Bollen. The defense claims that the state is mad that Bollen wouldn’t sign a new security agreement over SDRC Inc. funds that the defense says by contract belong to SDRC Inc. The defense also argues that the state is mad that Bollen has filed a counterclaim against the state in its pending civil case.
Kempema argued that letting the defense make that argument to the jury creates an unworkable “trial within a trial.” Kempema said the jury’s job is to determine the defendant’s guilt or innocence, not the state’s. Kempema said SDCL 23A-8-3 directs challenges of the prosecution’s integrity to the judge before trial.
Kempema further argued that the defense has shown no “credible showing of differential treatment” of Bollen… although as Rasmussen said, that’s kind of hard to do, since he said the state’s case against Bollen “is like no other one that I’ve been able to find.”
Rasmussen said the defense at least wants a jury instruction pertaining to the state’s motives for dragging Bollen into court. The defense also asked for a discovery order so it could depose the Governor’s Office of Economic Development, the Governor’s Office, and the state banking commission and “find out what’s going on behind the scenes in Pierre.”
For a breathless moment, this reporter looked up at the bench and thought, “Holy cow, let the defense go to Pierre!”
Declining to rule that telepathic outburst in contempt, Judge Portra turned instead to the defense and said that GOED and the Governor do not charge people with crimes. The Attorney General, an independently elected official, decides whom to prosecute.
“That’s the way it’s supposed to work,” said Rasmussen. “I’m not sure that it did.” (That’s the most interesting thing I heard all day: Joop Bollen’s lawyer signaling that Joop Bollen may be the victim of corruption in South Dakota government.)
After a heavy pause, Judge Portra granted the state’s motion to quash defense arguments about the prosecution’s motives, saying the state’s intent does not make the Joop Bollen guilty.
Barring a ruling to dismiss, Joop Bollen’s trial remains on schedule for Tuesday, February 7, at the Brown County Courthouse. Judge Portra alluded to the possibility that results of the supplemental jury questionnaire could induce the defense to move for a change of venue.
EB-5 watchdog David North has an interesting report on the use of EB-5 visa investments to help launch charter schools in several other states. North finds the investor reports “grim.” He also expresses dismay at the funneling of money to EB-5 regional centers (i.e., the immigration lawyers and other middlemen working the foreign crowd for investments) that could have been invested directly in American students:
The big picture is that dollars spent on profits and fees to the regional centers handling the 61 investments is money that would be spent on kids and teachers were they all in the public school system. We will never know how much was siphoned off in this way in these 11 schools because of the financial reporting, but it is safe to say that many millions are involved. Similarly, taxpayers, instead of knowing that all their tax dollars are going to the schools, must accept that some of these dollars are heading into private hands instead [David North, “The Strange Marriage of Two Programs: EB-5 and Charter Schools,” Center for Immigration Studies, December 2016].
PAUL SOLMAN: Last year, six bills were introduced in Congress to reform the EB-5 program, increasing scrutiny of the so-called regional centers, private firms that sponsor EB-5 developments. None passed. Why?
MICHAEL GIBSON: There are a few regional centers with very powerful connections in Washington, including their lobbyists. They are concerned any reform would impact their ability to raise capital for cities such as New York and Los Angeles and Miami.
…PAUL SOLMAN: Scandals, fishy financing, yet lobbyists have kept Congress from cleaning things up, for the usual reasons, says Gibson.
MICHAEL GIBSON: The developers are very well-financed, well-heeled. They donate to the political campaigns of many of these politicians. So if the developers can save several million dollars, they are going to encourage their politicians to have them — allow them to use the EB-5 capital for their development. It’s self-interest [Paul Solman, “The Visa Program Leaving Hopeful Immigrants Empty-Handed,” PBS NewsHour, 2016.11.17].
But how can the Trump-Kushner cabal turn on the dimes EB-5 has put in their pockets?
Just this month, Trump Bay Street, a 50-story luxury apartment building, opened in Jersey City, New Jersey, built by a company run by Trump’s son-in-law, Jared Kushner, who raised a quarter of the project’s $200 million financing from EB-5 investors in China [Solman, 2016.11.17].
The corporate seizure of EB-5 as a profit center endangers not only honest domestic business but our international credibility:
MICHAEL GIBSON: The issue is that it is affecting the credibility of the United States, because granting what is probably the most cherished document in the world, a U.S. passport, and path to eventual citizenship is really in the hands of developers, who at times do scheme and fraud to take advantage of the investors [Solman, 2016.11.17].
EB-5 is a center of corrupt business lobbying influence over immigration policy that damages American credibility. It is everything that Trumpist rhetoric says America voted to stop. Yet it is everything that Trumpist greed wants. Which will win, rhetoric or greed?
The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is Fascism—ownership of Government by an individual, by a group, or by any other controlling private power [President Franklin Delano Roosevelt, Message to Congress on Curbing Monopolies, 1938.04.29].
Apparently the Deadwood Mountain Grand Casino’s success now depends on getting out of paying back its EB-5 loans. According to AP’s James Nord, former EB-5 czar Joop Bollen, who still owns the shell corporations that issued hundreds of millions of dollars of loans to EB-5 projects on behalf of the state of South Dakota, is suing casino ownership group Tentexkota LLC and its members for reneging on their $32.5-million loan. Reading the federal civil complaint, Nord learns that the casino owners were supposed to pay back their loan by April 2015. Bollen extended their deadline to May 2016, when Tentexkota defaulted.
…A Deadwood Mountain Grand investment group known as Tentexkota LLC began seeking an EB-5 loan in 2009. The lawsuit alleges that Bollen “represented to Tentexkota that personal guarantees were required to receive and secure EB-5 funds.”
Members of Tentexkota subsequently signed personal guarantees, apparently unaware that EB-5 regulations require money invested in the program to be “at risk.” If a foreign investor is guaranteed a return, the money is not at risk and is not a qualifying EB-5 investment, the lawsuit says [Seth Tupper, “Deadwood Mountain Grand Investors Sue Former EB-5 Director Bollen,” Rapid City Journal, 2016.11.11].
McGovern Hill—that reminds me: both sides are being represented by prominent Democratic lawyers. Tentexkota has enlisted former legislator and 2010 gubernatorial candidate Scott Heidepriem to represent them. Representing Bollen is unsuccessful District 33 Legislative candidate Haven Stuck. (Ah ha! Now I get it—GOP corruption keeps Democrats from winning elections, because Democratic leading lights are too busy writing briefs for those corruption cases!)
Permit me one bit of wild speculation, a preview of how the Deadwood chapter figures into the great South Dakota EB-5 novelization:
The state gets the casino owners to respond by alleging EB-5 misconduct by Bollen in their countersuit, thus maybe reinforcing their case to USCIS that all the problems in EB-5 were Bollen’s fault and showing that the state had no part of the corruption (although that’s a weak line, serving more to reinforce USCIS’s contention that the folks in Pierre who should have been supervising EB-5 weren’t supervising and can’t be trusted to play with EB-5 money ever again).
EB-5 didn’t win us Democrats a single seat in 2014 or 2016, so I won’t predict that EB-5 will finally come a cropper for the Republican regime and allow Democrats to wrest power from the Friends of Mike. But three years after the suicide of Mike Rounds’s former economic development chief launched this scandal into popular awareness, EB-5 continues to reveal the depth of scummery in South Dakota’s economic development schemes.