In South Dakota EB-5 Case, More Thought to the Frills than the Turkey in the Oven

By David North on October 3, 2014

If the long-simmering EB-5 scandal in South Dakota were a Thanksgiving dinner, you would notice lots of activity regarding the table settings, the cranberry sauce, and the gravy, but no one would be paying much attention to the big turkey in the oven.

The kitchen, to continue the metaphor a bit, is heating up, however, as the sometimes sleepy Democratic Party in the state is trying to make a major public issue of the repeated, convoluted, and often clever local misuse of the immigrant investor program. The GOP governor when the multiple EB-5 disasters began was Michael Rounds and he is running this fall for the U.S. Senate, so he is the target for much of the criticism.

The South Dakota state government, unlike most others, managed the local aspects of the EB-5 program and there were substantial bankruptcies, suspect contracts, self-dealing, ties to mysterious off-shore financial interests, and a grim shotgun death (ruled a suicide) of one of the main actors — as I have reported in several earlier blogs. (See
here and here.)

The EB-5 (or immigrant investor) program gives aliens a family-sized set of green cards, if all goes well, in exchange for a $500,000 investment and the payment of a varying amount in fees to the regional centers (such as South Dakota's) and to lawyers. It is a federal program favored by the Obama administration and the state's Republican establishment. The key role of the middleman in South Dakota was held by the only USCIS-recognized regional center in the state, which was run by a controversial (but well-connected) Dutch immigrant, Joop Bollen. The center was a part of state government.

What puzzles me is that the main subject of the controversy in the state ought to be the obvious fact that scores of millions of dollars flowing into that regional center were diverted from the state' s treasury into unknown private hands — these were from stiff fees paid by the alien investors to the regional center. These moneys simply disappeared during the Rounds administration.

This is the largely ignored turkey in this case. The press seems to concentrate on secondary or tertiary matters — often easier-to-understand ones — rather than the huge amount of missing money. And the Republicans continue to issue strong denials on minor points, which the press then reports in great detail. For example, the maneuver to take millions away from the state and give them to someone else involved a no-bid contract. There has been much more media attention paid to this minor mechanism than to the actual missing millions.

In recent developments, the Democratic county chairman in Minnehaha County (the location of Sioux Falls, the state's biggest city) has filed a suit against the former governor and some others demanding that they preserve a series of key documents in light of the fact that he, Jeff Barth, is about to file a substantive suit on the disappearance of the millions.

On one hand, his filing is probably the best single campaign document issued so far on this issue, and can be seen by users of PACER, the federal courts electronic recording system, at case 4-14-mc-00118-KES. It is full of damning detail, and pays appropriate attention to the missing millions.

On the other hand — and I am not a lawyer — it strikes me that the suit is vulnerable to rejection by a judge on the grounds that it does, indeed, look like a political document, as the Rounds camp has charged, and because of the question of standing.

Not anyone can sue anyone else in federal court, and the plaintiff has to show that he has a solid base, a standing, for the challenge. While Barth filed his case as an individual county commissioner in Minnehaha County, he, a minority member, was not speaking for the county as a whole; the county, in turn, could have argued that it was adversely affected by a reduction in state income because the county depended on a flow of state funding. (I assume that this is the case; in most states counties are partially subsidized by the state.)

Bringing the suit on behalf of a bevy of local governments would seem to have been a better move than having the suit filed by an individual pol, who is, as a matter of fact, seeking re-election in November. But then the Democrats don't have that many jurisdictions that they control in the state.

Meanwhile, Governor Rounds — again taking on the details of the matter rather than the main thrust — has argued that the mismanagement of the EB-5 program was the fault of the small state institution where the program had been nominally lodged for a long time.

That would be Northern State University in Aberdeen, S.D., whose former employee, Bollen, had run the EB-5 program for years. Bollen has steadfastly refused to talk to the press or to a legislative investigating committee and is obviously a powerful operator. He was the one who, as a state official, signed an agreement to turn over the EB-5 business and its substantial income to a newly created private-for-profit entity that, he, Bollen, had created days earlier. The GOP-controlled state legislature has refused to subpoena him in connection with the very mild investigation it is conducting on these matters.

Had the fees paid to the EB-5 regional center stayed with NSU, its budget would have increased by more than 50 percent; instead they wandered off in an unknown direction.

Expecting the small, rural college to supervise Bollen effectively is a little like arguing that the mythical Sunny Hills Community College should be managing the day-to-day operations of a billion-dollar derivatives dealer who has, for some reason, brought his business to the little campus. It is a skill that most heads of small colleges do not have. It is the kind of thing that governors and their staffs are supposed to do.

I hope that some additional attention will be paid to the turkey in the oven — the real issues of this case — in the weeks ahead.