A New Angle in South Dakota's Continuing EB-5 Scandal

By David North on September 5, 2014

There's a new angle to South Dakota's continuing, complex, even bloody immigrant investor (EB-5) scandal that has received little, if any, attention.

But before getting into the new analysis, the reader might be reminded that the immigrant investor program in this state — unlike all others except Vermont's and, recently, Michigan's — was a monopoly. In South Dakota, it was run for years by the state government; first directly, and then through a contract with a privately-held regional center. (The alien investors, in return for a $500,000 stake, are given a family-sized set of green cards if the investment stays in place for at least two years, though the duration of the investment is usually much longer.)

During recent years in South Dakota there were multiple bankruptcies of EB-5 funded projects, including a beef slaughterhouse the size of five football fields, losses (and/or maybe thefts) of perhaps tens of millions of would-be immigrants' funds, diversion of state tax moneys to at least one of those failed projects, and the death of a key political and EB-5 figure via a shotgun blast to the stomach — ruled a suicide by the establishment's attorney general — all smothered in secrecy, as we have reported earlier.

The well-paid EB-5 middleman who died, Richard Benda, was a member of former Governor Michael Rounds' state cabinet — and Rounds, a Republican, is currently the odds-on favorite to become the next U.S. senator from that state. Both the state's press and the state's Democratic candidates have picked away at the issue, but its complexities have not made for good political theater, at least not so far, though that may be changing.

The local GOP has largely blocked a state legislative investigation of all this, while a reported federal investigation has yet to produce any public results. Meanwhile, in the cozy politics of the state, neither the retiring Democratic U.S. Senator (Tim Johnson), nor his son, the U.S. attorney for the state, has said a thing.

A key element in the S.D. EB-5 situation is the unique transformation of the federally recognized regional center that handles all the incoming cash from the aliens. From 1994 until 2009, the center was a state-taxpayer-supported entity of Northern State University in Aberdeen, according to an article in the local paper, the Argus Leader. Joop Bollen, an immigrant from the Netherlands, was the state-funded executive in charge of the center during these years. I do not know how much the state invested in the program over those 15 years, but it is clear that the center became adept at attracting foreign (EB-5) investments during this period.

This may be hard to believe, but in 2009 Bollen convinced the Rounds administration to convert the regional center from a publicly-owned entity to a for-profit to be controlled by Bollen. The state agreed to contract out its regional center powers to that outfit, in return for a small percentage of fees generated by the organization. (Current Governor Dennis Daugaard, another Republican, cancelled the contract in 2013 and apparently placed the regional center activities in hands of state officials.)

The 2009 contract made it clear that the state could ask no questions of Bollen's outfit; Bollen, according to NSU officials, took all the files of the regional center without asking permission. The new regional center continued to be the only one in the state, and all EB-5 moneys were channeled through it for the next four years.

Why would someone want to own a Department of Homeland Security-recognized regional center? The answer is provided in another article by the Argus Leader's reporter, David Montgomery:

The switch also let Bollen earn big bucks. His contract with foreign investors involved each paying an annual fee of $10,000 or more. With more than 800 EB-5 investors in South Dakota, these fees could add up to millions per year — plus extra money collected for expenses and a consulting agreement each group of investors had to sign.

Other press reports placed these fees — which are totally unregulated by the feds — at a flat, one-time payment of $30,000 to the regional center, and $15,000 to lawyers (who were probably related to the center.)

All of these fees, except the legal ones, would have gone to the state government had it not been for the contract with the Rounds administration

Let's think about this conversion of a unit of a public university to a for-profit entity for a moment and discuss a hypothetical analogy:

Suppose the dean of the Engineering School at the hypothetical Maryland State Institute of Technology, discovered that some patents the school owned were about to become very valuable. Do you suppose the dean could persuade the president of MSIT to spin off the engineering school (including the patents) to the dean's personal ownership, for a nominal return? That sound's pretty unlikely, but that is exactly what happened in South Dakota at Northern State University.

I am puzzled as to why the facts outlined above — none of them secret — have not exploded into a major scandal in South Dakota. Here's a situation in which one might well talk about self-dealing, conflicts of interest, depriving the state government of millions in revenues, the fiduciary responsibilities of state officials (such as Bollen), and the like.

I suspect that the scenario I have outlined may be too complex to explain easily, by either journalists or Rounds' opponents. (It is written largely in the contrary-to-fact-subjunctive, which can discourage readership.) It certainly is a different way of depriving a government of moneys — it is neither the more customary non-payment of taxes nor the theft of contract funds, and no bribes have been mentioned. But it is highly irregular, at the very least, and, according to the Argus Leader, wildly remunerative.

Supporting my complexity theory were some recent headlines that relate to a mechanism used by Bollen to get the contract from the state to run the regional center as a private, for-profit entity. Frankly, it is a minor detail but it has the advantage of being easy to understand, and the local press ran with it.

Here's how TV station KELO handled it:

SIOUX FALLS, SD South Dakota got involved with the EB-5 immigrant investor program in 2009 when it entered into an exclusive no-bid contract with Joop Bollen and his firm South Dakota Regional Center, Inc.

...

Documents show during former Governor Mike Rounds' administration, the state got involved with Bollen when it entered into a $45,000 contract with his company. That amount is just under the $50,000 threshold for requiring public bids in South Dakota.

That 2009 contract was signed just a year after Bollen was paid $87,000 a year for doing similar work for the state under the South Dakota Board of Regents.

The report's use of the term "got involved" is unfortunate; what the state did at that time was to give the regional center it had supported for years to Bollen's private entity.

That Bollen and the Rounds administration used this technique is a minor point, except to indicate that the state was planning to pay Bollen's outfit $45,000 a year when it had lots of other income. The problem was the transfer of future income in the millions from the taxpayers to a private, for-profit corporation. Meanwhile the GOP-controlled state legislature, operating on the advice of the GOP attorney general (the one who ruled Benda a suicide), has decided that it will not issue a subpoena to Bollen forcing him to testify before the legislative investigating committee.

In Washington these are called "sole source contracts", and I had a couple of them myself over the years, at the $10,000 and $25,000 level for specific research projects. When the contracts were over, the government received its reports and I got paid, but there were, sad to say, no follow-ons of millions of dollars.

I hope that this major, and aboveboard — but ignored — diversion of funds from the state of South Dakota to a private outfit will get the attention it deserves.