Bad News from the Badlands – FBI Probe of EB-5 Ends with No Indictments

By David North on June 26, 2015

The acting U.S. attorney in South Dakota, Randy Seiler, has decided that there are no grounds to indict anyone for the various EB-5 scandals in that state, a subject I have written about frequently in the past.

The decision came from Seiler after he reviewed an FBI report on the subject. That report was not made public, according to the state's largest newspaper, the Argus Leader.

This is bad news because these scandals, complex as they may be, are outrageous and bipartisan in origin and whitewash has been applied liberally by both parties. EB-5 rewards an alien who chips in half a million dollars to a Department of Homeland Security-sanctioned (but not assured) investment in the States in exchange for a family-sized collection of green cards.

Background. This non-indictment news is from a distant and small outpost of the Obama administration, the S.D. U.S. Attorney's Office. Further, despite the numerous shenanigans in the immigrant investor program in this state, there is no evidence that either DHS or the Securities and Exchange Commission have investigated them.

The two previous whitewashes came to us from the attorney general of the state, an elected Republican, Marty Jackley, and from the GOP-dominated state legislature.

Among the problems swept under the rug were: the loss of (or theft of) tens of millions of dollars in EB-5 funds in the construction of a huge and now bankrupt Northern Beef slaughterhouse in Aberdeen; the loss by its Asian investors of both their money and, for some of them, their green cards; the diversion of state unemployment funds to this project; and the mysterious death of a former cabinet member of GOP then-Governor Mike Rounds (now a U.S. senator.)

The dead man, Richard Benda, was found with a fatal shotgun wound to his stomach. Jackley ruled it a suicide and refused to release the complete autopsy report. Benda was serving as an EB-5 middleman when he died.

While the local press raised their collective eyebrows about the death, no one but Kathy Tyler, then one of the lonely Democratic members of the S.D. House of Representatives, a couple of local journalists, and I noticed the elephant in the room. Tens of millions of dollars to be earned by the state in EB-5 fees paid by aliens were diverted to a private, for-profit-entity. Joop Bollen, who at the time was the EB-5 coordinator for the state, signed a contract for the government with a private firm to handle the program (and the fee receipts) and signing on the other side was its only listed officer — one Joop Bollen. The press understood the self-serving contract, but not its multi-million-dollar implications.

One reason for this conceptual failure may be the odd nature of the missing money; it was not tax funds; it was not federal funds; it was not the non-payment of taxes owed; it was the non-arrival of private sector funds owed to the state because it was (or had been) the DHS-licensed regional center for the state, and regional centers can and do charge such fees.

My analogy for what happened is this: Suppose the dean of a university's school of engineering signed a contract with a firm owned by the same dean giving that firm all the tuition money from the engineering students. That sounds like it should be against the law.

Also, to quote from the posting cited above:

Further, Northern Beef had substantial, mysterious financial transactions with a corporation located in Cyprus — I am not making this up — that is a subsidiary of a Russian railroad firm, that operates through affiliates in the British Virgin Islands and the Caymans. What was that all about?

The Seiler Decision. The do-not-indict decision was made by Seiler, a career prosecutor who was the ranking lawyer in the office when the appointed U.S. attorney, Brendan Johnson, resigned, thereby making Seiler the acting U.S. attorney. (Johnson is the son of former U.S. Sen. Tim Johnson, a Democrat whose decision not to run for reelection helped Governor Rounds take that seat in the 2014 election.) Seiler has announced that he seeks to replace young Johnson, as reported here. The U.S. attorney's office has been silent over the years about EB-5.

I have no idea what went through Seiler's mind or what the FBI report said, but it would make sense for Seiler to avoid kicking the wasp's nest of the state's EB-5 scandals, knowing that it was bound up with the GOP establishment at the state level and that the program was a pet of the Obama administration at the federal level. How could he get the promotion he wanted if he irritated all the political powers in sight?

In his home town Seiler must be surrounded by people who do not care what happens in the EB-5 case; the hapless Democratic opponent of Rounds in 2014, who raised the EB-5 issue with little skill, was defeated by Rounds by a close to three-to-one margin in Seiler's county, Stanley. Seiler is also a member of the city council (as an independent) in Fort Pierre, the county seat. (It is a town of 2,078 opposite Pierre, the state capital, on the Missouri River.)

Other EB-5 News. Typical of the EB-5 situation was the recent story out of Boca Raton, Fla., involving someone playing fast and loose with the program who was brought to heel primarily by another agency, in this case the Securities and Exchange Commission, not DHS. In this instance, Stephen Parnell and his company Ireeco, LLC, were collecting fees from aliens for steering them to appropriate regional centers, who then charged another set of fees. The problem was that Ireeco had not registered with the SEC to do this sort of thing. As is so often the case, Ireeco did not admit to any wrongdoing in the past, but promised not to do so in the future.

SEC played a similar role in breaking up a massive EB-5 scam in Chicago a couple of years ago, according to this outspoken piece in Fortune.

The half-million dollar part of the EB-5 program is up for renewal on September 30 of this year, while the little-used million-dollar segment has a permanent authorization, as reported in an earlier posting.

It is now pretty clear that the extension will go through because EB-5's most prominent critic, Sen. Chuck Grassley (R-Iowa), has co-sponsored legislation to this end with its most prominent supporter, Sen. Pat Leahy (D-Vt.). The bill, if passed, would remove some of the worst features of the EB-5 program; it would, among other things, bring the minimal investment up from $500,000 to $800,000 and will eliminate (or at least narrow) a current practice in which the "creation" of jobs by a lessee of an EB-5-built project will be counted toward the goal of 10 jobs per investment. (This practice stretches the concept of EB-5 investments creating jobs to a point beyond credibility.)

I think the EB-5 program is bad public policy because it involves the sale of visas, something that should not be sold. But if it is to continue, my suggestion is this: Let's forget about these relatively minor real estate investments and, instead, pump all the money straight into the U.S. Treasury. We should run an auction with the lowest possible price for a single visa (not a set for the family) being a million dollars. If 10,000 visas (the current cap) were sold at a million each, it would reduce the debt by $10 billion, and it would do so every year.

Thus the program would benefit all taxpayers directly, not just a happy few middlemen.

The proposed auction would also tend to ease our current huge trade deficit with China, as about 80 percent of the current visas are held by Chinese investors and their family members.