John Tsitrian offers the best blogospheric summary of yesterday's noteworthy Legislative hearing on the Governor's Office of Economic Development and South Dakota's use of the EB-5 visa investment program. Tsitrian catches the two big bits of news to come from the the Government Operations and Audit Committee's four hours of testimony and questions:
- Three other federal agencies—the Treasury Department, the Department of Energy, and the Department of Housing and Urban Development—have joined the Department of Justice and FBI in investigating GOED's activities. Hmmm... is investigating too harsh a word? GOED chief Pat Costello says those departments have submitted "informational requests."
- The Daugaard Administration continues to preach irrational optimism with respect to Northern Beef Packers. Costello averred before the committee yesterday that the bankrupt EB-5 project is bound to bounce back, producing "a lot of jobs" and tax revenue within two years. Costello says the state has already recouped much of its $3.5-million investment in NBP through taxes on NBP construction, equipment, and operations.
Costello also continued the state's logical strategy of making dead and disgraced Richard Benda the fall guy for all that was ill and unholy in the GOED/EB-5 mess. (Cathy, are you sure you want to keep collaborating with a state to which Richard Benda is now nothing but easily exploitable damage control?)
The main policy response discussed yesterday, tightening the rules for state employees submitting vouchers for reimbursement, specifically targets Richard Benda's questionable voucher practices. The other, background checks for state employees, won't weed out decent guys who get into state government and then start misusing their power.
Rep. Kathy Tyler (D-4/Big Stone City) isn't on the operations and audit committee. But she says the committee and the rest of state government lack the will to get to the bottom of the GOED/EB-5 affair:
The big audit by the Department of Legislative Audit summarized major issues with SDRC, Inc, the EB-5 contractor, but nothing will be done. The committee was lead to believe that the state can’t look into SDRC, Inc.’s records, but according to their contract, it can. Also, the rules that the regional center must abide by are listed in a document that was not presented to the committee. It states that the regional center (our state) has oversight responsibilities for any project.
It’s a huge, horrible mess that I don’t think anyone in charge really wants to dig into, and that’s too bad. It’s a black mark on our state. The losers are the citizens of South Dakota and small business that lost in the bankruptcy; the winners are the managers and friends of SDRC, Inc., who have garnered millions of dollars from various aspects of the program and off the backs of hard working South Dakotans [Rep. Kathy Tyler, "Legislative Session #89, Week Eight," Kathy's Corner, 2014.03.08].
Rep. Tyler's pessimism finds support in the premature agnosticism of assistant majority leader and committee member Rep. Justin Cronin (R-23/Gettysburg), who says everything's fine, nobody's hiding anything, and we know all there is to know:
Republican State Representative Justin Cronin says any efforts by the committee to dig even deeper won’t result in new information.
“We haven’t started to correct the problems that were identified. And, I don’t know that we can dig far enough find a problem that is going to require us to call all these folks back and basically chew them out, which is some of the feelings I’m getting here today. That we have something that they’re hiding, and I don’t think anything that has been hidden here,” says Cronin [Charles Michael Ray, "State Government Committee Probes EB-5, GOED Audits," SDPB Radio, 2014.03.07].
Rep. Cronin evidently was not paying attention to his own committee hearing: Tweet-reporting live from the hearing, David Montgomery said that the Department of Legislative Audit looked at "third-party documents" in its investigation of GOED and EB-5 but signed confidentiality agreements, which by definition means somebody is hiding something.
The Government Operations and Audit Committee declined to set a date for another meeting. But Senator Larry Lucas (D-26/Mission) said he'd like to hear from big EB-5 player Joop Bollen. Sen. Larry Tidemann (R-7/Brookings) said eliciting testimony from Bollen "may require a little bit more than a letter of invitation." Let us hope we get at least one more hearing to test Bollen's willingess to speak.
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§ 2-6-6. Refusal to testify or produce evidence before Legislature as misdemeanor.
Any person who, being present before either house of the Legislature or any committee thereof authorized to summon witnesses, willfully refuses to be sworn or affirmed, or to answer any material and proper question, or to produce upon reasonable notice any material or proper books, papers, or documents in his possession or under his control, is guilty of a Class 2 misdemeanor [South Dakota Legislature, Joint Rules, Eighty-Ninth Legislative Session, downloaded 2014.03.08].
Thanks, Cory. I thought about using a word other than "investigation" but decided that "to investigate" is to search for facts related to an incident. I believe that requests for information meet that threshold, so I decided those agencies making "informational requests" are in fact "investigating." There may be some codified definitions of an investigation used by federal agencies that I'm not aware of, but for purposes of common, denotative English, I think the word applies here.
I concur with your use of the English language, John! More feds are searching for facts. That's investigating.
Is 2-6-6 another Imperial South Dakota law aimed at nullification of the 5th amendment to the US constitution? I thought only grand juries were allowed to violate your 5th amendment rights.
Wasn't it Daugaard himself who said that investigators would find no wrong doing in state audits,etc.? Sounds like wingnuts have already decided there is no there there.
Cory, here's a verbatim comment I made on my blog that seems like a fitting point to raise here, where it will get much wider circulation--and possibly a knowledgeable response: I would love to see what, if any, business plan preceded this colossal blunder. At some point, I would think investors have to be presented with a prospectus, which as far as I know, has never been presented at any time during this debacle. If the SDRC guy-in-charge ever does testify, this is a question that is utterly germane to the whole investigation. Were these investors fully informed about the operation and its risks? American and (I'm assuming, because it's commonplace among all individual states) South Dakota investment firms have disclosure requirements that must be met before soliciting funds for a venture like this. Those disclosures are public documents. I'm actually getting curioser and curiouser.
Don't the outlines for EB-5 investors say upfront that the "investors" shouldn't expect a return on their "investment"?
http://www.eb5exclusive.com/faq-questions-answers/eb-5-guidelines/eb-5-investment-option-guidelines
Go to the "at risk" part.
Thanks for finding the info and the tutorial, mfi. Here's something I found from a group of lawyers who deal with EB-5 investments. It notes that "a regional center must comply with federal and state laws in conducting the offering of securities." It's detailed, but it reads to me like EB-5 solicitations are required to provide all the disclosures that other solicitations must make. Ergo, there must be a prospectus regarding NBP somewhere in somebody's files. I'd love to see it. http://www.seyfarth.com/dir_docs/publications/AttorneyPubs/RelevanceofUSSecurities.pdf
But what happens if you are not offering securities rather you are establishing a loan relationship with another interested party, and the State Banking Commission claims your acts do not constitute a banking transaction - e.g. the relationship between Pine, Epoch Star, and Anvil Asia? Haven't you effectively maneuvered the legal issues with the timely help of the SBC?
Quite a read,John. That is getting way over my head about securities,but the part she mentioned about green cards and extraordinary abilities is listed. I believe it said that papers had to be filed before a certain date. I'll check.
Not sure if it helps,but the rules say the investment monies cannot be borrowed. I don't know how they get around that. Must be magic.
http://www.scribd.com/doc/115122160/EB-5-and-Securities-Law
Haven't tried to read through this. Not sure I'd understand it.
Not sure, Winston. Investors of course are not lenders, so if the foreign investors were actually making loans, disclosures to them may not have been required. I wouldn't know, it's up to the lawyers looking at this to make that decision. Somewhere along the chain some risk assessment seems like it would be part of the due diligence that customarily goes with investment and lending decisions--and that includes looking at a business plan that details all the risks in a project. That's the document I'd like to see.
Winston, that banking/non-banking situation would apply strictly to Epoch Star. At no point did the SD Banking Commission ever give SDRC Inc. a similar exemption from South Dakota banking regulations.
John also on your blog from yesterday is the discussion in the comment section between Dallis Basel and yourself regarding the marketing of NBP products. You point out the ability of NBP to only slaughter 200 head of the 1500 head a day, that they needed to be profitable. And you had previously mentioned that it was because of their inability to buy the cattle. I had questioned if that was because the previously approved 25 million in State loans had never been given to NBP, but you thought that it was mostly a product of lack of supply. Mr Basel, however. threw a whole new light on the issue in suggesting that it was because of poor marketing. NBP was actually building up inventory in their freezers. On slaughter of only 200 head a day, it would seem that they would or should have been shipping every last pound of finished product, if they had any sort of marketing program at all. Mr Basel also alludes to the possibility that the finished product would be destined for Korea, which would make sense if NBP was actually freezing finished product.
MFI, your last link is too much for me, but I did skim through and found this bit: "When a regional center or a direct investment entity forms a corporation, a limited partnership,or a limited liability company, the regional center or direct investment group is offering a security and, accordingly, must comply with Federal and state laws." NBP was formed as an Aberdeen-based corporation in '05. Compliance means disclosure documents have to be prepared and distributed to potential investors. A securities lawyer I'm not, but a somewhat experienced former broker-dealer I am, and I know that you just can't go out and start soliciting money from the public sans compliance with securities laws.
Yeah, Lanny, Dallis' twist was something that really surprised me. Having trouble marketing a 200/day kill just seems amazing to me. His point was that producers soon became concerned that the company wouldn't be able to pay them because they couldn't sell what little product they had. I hope Newquist is lurking around somewhere to maybe shed some light on this, as his work on the fiasco has been excellent.
Mike's "Must be magic" comment I think is at the heart of this scandal and thus investigation or should I say Federal investigation. From what I have read many "investors" really did not care about getting their money back or a return on their investment, but they did want the green card. When the green cards never showed-up two plus years later is my guess when people, especially foreign governments and interests, probably began to ask officials in the US government where the cards were and the Federal investigation (both Congressional and Executive) began to ensue from there.
Just because the EB-5 program is suppose to be governed by US security laws (and it may have been sold that way) does not mean that is how the money was channeled to the US (South Dakota) from overseas. Most of the initial lawyering for these "investments" was most likely done outside of the US, and although it may be fraud, as long as the sleight of hand between investment and loan is established before the money lands in the US makes it tricky waters for the Feds to find a crime within their jurisdiction.
That is why I mentioned Pine, Avril Asia, and Epoch Star earlier, because I allege these "banks" were ingenious ways to repackage the money before it came to the US and they are obviously outside Federal jurisdiction.
It is no longer just about "follow the money." It is now analogous to quote… "What did the President know and when did he know it?" Except in this scandal there is no President, but there are major players and what did they promise, who did they promise it to, and where (this is the key) were the promises made?
Winston, MIF, Cory, here's a piece on Slaughterhouse EB-5 from the Center for Immigration Studies (looks legit to me) that was published last summer--borrowing stuff from MT, I note--that goes into some detail about the investor/lender issue. I see that the 70 original investors were actually investors who had to have been courted via U.S. and SD securities regs. http://www.cis.org/north/big-eb-5-project-bankrupt-south-dakota-investors-may-lose-everything
But were the first 70 investors merely investors because of their perception or understanding of the financial transactions from a far, or do they have actual share certificates?
A business plan which accept EB-5 "investor" funding can also engage in loans or investments which are completely separate from the EB-5 sources and simultaneously to their EB-5 funding sources.
One of the niceties of the EB-5 program is how total EB-5 funding may only represent 20% of the total investment in a business plan, but 100% of the jobs created either directly or indirectly (with the help of assigned multipliers) as a result of the successful execution of the business plan are credited to the given Regional Center to justify X number of potential EB-5 investors - This reality only further encourages and enhances the almost infinite number of investors a Eb-5 project can have, especially if the investments become loans before they reach State side; while the multiplier selling point entices further investors through the appearance of investment protection from a finite but not yet exhausted (in fact, it can never be exhausted if all the money comes from "loans" and not "investment") job creation forecasted reality.
Crooks never think they will be caught - and as long as new money could come in to cover EB-5 business costs, those who were on the take, and or to silence those who never received their green cards, then the scam continues on until some one or a group begin to ask where are their green cards or their refunds at a faster pace than the new funding can manage. It's a Ponzi scheme and in name only are there any investments. They are really not loans either, rather donations, but the donations or "investments" are covered with new "donations," and it sure helps if you have off-shore banks involved and an accommodating Banking commission which sets precedents claiming your "banking" is not banking.
John,that last link overwhelmed me,an ex-farm laborer with no understanding of brokering or securities. I certainly admire and am grateful for those of you who do understand this....stuff.
Winston,
Actually the EB-5 program is not regulated by any securities law. It is run by the USCIS, period. As I understand it, that is why the program has been suspended until it has been transferred to Dept. of Commerce and SEC begins regulation.
Troy, MFI's link on this seems unequivocal about the application of federal and state securities laws with respect to EB-5 investments. I'll repost the link. http://www.scribd.com/doc/115122160/EB-5-and-Securities-Law
USCIS runs EB-5, yes. But that doesn't mean that EB-5 Regional Centers don't have to follow other laws. I imagine if Benda and Bollen were driving fast to a meeting and the HP pulled them over, they couldn't flash their EB-5 agreement and say, "See! Speed limits don't apply to us!" EB-5 authorizes the Regional Center to recruit investors who trade money for green cards. The investments still appear to be regulated by the SEC.
http://www.aboutvisas.com/eb-5-investor-visas/eb-5-visa-frequently-asked-questions/#gifted-money-eb5
This outfit says in answer to questions 1 and 7 that you can qualify for a green card by having exceptional skills,no investment needed.
Under Capotal Investment Requirements is this-Note:Investment capital cannot be borrowed.
Under EB-5 Immigrant Investors it says Borrowed funds qualify as long as they are not secured by the assets of the target US business and the lender can prove lawful source of the funds.
Then it says there are three different regional centers,one of which is for loans. My head is gonna explode!
Troy or anyone, On Friday and I believe also previously it was said by legislators that for the committee to have an appearance by Mr Bolen, subpoenas would more than likely have to be issued. Does the legislature have subpoena powers, and if so why hasn't a subpoena been issued?
Mr. Berez needs to be subpoenaed, the former Chief Adjudication Officer for the USCIS under Bush43, to help clarify these issues. He is known as the "architect" of the EB-5 program and its implementation which are now in question. He also went to work for the SDRC after leaving DC in January of 2009, which gives the state of South Dakota jurisdiction over him.
Does the legislature have subpoena power? It had better. Else, where is the balance of powers within our state constitution?
The following articles make Mr. Berez a legitimate person of interest that the Legislative Committee needs to question under oath:
http://www.eb-5center.com/Background_RC_Program
http://www.siteselection.com/issues/2008/may/naReports/
http://www.carolinaregionalcenter.com/sites/all/themes/eb5/pdf/re-journals_22009.pdf
Winston, the Legislature at its GOAC most certainly have subpoena power. See Joint Rules 2-6-5 and 2-6-6.
Mr. H, I am not as lawyerly as you but do you not believe that these rules you post apply only the to the legislatures as they conduct their own businesses? They always suspend these rules and break them and there is no law behind them. I, sir, believe those rules have less impact on being able to give a speeding ticket than drag some poor fellow in front of their committee.
However, sir, there are laws that give them that power. Not their silly rules.
Mr. H, a more lawyerly fellow than I who is visiting my granddaughter points out that it is Joint Rules 7 which is restating Laws 2.5.6. It is the law that is 2.5.6 not the rule because rules only cover the rules of the legislatures and cannot apply to people not of the body.
Cory, thanks for the cite. I was quite confident they had this power, but the question had been raised by Lanny so that is what solicited my question.
A course there is always the 5th Amendment angle for any prospective witness which potentially negates the effectiveness or effective inquiry into any witness's testimony.
In the case of a potential witness who has both Federal and State relevance to the question in-hand (like Berez) then it would be beholden upon the legislators on the GOAC to ask questions of the witness as a former agent of the SDRC and not as a former USCIS official. Else, the legislators could place themselves into a legal entanglement over Federal/State rights and jurisdictions.
Such questioning, if crafted precisely, could open up a whole new understanding of this EB-5 affair, forcing a former Federal official to answer questions in the context as a former State agent who is governed by the regulations which he himself dictated to begin with as a once Federal official.
It would be fun to see where this testimony and questioning could potentially go. The legislators will need to do their homework for it to ever happen. I wonder how many members of the GOAC could currently explain to any of us how the EB-5 direct and indirect jobs creation program is suppose to work in the context of assigned multipliers…. that would be a good start...