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GOED Only Agency to Let Private Entity Hold Indemnification Fund

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.”

The Bureau of Finance and Management replied that any such funds must be reported in the state’s Comprehensive Annual Finance Report, and the only such fund reported in the 2017 CAFR is the SDRC Indemnification Fund One Account:

2017 SD CAFR, p. 37.
2017 SD CAFR, p. 37.

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.


  1. mike from iowa 2017-02-06

    So how come I thought indemnification released Bollen from any liability? That seems to be the definition of indemnification in other states.

    Still it seems like the state of South Dakota did everything in their power not to prosecute the real wrongdoing. Color me disappointed, but not surprised.

  2. Jenny 2017-02-07

    It’s truly disgusting how Jackley let Bollen walk. Sigh….I don’t know how South Dakotans can get up every day and continue to read headlines like this and not be enraged.

  3. Cory Allen Heidelberger Post author | 2017-02-07

    Jenny, the balance of the plea deal suggests Jackley hooked the wrong fin, if not the wrong fish, and lacked the tackle to reel him in.

    I wish I knew the magic formula to make people act on the outrage that must come from reading about Jackley’s performance, Daugaard’s performance, and the Legislature’s performance.

  4. leslie 2017-02-07

    I trust the president of NSU who blew the whistle on Joop. I do not trust anything GEOD, Rounds, Daugaard, Regents, Regents’ lawyers, Jackley, the AG’s office, NSU lawyers and administrators, joop, joop’s lawyers, the SD Bar Assn who has the obligation to pursue joop for unauthorized practice of law, or other administrative officials that have told us “Benda did it”, tied our hands, forcing a cover-up from adequate COMMITTEE CROSS EXAMINATION, DCI investigation and prosecution. REPUBLICAN CORRUPTION.

    Republicans got caught with their pants down and used their political power to cover this fraud up. SNOWFLAKES. howz that for spin?

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