The Internal Revenue Service is seeking $929,709. The South Dakota Department of Revenue has two claims totaling $871,287. The South Dakota Department of Labor claim is $30,636.
…Also on the list of unsecured claims that won’t be paid is the city of Aberdeen at $250,269, other government agencies and many businesses, some of which are local.
City Attorney Ron Wager said Aberdeen’s claim is for unpaid water and wastewater services [Sand, 2017.11.10].
Among other creditors, bankruptcy documents indicate NBP stiffed the USDA $51K, Northwestern Energy $447K, Avera St. Luke’s Hospital $80K, Grote Roofing $22K, and Production Monkeys nearly $16K.
The beef plant is up and running. Sand notes that DemKota Ranch Beef “has no ties or obligations to the bankruptcy proceedings.” That statement is true, but it should not submerge the fact that DemKota Ranch Beef exists only because Northern Beef Packers was part of a money-making scheme that enriched the EB-5 visa peddlers while burning up $167 million in capital and producing an ag-industrial boondoggle that one lucky investor was able to acquire for three cents on the dollar while dozens of other investors, numerous contractors and suppliers, and all of us taxpayers provided a nearly $80-million subsidy that we’ll never get back.
DemKota Ranch Beef/New Angus is slowly bringing the scandal-born Northern Beef Packers slaughterhouse here in Aberdeen to life. In April, DemKota’s Dan DeHaan told the Brown County Commission the beef plant is slaughtering cattle eight hours a day. CEO Doug Cooper said at the same meeting that the plant will reach half of its advertised daily 1,500-head capacity later this year. Current slaughter is rumored to be around 400 head a day.
Their slow expansion isn’t insulating local cattle producers from red ink:
Ross Ulmer, who runs a cattle operation near Frederick, said producers are getting the short end of the stick, while the packing industry is cashing in.
“The packers and the retailers are making extraordinary margins right now,” Kevin Larson, owner and auctioneer at Aberdeen Livestock, said. “The margins are higher than they’ve ever been in history. If you look at steak in the store, it buys for $12.99 per pound. For what theproducers are selling to the packers, it should be at about $7.99” [Shannon Marvel, “Declining Cattle Prices Pose Problem for Aberdeen-Area Producers,” Aberdeen American News, 2016.06.07].
But Ulmer, Larson, and Hub City Livestock owner Steve Hellwig (son of Dennis Hellwig, progenitor of the NBP building that New Angus/White Oak Global bought from bankruptcy for pennies on the dollar) and Kevin Larson don’t blame DemKota. Rather, they say cattlemen are suffering under a market failure foisted on them by Wall Street:
“A lot of it is is these hedge fund managers that are pushing our futures around and messing with our markets,” Ulmer said.
Frequent electronic trading on the futures markets drive cattle prices, but doesn’t require the actual delivery or sale of cattle.
…Steve Hellwig, owner of Hub City Livestock, agrees that the unstable market is a problem.
“The most frustrating thing is the volatility of the market,” he said, adding that the price fluctuations are caused by investment algorithms rather than actual supply and demand.
…Larson said big business and Wall Street are contributing to the poor cattle market.
“It looks like electronic trading and the big corporation packers have learned how to control the game,” he said [Marvel, 2016.06.07].
Big corporate packers—surely independent small corporate packer DemKota isn’t part of the problem. Surely DemKota is passing on to packers the savings its industry enjoys from its long-standing reliance on cheap immigrant/refugee labor.
Among the unsolved mysteries of South Dakota’s EB-5 scandal is how $167 million in state subsidies and private capital, including $95 million in EB-5 visa investment money, could have disappeared into Northern Beef Packers, a beef plant that took six years to build, ran nine months before going bankrupt, and then sold at auction to a clever investor for a mere $4.8 million—literally, pennies on the dollar.
Governor Peter Shumlin, Department of Financial Regulation (DFR) Commissioner Susan Donegan, Attorney General William Sorrell, and Agency of Commerce and Community Development (ACCD) Secretary Patricia Moulton on Thursday afternoon announced that the State and US Securities and Exchange Commission (SEC) have filed similar civil actions alleging investor fraud dating back to 2008 at EB-5 development projects run by Florida resident Ariel Quiros and Bill Stenger….
From his very first contact with Jay Peak in 2008, Quiros “improperly” and with Stenger’s assistance, bought Jay Peak Resort with a substantial amount of EB-5 funds. AnC Bio, meanwhile, was to be a $110 million, medical clean-room EB-5 project originally set to open this fall. The SEC alleges that AnC Bio, the last of the approved projects, was a virtual ATM machine for Quiros.
…The complaints allege that Quiros and Stenger misused more than $200 million of investor funds intended for EB-5 development projects in northeastern Vermont. The cases further allege that Quiros misappropriated an additional $50 million of investor funds for his own personal use. According to the allegations, investor funds were unlawfully diverted, or misused, between and among various EB-5 projects over many years. In addition, Quiros’s alleged misappropriations of investor funds for personal use include: over $2 million to purchase an apartment at Trump Place in New York City; millions of dollars to pay personal income taxes and other personal expenses; and over $20 million to purchase Jay Peak and Q Burke Resorts [Timothy McQuiston, “State Files Suit Alleging Investor Fraud at Jay Peak, Inc EB-5 Projects,” Vermont Business Magazine, 2016.04.14].
The Vermont escapaders apparently used a complex web of corporate entities to cover their misappropriations. That sounds much like how Joop Bollen structured his state-approved EB-5 scheme. let’s hope South Dakota’s Attorney General is preparing a map like Vermont A.G. Sorrell’s corporate diagram to help explain to the jury how Bollen moved his—oops! our money. And let’s hope A.G. Jackley shows more curiosity and traces those intricate money paths back through Northern Beef Packers and all the way to Cyprus and Russia.
Vermont and South Dakota are the only two states that have run EB-5 Regional Centers themselves rather than leaving it entirely to private companies. Yet these state-run programs seem just as susceptible to fraud and corruption as numerous privately-run EB-5 programs in other states. With so much corruption in EB-5, perhaps we need to drop the word reform and focus on the word repeal.
New Angus may be swimming against the import-export flow. In a speech to beef producers Thursday in Huron, former legislator Frank Kloucek said U.S. beef producers are getting hammered by imports:
According to USDA FSIS reports year to date imports of meat were up 14 % from 27 countries while USA meat exports to those same countries were down 12%. For the year ending with the week 49 Nov 27th to Dec 5th 238,490 metric tons [2200 lbs equals a metric ton] or a whopping increase so far this year of 52,467,800 pounds [52 million 467 thousand 8 hundred pounds] INCREASE of imported meat from 27 foreign countries. This will probably shatter all meat import records and there are still four weeks to go until years end! [Frank Kloucek, press release, 2015.12.21]
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:
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.
When South Dakota’s scandal-dogged EB-5 czar Joop Bollen goes to court, he usually turns to Aberdeen attorney Jeff Sveen for his lawyering. But will Sveen be able to represent Bollen in the fraud lawsuit filed yesterday by 35 Chinese EB-5 investors trying to get back the $18.55 million of their money that Bollen made go poof in Northern Beef Packers?
Consider these messy details:
The Chinese plaintiffs are suing Bollen and his corporate entities SDRC Inc. and SDIF LP6, as well as the Governor’s Office of Economic Development, to reclaim investments they made in the second round of EB-5 funding for Northern Beef Packers in 2010.
During that period, Bollen hired California firm Maverick Spade to help secure additional financing for NBP.
According to Maverick Spade principal David Kang, securing that financing required coming to Aberdeen and cleaning up the utter mess that Joop Bollen and his partners had made of the finances and management of NBP.
Jeff Sveen clearly assisted SDRC Inc. in its EB-5 activities in a capacity beyond legal counsel. This Chinese website documents Sveen’s presence in China with Bollen, SDRC Inc. partner James Park, and recruiter Joe Kim on April 23, 2008.
If Kang’s observation was correct—if Jeff Sveen was partnering in the business operations of SDRC Inc. at Northern Beef Packers and acting beyond the parameters of his attorney-client relationship with Bollen, his knowledge of business affairs at NBP would not be shielded by attorney-client privilege. And if Sveen could be called as a witness in this lawsuit, he would not be able to serve as Bollen’s attorney.
That possible conflict and loss of attorney-client privilege could explain why Sveen was so adamant about beating back Kang’s claim that Sveen was Bollen’s partner at Northern Beef Packers.
Governor Dennis Daugaard might want to reallocate $20 million in his budget address next week. 35 Chinese EB-5 investors are suing the State of South Dakota and Joop Bollen for $18,550,000.
In an action filed in Hughes County today, these EB-5 investors claim that in 2010, Mike Rounds’s Department of Tourism and State Development (now the Governor’s Office of Economic Development) and Mike Rounds’s EB-5 visa investment czar Joop Bollen lured them into investing $500,000 plus $30,000 in fees each in SDIF Limited Partnership 6, a shell corporation created by Bollen to pool money for investment in the ill-fated Northern Beef Packers slaughterhouse in Aberdeen, with “material misrepresentations and omissions of material facts.”
To keep it simple, let’s just say the Chinese investors feel the state and Bollen lied to them. What lies did the state and Bollen tell?
the NBP facility was substantially complete and that the funding to be provided by LP6 would allow for the completion of remaining construction and the operation of the facility;
the Project was competitive and had a sustainable business model;
the Project was sufficiently capitalized to generate revenue from operations commencing upon the investment(s) being made;
the Project would meet or exceed the minimum number of jobs required under the EB5 Program;
Defendants had carefully reviewed the financial information of the Project and recommended it as sufficiently sound to generate jobs and repay the loan from the investors;
the Project had a competitive advantage over other major competitors in the beef packing industry;
the investors were protected because the loan being made to the Project would be secured by security interests on equipment, a corporate guarantee, and a mortgage on the property;
NBP will be locally owned and led by recognized beef industry experts [LP6 Claimants v. South Dakota Department of Tourism and State Development…, SDRC Inc., SD Investment Fund LLC 6, and Joop Bollen, 32CIV15-000312, Complaint, 2015.12.02].
The Chinese investors say those statements were hogwash because…
the Project did not have adequate financing to achieve sufficient revenue to create the required jobs or repay loans or support any refinancing;
given the poor financial condition of the Project the investors could not be adequately secured;
the Project did not have any favorable or competitive position and did not have sufficient capital to commence operations and generate revenue;
the Project was owned by foreign investors and not run by beef industry
that the project was already plagued by years of delays and was already in need of additional financing [Complaint, 2015.12.02].
Furthermore, the investors contend that the state and Bollen failed to inform them of several details that might have affected their decision to trust Bollen and Northern Beef Packers with their money, such as that…
NBP had been unable to sell tax increment financing bonds to finance the Project;
the Project had experienced financial difficulties and the initial foreign EB 5 investors had ousted NBP’s management and had become the managers and owners of NBP;
additional investments or loans of at least $30 million would be required for the Project to begin operations;
NBP had itself acknowledged that loans to the Project were extraordinarily high-risk because the Project was undercapitalized and its assets were not sufficient to repay or secure any loan;
substantial liens had been filed against the Project;
NBP was unable to pay, or was delinquent on, property taxes due and owing;
other EB-5 investors had lost their money in a similar project promoted and administered by Defendants relating to the Veblen East Dairy in South Dakota;
the Project’s business was subject to legally imposed restrictions and obligations that placed it at a disadvantage [Complaint, 2015.12.02].
The plaintiffs lost their money because Northern Beef Packers didn’t open until October 2012 and only operated for nine months before going bankrupt in July 2013. The investors are thus calling fraud and breach of fiduciary duty and demanding their money back. In a count titled “Pierce the Corporate Veil,” they further argue that a Hughes County judge and jury should not be fooled by the corporate shell game Bollen played with his “SDRC Inc.” and “SDIF LP 6” to shield himself and the state from liability for such malfeasance.
But here they are, and they are going to be able to make a pretty good case that Bollen and the state bamboozled them into investing in one of the biggest economic development boondoggles in South Dakota in this century. Plus, they are tackling co-defendants who aren’t terribly inclined to work together, given the state’s and Bollen’s pending countersuits over EB-5 mischief. To make matters worse, the plaintiffs come shouting Fraud! just a couple months after the USCIS came shouting Corruption! and served South Dakota with its Notice of Intent to Terminate our EB-5 designation.
To top it off, Governor Daugaard walks into the Legislature next week Tuesday to lay out his plans for the FY2017 budget. On top of explaining how to pay for Medicaid expansion and the Blue Ribbon K-12 panel’s teacher pay package, the Governor has to decide whether he should recommend that the Legislature set aside $20 million (don’t forget, we’ve got lawyers to pay!) in case we lose or (gulp!) settle the LP6 Claimants LLC suit. The state’s Extraordinary Litigation Fund doesn’t have $20 million. The indemnification fund Bollen was supposed to hang onto for the state has maybe just a million. And Mike Rounds only has $160,399.10 left in his state campaign warchest that he could convert for personal use.
What do you think, Governor? Can we win this one? Or is the EB-5 scandal about to cost the taxpayers $20 million?
Update 16:19 CST: The EB-5 lawsuit is all over the media:
Update 18:18 CST: Always keep reading…. As I page through the exhibits, I get to Exhibit 2, which does indeed list the 35 investors who want their money back from South Dakota and Joop Bollen. None appear to be those mentioned in my September 2014 report about possible litigation:
“We need to add value to separate ourselves from the big guys,” R. Doug Cooper, CEO of New Angus Beef, said. “We plan to do the religious harvest simultaneously, with USDA and rabbinical inspectors overseeing the process.”
“This plant has made an investment to do religious harvest,” Cooper said. “We plan to do that in a world-class environment with concern for animal welfare. We have experience with similar customers. We believe it is very complimentary to what we are doing. We have invested the capital and tools to do it right.”
Cooper cited a global and international demand for this growing market.
The terms kosher and halal refer to the Jewish and Muslim faiths, which have specific rituals that need to befollowed when animals are slaughtered and processed. These rules are prescribed by the dietary laws of their religion [Connie Sieh Groop, “New Angus Beef Plant to Tap Kosher, Halal Beef Markets,” Aberdeen American News, 2015.10.23].
Having listened closely to Mr. Ravnsborg’s presentation in ISIS and Islam, I naturally compose the following syllogism:
But Northern Beef Packers will probably have to shut down again before shipping much meat to the caliphate. Halal food preparation must follow sharia law. The rules include having a pious Muslim kill the cow with a knife. Halal also requires the knife-wielder to pray to Allah before killing the beast. New Angus must thus engage in religious discrimination in hiring its slaughter personnel. All it takes is one healthy infidel like me to apply for a job, not get hired or not pray before doing the job (and I’ll be darned if any employer requires me to say a prayer to any god), and sue for religious discrimination. And since the Legislature passed a law in 2012 banning the legal enforcement of any religious code (thank you, sponsor Roger Hunt and Governor Dennis Daugaard), South Dakota’s Third Judicial Circuit will be required to axe New Angus’s discriminatory hiring practices, and Aberdeen is back to a shuttered beef plant.
I’ll be curious to see how eagerly my Aberdeen neighbors embrace a restarted beef plant banking on strict Islamic customers. And if anyone gets prickly about the implementation of Islamic law on the kill floor, I’ll be curious to see if they offer equal prickles over the implementation of Jewish law on the kosher side of the building.
USCIS says we can’t have an EB-5 Regional Center anymore because the state—not just self-privatized EB-5 czar Joop Bollen, but the Governor’s Office of Economic Development as well—”provided inaccurate or incomplete information to USCIS on its annual Form I-924A filings for fiscal years 2010, 2011, 2012, 2013 and 2014″ [USCIS to SD GOED, “Notice of Intent to Terminate,” 2015.09.28, p. 6]. Joop Bollen would have filed the reports for 2010–2012; after the state canceled Bollen’s EB-5 contract in September 2013, completing the 2013 and 2014 reports fell on GOED’s Hunter Roberts.
Perhaps more importantly, USCIS says South Dakota lacks credibility to use EB-5 visa investment for its intended purpose of creating jobs. USCIS says that Bollen and his GOED/NBP comrade Richard Benda diverted EB-5 investment dollars to expenses that had nothing to do with creating jobs or fulfilling any part of any business plan filed for the business supported by these foreign investments. USCIS lists several draw requests made by Bollen and Benda in 2011 and 2012 from funds designated for Northern Beef Packers:
USCIS concludes that “This diversion of EB-5 funds away from job creating purposes casts considerable doubt on the Regional Center’s ability to promote economic growth.”
USCIS finds further evidence of this untrustworthy and EB-5 violative diversion of funds in Northern Beef Packers’ inexplicable transfer of money to Cyprus-based Ultracare Holdings Limited. Recall my November 14, 2013 report:
During the first year of construction, Northern Beef Packers made at least three wire transfers to an offshore account held by Ultracare Holdings Inc. at P.O. Box 957, Offshore Incorporations Centre Road, Tortole, British Virgin Islands. NBP bank statements list what looks like a $504,350 wire transfer to Ultracare in December, 2007; $308,500 on January 4, 2008; and $687,225* on April 21, 2008.
USCIS disagrees with my reading of the third bank statement, contending the April 2008 transfer was $887K, not $687K. But USCIS agrees with me that investing in an offshore branch of a Russian rail company has darn little to do with creating jobs in an Aberdeen beef plant:
It is unclear from the evidence presented to USCIS, including the business plan, how Russian rail transportation, railcar leasing and the repair and maintenance of rolling stock relates to the NBP, LP state business plan of constructing and operations a meat packing plant, and the promote of economic growth within the Regional Center’s geographic area. Rather it appears that Northern Beef Packers used EB-5 funds to invest in a holding company which was a deviation from the business plan and diverted EB-5 funds away from job creation The diversion of EB-5 funds by an NCE [New Commercial Enterprise] sponsored by the Regional Center casts considerable doubt on the Regional Center’s ability to promote economic growth [USCIS to SD GOED, 2015.09.28, p. 12].
More details in the letter support what the above items lay out quite clearly: Joop Bollen, Richard Benda, and the Governor’s Office of Economic Development broke the rules of EB-5. They didn’t file accurate reports, and they used money in ways it was not supposed to be used. South Dakota now gets a grave black eye as the only state in the Union banished from participating in EB-5 visa investment.
A beef kill plant in Aberdeen, S.D., plans to reopen in early November and will market its products under a new name —- DemKota Ranch Beef.
Doug Cooper, CEO of New Angus LLC, and Keith DeHaan, the company’s president, confirmed to Agweek they are actively buying cattle in a 250-mile radius — South Dakota, North Dakota, Minnesota and northwest Nebraska [Mikkel Pates, “Aberdeen, S.D., Beef Plant to Open in Early November,” AgWeek, 2015.10.16].
New Angus CEO Doug Cooper says New Angus will start slowly:
Cooper says the company will start slaughter at a rate to make sure they can “do it well, and repeated.” He says the plant will start at 25 head per week, and advance to 500 within several weeks. They expect to be at more than 750 per day by the second quarter of 2016. The capacity of the plant is 1,500 head per day [Pates, 2015.10.16].
Come on, Coop! The election is coming up! We need that Dem brand out there in front of every consumer by next November! Let’s run those cattle through the grinder and get that label out there!
(Unless of course this is all just a clever ruse by the Republicans behind the GOED/EB-5 scandal to restart the plant, crank out rotten beef, go bankrupt again, and make people associate their failed beef plant with the Dem brand….)
Update 08:30 CDT: Right under its New Angus headline, Aberdeen American News front-pages the news that cattle prices are slumping:
“It’s been a tough fall (in the cattle market), but we’re looking for prices to rebound,” Steve Hellwig of Hub City Livestock in Aberdeen said. “The market has been brutal, and there has been a lot of loss.”
…Hellwig said the low price for fat cattle last week was around $1.20 a pound. For yearlings, a 900-pound steer would bring in the range of $1.75 to $1.80 per pound, he said. Last year at this time, a 925-pound steer brought $2.44 a pound. In other words, cattle producers are getting $500 to $600 less per head [Connie Sieh Groop, “Ranchers Wary of Slumping Market,” Aberdeen American News, 2015.10.17].