Finally someone (a U.S. district court judge dealing with a private court action) has done something useful about one segment of the massive, many-part EB-5 disaster in South Dakota.
This is in sharp contrast to the much healthier EB-5 situation in Vermont, in which much of the damage from its state-wide, $350 million EB-5 problems has been set right, by an appointee of a federal judge. (He is Michael Goldberg, the receiver in the Vermont case.)
The EB-5 (employment-based) visas are available to aliens who put up $500,000 in a government-blessed, but not government-guaranteed, investment. The program is run by the Department of Homeland Security. Each investment is supposed to create or preserve 10 jobs.
It is widely felt in South Dakota that more than $120 million in EB-5 funds were stolen, misdirected, or otherwise wasted — and at least one life was lost — in a series of scandals that involved various aspects of the South Dakota establishment for a dozen years. The Republican state government, which sponsored the EB-5 investments (most states avoid that role) did practically nothing to fix matters and the feds (under both Obama and Trump) did even less, as we have written from time to time (see here and here, for example).
The good news is limited; this is not an effort to address more than a single part of the EB-5 mess in South Dakota, but one hopes it is a start.
A group of developers persuaded 65 Chinese investors to put up $32.5 million (plus an unknown amount of fees) for a project to convert an abandoned gold sliming plant into a country and western music event space. (Gold sliming is a chemical process that separates the gold from the non-gold, or the slime.)
The property, which also contains a casino, is the Deadwood Mountain Grand in the Black Hills of western South Dakota. According to an excellent account of all this by Seth Tupper of the Rapid City (S.D.) Journal, the facility "has become "one of the most prolific concert venues in the Black Hills."
The 65 investors lent $32.5 million to Tentexkota, a firm funded by eight wealthy Americans (who, as the firm's name suggests, hail from Tennessee, Texas, and one of the Dakotas), and were supposed to get their money back in 2015, but they were not paid. The loan was defaulted in 2016, following an extension. So they sued.
Judge Charles Kornmann agreed with the plaintiffs, and ordered that they be paid. But, as so often in EB-5 cases, things have become more complicated, probably because (my speculation) the Deadwood Mountain Grand (which looks like an ex-gold sliming plant on the outside) is not worth anything like $32.5 million.
I do not know how to set the market value for music halls and/or casinos, or how to assess the drawing power of Blackberry Smoke, Clay Walker, or Rodney Carrington, all featured performers next month, but worry about the amount of money owed to the 65 investors.
The investors, apparently savvier than most in this business, had demanded that in case the project failed, all eight Americans guarantee the loan; which they did. The court case is momentarily stalled as the federal judge seeks advice from the South Dakota state supreme court on a question of state law: Can the owners of a limited liability corporation legally sign such guarantees?
Tupper's report in this connection implies the extent to which state-level GOP politicians were involved in the scandals:
The four Supreme Court justices who will consider the questions (a fifth position on the court is vacant ...) were all appointed to either the Supreme Court or earlier circuit-court positions by Republican Governors — Bill Janklow, Mike Rounds and Dennis Daugaard — who had roles in starting, continuing and ending South Dakota's participation in the EB-5 program.
Rounds, despite a campaign against him based partly on the EB-5 scandals, was elected to the U.S. Senate in 2014. Daugaard is the current governor.
The latest legal wrinkle in this case is a "how much" rather than a "yes-no" question for the 65 investors; they will, by the judge's decision, secure some of their money back, even if the state supreme court lets the eight U.S. investors off the hook. The 65 EB-5 investors also hold a mortgage on the property in question.
Apparently, although the investment was not a financial success, according to Tupper 64 of the investors got their green cards, and the 65th withdrew his or her application.
For more on this case, see an earlier posting of mine and see the case file on PACER, the U.S. Courts' data base at 1:17-cv-01002-CBK.