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Diversions of EB-5 Funds Draw Securities Fraud Prosecutions; SEC’s Next Stop South Dakota?

One of the key findings cited by the USCIS as justification for taking away South Dakota’s access to EB-5 visa investment is the diversion of EB-5 investment dollars from job creation to other expenses, including the still unexplained transfer of $1.7 million from Northern Beef Packers to a Cyprus-based account held by a Russian rail company.

What happens when EB-5 money is used for expenses not authorized by USCIS and the EB-5 rules? Well, nothing has happened to South Dakota’s EB-5 former czar Joop Bollen yet, but in other states, EB-5 fund diverters get whacked for securities fraud by the SEC. Consider the case of Justin Moongyu Lee:

U.S. District Judge R. Gary Klausner ruled that the SEC satisfied the requirements for default judgment and sufficiently demonstrated that Justin Moongyu Lee and several entities he controlled misled investors by saying their funds were being used to build an ethanol plant in Kansas, which was never built, and that their investments would qualify them to obtain U.S. resident status or citizenship.

…Lee’s wife, Rebecca Taewon Lee, and law firm partner Thomas Edward Kent… raised $11.4 million from 24 investors to purportedly construct an ethanol plant in Kansas, but instead used nearly $4 million to finance an unrelated project in the Philippines and about $2.4 million to pay off investors in other offerings, according to the SEC [Y. Peter Kang, “Ex-Immigration Atty Must Pay $8M in SEC Investor Fraud Suit,”].

…and Lobsang Dargey:

Through his companies, Dargey obtained the money from 252 Chinese nationals hoping to get permanent U.S. residency visas under the controversial EB-5 program by investing in two of his Seattle area real-estate projects.

But according to a civil fraud suit filed Monday by the Securities and Exchange Commission (SEC), Dargey diverted millions to spend on a $2.5 million Bellevue home, other real-estate investments and gambling at 14 casinos across the West.

Authorities are seeking to force Dargey to forfeit the Bellevue home and a $6.5 million Shoreline commercial property they allege were improperly bought with immigrant investors’ funds. A temporary injunction freezing the assets of Dargey and his firms was issued late Monday by U.S. District Court Judge James Robart [Sanjay Bhatt, “SEC Says Local Developer Cheated Immigrant Investors, Spent Money on Himself,” Seattle Times, 2015.08.24].

Last month the SEC doubled its tally of Dargey’s diversions, and a judge kept Dargey’s assets frozen:

SEC attorney Susan LaMarca said during a hearing before U.S. District Judge James Robart that after reviewing a nearly 1,000-page accounting ordered by the court, the agency concluded that only $17 million of the $63 million in immigrant-investor funds received for the tower was spent on “legitimate” purposes.

The rest was used to pay other companies Dargey controls, sales commissions to investor-recruitment agents and expenses unrelated to the 40-story Seattle project, she said.

Robart later denied Dargey’s request to unfreeze the bank accounts of his company, Path America, and its subsidiaries, rejecting the argument that giving Path America unfettered access to the bank accounts was in the best interest of its investors [Sanjay Bhatt, “SEC Adds Millions to Developer’s Alleged Fraud,” Seattle Times, 2015.10.06].

The SEC is also going after a firm that moved from Florida to Hong Kong for pushing EB-5 investments without legally registering to operate as securities brokers. Say, Joop, did you guys ever register with the SEC, the way Patrick Duffy said you had to?

Maybe USCIS dropped the first shoe on South Dakota’s corruption-plagued EB-5 program; maybe the SEC is unlacing the second one right now.

28 Comments

  1. Rorschach 2015-11-07

    We can only hope that the federal prosecutors do something. The state prosecutors closed this thing out as soon as they had a dead guy to blame it all on.

  2. grudznick 2015-11-07

    I don’t yet understand, in all this confusion and paranoia of facts, who it is besides Mr. Benda and Mr. Bollen that might get prosecuted. Would Mr. Rounds get prosecuted for diverting money or would Mr. Bollen get his house repossessed and be smited about the legal head and shoulders for his greedy doings?

  3. mike from iowa 2015-11-07

    Don’t worry about it,Grudz. I plan to win the lottery this weekend and then I’m gonna buy your buddy Jackley a well trained,Seeing Crime dog,since he has to have criminal acts pointed out to him by Cory and others before he does his job.

  4. grudznick 2015-11-07

    Mr. Mike, since you are from Iowa but are fixated on the Great State of South Dakota you should drive out some time. Come to the west end, because the east end is much like Iowa without the pigs. I will treat you to a bacon laden breakfast and educate you much about our state.

  5. Rorschach 2015-11-07

    Mr. Benda is out of the line of fire. The Joopster may get his Egyptian antiquities biblically plagued upon and his sunlight bestriped. Smiling Mike may be smitten politically and/or legally and get his senate seat repossessed. Rounds’s younger brother may get judged upon monetarily or otherwise.

  6. grudznick 2015-11-07

    Mr. Rorschach, if I am not mistaken all of Mr. Rounds’ brothers are younger than him. Which of these many fellows was tied up in the E-B5 doings? Surely you are not saying that some of these gentlemen worked for Mr. Joop.

  7. Rorschach 2015-11-07

    I know which Rounds brother was making EB-5 money, and I know how he was doing it. But I’m afraid of being murdered grudz. I’m sure you understand given the multitude of suspicious deaths lately. Let’s just say for the record that I’m neither suicidal nor accident prone.

  8. grudznick 2015-11-07

    If there was a brother that was hawking E-B5s then Mr. Nelson or that Democrat fellow from Sioux Falls would have shouted that to nimbus. I’m surprised there aren’t rumors that all of the brothers Rounds were in on selling E-B5s. Poppycock.

  9. jerry 2015-11-07

    Who would Daugaard appoint to fill his partner in crimes office in Washington. The only one not tainted by South Dakota republican corruption is maybe NOem and we do not know what her role in the EB-5 was, if any. Anyone ever take a look at what she was doing during all of this?

  10. grudznick 2015-11-07

    That is a good question, Mr. jerry. We should also ask why Bernie Hunhoff did not stop the E-B5 selling, or if he couldn’t because his tribe is in such a minority he could have at least spoken up about it. He does not seem to be shy about speaking up on things for nothing less than political hackerism so he should have spoken up when the legislatures debated this. He probably had more powers than Ms. Noem because he was a leader and she was a follower in the legislatures.

  11. leslie 2015-11-07

    boswell, meet grudz. grudz meet boswell. you two will be very happy together.

    which of any of you two’s facts are “reliable”. you grudz, have not said anything factual in my last couple of years (of insulting you as often as possible). cute, maybe, racist often, and misogynist always; but NEVER factual.

    have you always looked down your nose at little people, during your entire career, or was there once a sliver of empathy, compassion, tree hugging or bunny-loving? trolling long line…waits…

    oh, and like your fellow republicans all out of bluster ask, what is your given name? :) … embarrassing as that may be

  12. Roger Cornelius 2015-11-07

    EB-5, Homeland Securities, USCIS, GAO, SEC, FBI, Dept. of Justice.
    Did I miss any federal agency not involved in the investigation of the SDGOP’s corrupt operation of the EB-5 program?
    The links provided by Cory show how deeply penetrated the EB-5 program is across the country. These are probably just the ones we know about while others are escaping government scrutiny.
    The whole pattern of financial abuse and corruption should be a call for a complete and full congressional inquiry.

  13. jerry 2015-11-07

    Alas, asking or telling a Democrat in South Dakota to demand a stop to corruption is like trying to corral a herd of wildebeests, can’t be done in South Dakota’s present condition. You would think the law and order crowd would be up to seeing to that. I did not realize that you had such a crush on the NOem gal Mr. Grudznick, kind of protective.

  14. jerry 2015-11-07

    Correct Roger and even given all of that, South Dakota is much worse. So bad in fact, that we are now outlawed from doing that business because of our outlaws. What a pride.

  15. leslie 2015-11-08

    and who covered up the fraud so mike and that jackley guy could get elected or re-elected like the gov.?

    daugaard, public servant since-almost his entire career. He knows where the skeletons are and had a sworn duty to uphold the law. Appointee after appointee did his bidding keeping the wraps on the “investigations”. The buck stops there, with his economic development office, his son in law, his Board of Regents, his Board of Education, his banking commission; oh, and his name change board, DENR, Dept. Tourism and all his other appointee minions, that play to his favoritism vs. merit, for that matter!

  16. leslie 2015-11-08

    wonder if gant got his zipper stuck as SOS what with all Sveen’s Limited Partnerships for Joopiejoop, if trying to avoid securities laws??

    Did Sveen represent SDRC before Joop was privatized and created SDRC, Inc.?

  17. mike from iowa 2015-11-08

    Maybe drones should be used to see if Saddam is moving his WMDs to next door Syria so we can’t find them.

  18. mike from iowa 2015-11-08

    Roger,congress is tied up investigating mainstream media for dissecting all of Ben Carson’s lies. And Trump’s lies. And Rubio’s credit card dealings and Jeb’s wife’s spending habits and Cruz and his crazy Cuban defector dad and so on,etc,rinse and repeat,redux….

  19. caheidelberger Post author | 2015-11-08

    Roger, the depth of corruption and the convergence of multiple agencies on the conclusion that EB-5 seems to breed such corruption makes me think the State of South Dakota should drop its bid to retain the program. The investment dollars could do some good in places that really need it, but Pierre has shown it just can’t handle such temptation.

  20. 96Tears 2015-11-08

    The ship is getting closer to set sail on the Rounds Racketeering Scam. Mike Rounds served as CEO of the crime racket which targeted federal programs for fleecing by his associates within the Board of Regents and South Dakota’s education system.

    Rounds has since moved onto the U.S. Senate where he can be even more useful loosening more federal funds for bilking and cutting back on federal regulators whose job is to enforce our nation’s laws. Taking his place as CEO of his statewide racket is his handpicked successor Dennis Daugaard. To make sure oversight and regulations are gagged, Rounds handpicked Marty Jackley as the Enforcer in Chief … and so far Marty has been performing as expected.

    Will Mike Rounds be indicted? That may be a slim prospect. Bill Janklow ducked an SEC investigation on a reported insider trading scam using video lottery privileged information and borrowing stocks from pals to cash in. In fact, he crucified the lawyers who blew the whistle on the insider trade allegation.

    SEC cases are very difficult to make stick, but when they do, the roof falls on these guys. The hopeful thing Cory points out here is criminals who’ve fleeced EB-5 investors’ money to break the law have been hauled to justice. This sets the mold that can be used to bring down the house that Mike Rounds built in South Dakota.

    Lazy reporters at the Sanford Leader should have been listening to Pat Duffy and doing their jobs instead of sloughing off and mocking him.

  21. Robin Page 2015-11-08

    Excellent reporting Cory! Too bad we didn’t have more of this information back in 2012, before the elections. When I raised concerns, in my 2012 legislative campaign, about the GOED, no one listened. I am just glad that the Feds have finally begun to investigate crime and corruption in South Dakota’s government. It will be too bad if these investigations die before or shortly after the 2016 elections. The best thing that could happen is that those involved in the corruption will finally be held accountable for their crimes. Let’s hope they are!

  22. David Newquist 2015-11-08

    ‘“Only a small fraction of all securities fraud cases are handled as criminal cases,” notes Wharton legal studies professor William S. Laufer. One reason for this, Laufer says, is that even when criminal convictions are obtained, prison sentences for these non-violent, white-collar crimes are not common. At the same time, studies have shown that civil fines often match or exceed those levied in criminal cases. Hence, prosecutors find there is little to gain in exchange for the extra effort it takes to bring criminal cases.’

  23. leslie 2015-11-08

    trying a hard case, civil or criminal, is no different. beyond a reasonable doubt is just jury work. psychology.

  24. Porter Lansing 2015-11-08

    Have you noticed? A couple of the defenders of the Pierre Cartel, involved in financial investment circles, don’t seem to have much to say lately. Nor a blogger/bounty hunter/auctioneer/realtor. Might be “lawyering up”?

  25. caheidelberger Post author | 2015-11-08

    Rounds was in charge when the financial diversions took place. He approved the agency and corporate structures that made these SEC violations possible. If the SEC comes down on Bollen, Bollen will squeal on Rounds. Blame the state—that’s his defense in the USCIS-driven state suit against SDRC Inc; that will be his tack when the SEC comes knocking.

  26. Francis Schaffer 2015-11-08

    So I imagine Brown county will get their bank franchise tax money eventually.

  27. caheidelberger Post author | 2015-11-08

    Holy cow, Francis—we might have to get in line behind the SEC and stiffed investors!

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