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Nov. 2010 Agreement Required NBP to Buy Epoch Star

The firms contracted by the state to review the Governor's Office of Economic Development's operations won't be looking at the agreements between SDRC, Inc., and Northern Beef Packers. Governor Daugaard insists that SDRC and its subsidiary loan partnerships, the legal fictions that state employee turned private contractor Joop Bollen created to manage the state's EB-5 program, aren't state agencies, so he can't order them to cough up their records.

Until Governor Daugaard rereads the state's contract with SDRC, which gives the state the right to look at SDRC's books (wait a minute: is that why the Governor canceled that contract before the federal investigations hit the news, to protect those records from state review?), we'll have to look at SDRC's records ourselves.

Among the important documents anyone following the money from China to South Dakota will want to read is the credit agreement Joop Bollen and Oshik Song signed on November 4, 2010. (I'd post the document, but it's a big PDF, and it includes some sensitive information that I have to edit out first.)

This document details one of the stranger and seemingly pivotal twists in Northern Beef Packers' very complicated financing. Recall that in 2010, NBP received a $30,000,000 emergency loan from Epoch Star Limited, a group of secret offshore investors who, thanks to the efforts of NBP's lawyers, were excused from following South Dakota banking laws by the state banking commission. Epoch Star provided $3 million of that loan. NBP then bought Epoch Star, making the rest of that loan agreement go poof.

The November 2010 credit agreement doesn't tell us exactly where that money went, but it does tell us how Bollen and Song structured the deal that kept NBP's financial shell game going with SDIF LP 6, the shell Bollen created to loan another $60 million in EB-5 visa investor money to NBP.

Among the useful excerpts:

Section 2.20 specifies that "No further borrowing shall be made with Epoch Star Limited."

Section 5.6 limits NBP to investing only in U.S. banks and securities. Apparently Joop Bollen didn't want NBP writing any more checks to Cyprus or Russia.

Section 8.1.13 requires that Northern beef Packers "provide to Lender proof that an agreement to purchase Epoch Star has been agreed upon and all rights thereunder assigned to Lender."

The attached Assignment specifies that NBP "purchased Epoch Star Limited for the specific purpose of assigning said mortgage, said security and pledge agreements, and said subordination" to SDIF LP 6. If I understand this correctly (my kingdom for an MBA!), the agreement says NBP owns Epoch Star, but that Joop Bollen, through two or three layers of legal fiction, basically is Epoch Star.

Exhibit A, the Closing Request from SDIF-6, itemizes the Epoch Star buyout:

Principal Repayment $2,850,000
Unused Fee $2,410,612
Fixed Rate Interest $169,813
Deferred Interest $172,956
Past Due Interest $20,304
Additional Interest $83,650
Less Prior Payment ($562,500)
Sub-Total $5,144,835

Remember, the South Dakota Banking Commission authorized Epoch Star's original loan to Northern Beef Packers at the end of June. In four months, principal of $2.85 million racked up $447,000 in interest. Good grief: NBP might as well have put that bridge loan on a Premier Bankcard!

The Share Purchase Agreement (p. 109 in the PDF) between Pine Street Special Opportunity Fund and Northern Beef Packers puts the purchase price of all Epoch Star shares at $5,145,785.28, payable to Standard Charter Bank Ltd. of Hong Kong.

To cross the t's and dot the i's, the agreement includes a letter from Pine Street director Christine Ma tendering her resignation as director of Epoch Star Limited and a letter from the unnamed Board of Directors of Epoch Star Limited naming NBP director Oshik Song as Epoch Star's new director.

On paper, this deal appears to say that Bollen wanted to get Northern Beef Packers free and clear of its obligations to the offshore investors who kept the project afloat while Bollen and NBP scrambled to line up more EB-5 investors. But it sure looks like a convenient way to move some money around without subjecting it to South Dakota's banking tax.

* * *
Beyond Epoch Star, the November 2010 SDIF LP6-Northern Beef Packers loan agreement includes some other details worth our attention:

Section 1.8 exacts a 1% origination fee on the loan. So for every $500,000 EB-5 investment, SDRC's Joop Bollen collected another $5,000. That would appear to be in addition to whatever fees SDRC collected directly from the EB-5 investors.

Section 1.9 requires Northern Beef Packers to pay "any fees incurred by Lender [SDRC] in monitoring all disbursements of funds." That would seem to include SDIF LP 6 loan monitor Richard Benda's remarkable salary of $225,000 a year, which ultimately came out of state grant #1434.

Section 1.9 also obligates NBP to pay any attorney fees related to loan monitoring and investor approvals. The contract specifies Siegel, Barnett & Schutz LLP of Aberdeen, but allows payment to other attorneys.

Section 2.18 gives Northern Beef Packers' promise to "meet all job creation requirements" of the EB-5 program. Specifically, NBP committed itself to creating three jobs per $500,000 EB-5 investment within two and a half years of the initial funding date. Given that this second EB-5 phase drew $45 million, that should mean NBP had to create 270 additional jobs, beyond the 210 jobs that the first round of $35 million should have created. If the job counts include the temporary jobs created building the plant during its long delay, then maybe, maybe, NBP made those thresholds... though the permanent plant jobs didn't last more than nine months (see layoffs in April and July 2013).

One Comment

  1. jerry 2014.01.02

    Paging Brendan Johnson...Paging Mr. Johnson...Time to stop being like the "investigation of Scott Walker" and actually do something..

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