The latest EB-5 investor-visa fiasco in South Dakota — this time it's a casino in Deadwood, S.D. — is unfolding as if it were a satirical article in the Onion.
Those suing the former director of the state's EB-5 regional center include Big Kenny, apparently a major country and western singer, Double Bar X Ranch, and the Original Deadwood Partners. (Big Kenny signed the complaint as W. Kenneth Alphin.)
These three were among the developers who, to quote the Rapid City Journal, wanted to change "a converted gold-mining slime plant" into a casino and entertainment center.
The developers managed to convince local authorities to give them $1.7 million in historic preservation tax funds (an eyebrow-lifter in itself) and to persuade 65 (probably Chinese) EB-5 investors to pony up, apparently, $32.5 million for the project. Although it booked big names in the music business, the developers of the Deadwood Mountain Grand Event Center and Casino apparently stopped paying off the investors in May, and now just about everybody is in court.
Further, everyone involved, including the federal and state governments, has been operating with a superfluity of incompetence, all of which was exposed in a civil suit filed in the South Dakota federal courts on November 8.
While we have written frequently about the multiple EB-5 disasters in this state — the mysterious shotgun death of a key EB-5 figure, the strange payments of EB-5 funds to an entity controlled in Cyprus by a Russian railroad oligarch, the disappearance of tens of millions in the construction of a huge beef slaughterhouse — the casino's EB-5 problems are totally separate from all the others, except that all EB-5 projects in the state went through the hands of Joop Bollen. At first he was the boss of the State government's own EB-5 regional center, and then the manager of the lucrative, private for-profit regional center, operating under contract with the state government.
EB-5 is the federal program that hands out a family-sized set of green cards to alien investors who put $500,000 into a Department of Homeland Security-approved, but not guaranteed, investment, usually in real estate projects.
The Court Case. Fourteen of the individuals or corporations who developed the casino had, according to the suit they filed in the U.S. District Court of South Dakota, signed personal guarantees for the investments made by the EB-5 aliens, and they had done so under pressure from Bollen. Bollen, who still has a hand in these businesses despite multiple court filings against him, noticed the non-payments to the investors and, according to the Rapid City Journal, this lead "Bollen to send them a default notice on May 11."
The plaintiffs now argue that they were barred by federal law from signing such documents (though they did so) because guarantees are not permitted under the law, as the EB-5 investments are supposed to be "at risk". They are suing Bollen in an effort to get out from under those guarantees. This is a civil suit; it was filed in the Western Division of the District of South Dakota and the initial documents in the case can be seen on the government's electronic record system, PACER, at 5:16-cv-05101-JLV.
The Incompetency. The filing strongly suggests lots of incompetence on the part of all concerned. For example:
- The developers, all presumably citizen millionaires (in one case the ranch owned by one of them), should have picked up their phones and asked their lawyers: "Do I really have to sign this guarantee?"
- Bollen, who had been in the EB-5 business for years, should have known better; perhaps this was an oversight; the other possibility was that the guarantees could be used to encourage the EB-investors to invest.
- The investors should have known that there are no guarantees in the EB-5 program.
- The lawyers for the developers write in page 13 of the complaint that "all sixty-five aliens have been granted permanent American citizenship, or are in the process of receiving conditional lawful permanent resident status." No. EB-5 provides first a conditional lawful permanent resident alien status, and then full permanent resident alien status, not citizenship. (An alien who received his green card through the EB-5 program can secure citizenship years later, like any other permanent legal resident, but that is a separate process.)
- The lawyers, apparently unaware of the full EB-5 story in their state, left out the fact that Bollen, a civil servant, had signed a formal agreement with Bollen, the president of a newly created, private-for-profit entity, to take the regional center away from the government, and to give it to his corporation, with all the millions of fees attached. It would have been a highly useful element of their argument.
- Meanwhile, neither the federal nor the state government noticed any problems.
The current question is: Will Congress, faced with the EB-5 sunset on December 9, continue to provide us with all this theater?