In the "No News Is Bad News" Department, I was wondering if the South Dakota Banking Commission had ever ruled on whether SDRC Inc., the controversial Aberdeen company into which Joop Bollen privatized his state duties as EB-5 visa investment manager, was a bank. Recall that in November 2013, I reported that SDRC Inc. had engaged in lending activities but never obtained a state lending license and never paid state bank franchise tax. Brown County, which could be out $1.76 million in tax payments from SDRC Inc., asked the state Banking Commission to look into SDRC Inc's bank status in September. Banking Commission Bret Afdahl said at that point the commission was looking into the issue and that companies like SDRC Inc. usually responded to requests for information within 30 days.

I contacted Director Afdahl Monday and asked what the Banking Commission had found or decided. Afdahl replied thus:

The Division of Banking is investigating whether a license is necessary for SDRC, Inc. and that investigation is not yet complete [Bret Afdahl, South Dakota Banking Commission, e-mail, 2015.01.13].

That sentence means what you think it means: SDRC Inc. remains under investigation, 90 days after we would have expected SDRC Inc. to have responded to the Banking Commission's request, and the Commission cannot comment further. But the rest of us can.


The South Dakota Banking Commission has yet to take any public action on Brown County's request that it investigate EB-5 czar Joop Bollen's SDRC Inc. for possible evasion of bank franchise tax. Director of Banking Bret Afdahl sent SDRC Inc. a letter requesting information in September; as far as we know, SDRC Inc. is almost 60 days past the normal 30-day reply time.

If the Banking Commission is alarmed, they aren't showing it. Bob Mercer reports that the Banking Commission is meeting Friday at the Minnehaha Country Club (hey, can public bodies meet at private country clubs?), and SDRC Inc.'s bank status is nowhere on the agenda.

Well, maybe not nowhere. There is an executive session at the end. So maybe, just maybe, there's an interesting conversation to be had after the duck à l'orange. We can only hope that somebody in Pierre is taking their obligation to get answers about EB-5 seriously.


Saudi Arabia gave a Black Friday gift to the world oil market. The Saudis have persuaded their OPEC partners to sustain OPEC's current oil production rates (30 million barrels per day) rather than cutting production to pull oil prices out of their current slide. The Saudis' main objective is to crush North American producers with low prices and regain market share.

Remember that our country's booming oil production is based on hydraulic fracturing, or fracking. 80% of the fracking fields in the U.S. require oil prices of $80 per barrel or more to remain profitable. Canadian oil firms have been making their budget projections around assumptions of oil hanging around $80 per barrel. Immediately after OPEC's decision, the price for North American oil, West Texas Intermediate, dropped to $69.05.

Venezuelan Foreign Minister Rafael Ramirez confirms the basic profit equation and declares himself a friend of U.S. environmentalists opposed to fracking:

"OPEC is always fighting with the United States because the United States has declared it is always against OPEC... Shale oil is a disaster as a method of production, the fracking. But also it is too expensive. And there we are going to see what will happen with production," he said [Alex Lawler, Amena Bakr and Dmitry Zhdannikov, "Inside OPEC Room, Naimi Declares Price War on U.S. Shale Oil," Reuters via KELO Radio, 2014.11.28].

If you're pumping gasoline into your car, you should be cheering this price war, right? Cheaper oil means cheaper gasoline, which means we can all drive around and buy more stuff, stimulating the economy.

The OPEC price war could save North Dakota from the ills of petro-state chaos and corruption. American drillers aren't going to keep pumping oil at a loss out of patriotism or a love of the view of Minot from the man camps. The Saudis drove Americans out of the oil business in 1986; they could do it again.

The OPEC price war could also make the Keystone XL pipeline disappear. Canadian tar sands oil requires a price of $85 per barrel to make scooping that goop profitable.

For bonus geopolitical excitement, the Russians need $100 per barrel to balance their budget. Vladimir Putin will have a hard time continuing his invasion of Ukraine if low oil prices threaten a repeat of the Soviet collapse. Then again, Putin is not Gorbachev. Faced with economic hard times, rather than retreating, restructuring, and releasing his grip on his neighbors, Putin might lash out, reaching for more land, resources, and power.

But then we get to a strangely familiar and ugly economic scenario. Big banks have made big loans to finance Big Oil in North America. The frackers carry a lot of junk-bond debt. If oil stays low, we could see defaults that could create another financial crisis:

Based on recent stress tests of subprime borrowers in the energy sector in the US produced by Deutsche Bank, should the price of US crude fall by a further 20pc to $60 per barrel, it could result in up to a 30pc default rate among B and CCC rated high-yield US borrowers in the industry....

“A shock of that magnitude could be sufficient to trigger a broader high-yield market default cycle, if materialised,” warn Deutsche strategists Oleg Melentyev and Daniel Sorid in their report [Andrew Critchlow, "Oil Price Slump to Trigger New US Debt Default Crisis as OPEC Waits," UK Telegraph, 2014.11.14].

Critchlow hears 2007 all over again. Just like bankers underwriting real estaters in a housing bubble pre-2007, bankers are underwriting oilers in an oil bubble based on possibly unsustainable prices. The Saudis are now popping the bubble.

But if the joys of cheap gasoline are crushed by the pain of junk-bond defaults, at least you'll be able to blame Obama right alongside the Saudis:

...This rush to pump more oil in the US has created a dangerous debt bubble in a notoriously volatile segment of corporate credit markets, which could pose a wider systemic risk in the world’s biggest economy. By encouraging ever more drilling in pursuit of lower oil prices, the US Department of Energy has unleashed a potential economic monster and pitched these heavily debt-laden shale oil drilling companies into an impossible battle for market share against some of the world’s most powerful low-cost producers in the Organisation of Petroleum Exporting Countries [Critchlow, 2014.11.14].

The Saudis are dropping our gasoline prices more surely than anything Mike Rounds or Kristi Noem has promised us. OPEC may shut down fracking and Keystone XL more effectively than any spirit camp. But the potential for a financial crisis that could swamp the benefits of cheap gasoline should make us beware Saudis bearing gifts.


As we wait for the South Dakota Division of Banking to determine whether Joop Bollen should have been paying bank franchise tax on the money he made fleecing foreign investors, an eager reader finds a hint that Bollen's boon companion James Park may also have been evading bank franchise tax.

Before Northern Beef Packers, the Veblen dairies were the biggest project in South Dakota's EB-5 program. The Veblen dairies received $13.5 million in EB-5 investment from 27 Korean investors before violating South Dakota environmental rules and going bankrupt in 2010.

Among the creditors listed on the Veblen East Dairy list of unsecured claims was Park's firm Hanul Professional Law Corporation, which claimed to have loaned Veblen East $2 million. Mikkel Pates reported that Hanul had $2.45 million in claims against the associated Dairy Dozen Veblen LLP but received only $248 in the bankruptcy settlement.

Hmm... so Hanul was a law firm, but they were lending at least $2 million to the Veblen dairies. As with Bollen's EB-5 shop SDRC Inc., Hanul appears neither to have obtained a lending license nor paid bank franchise tax on any proceeds from loans nor even an official exemption like the one the Banking Commission granted to shady offshore lender Epoch Star to save Northern Beef Packers.

The more we investigate South Dakota's EB-5 program, the more we find EB-5 players Joop Bollen and James Park trying to avoid the rules by which honest South Dakotans play.


One more detail sneaks out of Denise Ross's report on Joop Bollen's inept management of Northern Beef Packers. The South Dakota Banking Commission may have exempted an honest-to-goodness bank from our bank franchise tax:

Kang said once it became clear that Chinese Development Industrial Bank out of Taiwan was willing to loan Northern Beef $30 million through its subsidiary, Anvil Asia Partners, Hanul and Bollen began working directly with bank officials [Denise Ross, "Source: Bollen, Lawyer in Control of Northern Beef Operations, Finances," Mitchell Daily Republic, 2014.10.17].

Remember: Northern Beef Packers got a $30 million loan from Epoch Star Limited, which was a subsidiary of Pine Street Special Opportunity Fund, which was a subsidiary of Anvil Asia Partners, which Kang says was a subsidiary of the Chinese Development Industrial Bank.

Under pressure from the Governor's Office of Economic Development, the South Dakota Banking Commission said Epoch Star didn't have to pay bank franchise tax on that loan.

Cut out the middle words, and we see the South Dakota Banking Commission saying a bank making a loan wasn't really a bank making a loan.

Gee, Republicans, I think calling that a "special tax break to a shady offshore corporation" is putting it mildly.


South Dakota Republicans continue to respond to charges of crony capitalism in Mike Rounds's EB-5 program by attacking the press with cries of Defamation!

The Democratic Senatorial Campaign Committee this week pointed out that as governor, Mike Rounds "gave special tax breaks to a shady, offshore corporation" to keep his failing Northern Beef Packers project afloat. The DSCC made that statement in this broadcast ad:

The SDGOP sics Woods Fuller Shultz & Smith PC on KEVN and other TV stations that have broadcast the ad:

The "shady off-shore corporation", Epoch Star Limited, represented by a prominent Sioux Falls lawyer, petitioned the State Banking Commission to determine if it was subject to South Dakota laws regulating loan companies and mortgage lenders. The State Banking Commission, acting independently as required by South Dakota law, reviewed evidence presented to it and ruled Epoch's proposed loan to Northern Beef Packers did not subject it to the money lender or mortgage lender/broker statutes. The decision in effect meant that Epoch was not subject to the income tax South Dakota imposes on financial institution profits [William Taylor, attorney for South Dakota Republican Party, letter to KEVN, 2014.10.15].

First, the Woods Fuller lawyers and the SDGOP should get their candidate back on the script. He was bleating counterfactually to Denise Ross Wednesday that Epoch Star, "just like any other institution," had to "get licensed." (Someone on Team Rounds is trying to work up the guts to say, "Mike, do your homework, or shut up!")

Second, the fact that a "prominent Sioux Falls lawyer," Steven Sanford, represented Epoch Star does not render false the DSCC's statement. Epoch Star is shady—we have no idea who they are. Epoch Star is an offshore corporation, a shell inside a shell inside a foreign company.

Third, Mike Rounds did give Epoch Star a special tax break in 2010. Rounds appointed Roger Novotny banking director in 2004. Banking commissioners serve three-year terms, so Mike Rounds would appear to have appointed every member of the Banking Commission, which approved the Epoch Star tax break at the end of June 2010. And Rounds's own economic development chief, cabinet member Richard Benda, represented the Rounds administration before the Banking Commission to urge approval of the tax break to revive the Governor's stalled legacy project. The Rounds Administration made Epoch Star's tax break possible.

And in the common vernacular synecdoche in which we refer to an organization by its head, "Mike Rounds gave special tax breaks to a shady offshore corporation."

The South Dakota Republican Party launched a similar specious attack on the free press last week with its bogus assertion that auction is a fighting word. It's remarkable how whiny South Dakota Republicans get when faced with the ugly facts about their crony capitalism and corruption.

KEVN, other broadcasters, don't let Rounds and the SDGOP bully you. You are much better suited to recognizing and publishing the truth than they are.

I think we need to be grateful we live in a state where we can get this kind of thing done with dispatch.
—Steven Sanford, lawyer for Epoch Star, South Dakota Banking Commission hearing, 2010.06.29.

Last month, South Dakota Director of Banking Bret Afdahl said that his office had sent a letter to SDRC Inc. requesting information about its lending activities. Afdahl made this announcement after the Brown County Commission called on the state to investigate whether SDRC Inc., the now infamous EB-5 recruitment company, owes South Dakota $2.4 million in bank franchise taxes.

Afdahl said at the time that companies can take up to 30 days to respond to such questions. That story came out September 9; today is October 10. Whether Afdahl has received an answer is unknown, but in case he hasn't, Scott Waltman sends SDRC Inc. owner Joop Bollen a reminder in today's Aberdeen paper:

If the banking division determines that SDRC Inc. is a financial institution and subject to licensing and paying bank franchise taxes, the state Department of Revenue will work to collect the amount owed, Jason Evans, deputy director of the revenue department, said Wednesday. He said he visited with secretary of the Department of Revenue about the matter [Scott Waltman, "State Considering Brown County Resolution Calling SDRC a Bank," Aberdeen American News, 2014.10.10].

I don't know if this helps, Banking Division, but Joop Bollen's lawyer Jeff Sveen has said that SDRC Inc. "functions similar to a bank." We are all curious to hear whether Sveen says the same thing directly to you.


On May 11, 2011, attorney Jeff Sveen wrote a letter saying that his client, SDRC Inc., functioned like a bank:

SDRC, Inc. does not promote economic development, but simply obtains funding through EB-5 and functions similar to a bank by lending those same funds to projects in South Dakota" [Jeffrey T. Sveen, letter to Jennifer S. Elkayam, 2011.05.11].

I've cited this statement as support for the contention that SDRC Inc. was sufficiently bank-like to be subject to lending license laws and bank franchise tax. I've wondered whether SDRC Inc. ever sought a lending license or at least guidance from the South Dakota Banking Commission on its status.

It turns out Jeff Sveen sought such guidance. According to a February 18, 2010, letter from Sveen to Banking Commission director Roger Novotny, Sveen and Novotny discussed money lending license requirements on January 18, 2010. In the letter, Sveen says the Department of Tourism and State Development (known now as the Governor's Office of Economic Development) contracted with SDRC Inc. to "administer the program for the State of South Dakota and make sure that the program requirements are completed."

Sveen then describes how SDRC Inc. administered EB-5:

A partnership is then formed consisting of the foreign investors and a South Dakota limited liability company for the sole purpose of providing the money to a business for job creation in South Dakota. The individuals, in return, receive a permanent visa for themselves and children under the age of 21. The limited partnership then makes a loan to the business. The investors themselves, do not necessarily receive any interest payments and the loan itself would be very low interest and probably in the area of 1% or 2%. Most of the interest goes to cover costs of administering the program.

It is my position that the partnership is not in the business of lending money, but in the business of obtaining visas for foreign individuals. The partnership completes one transaction and no others. Once the jobs have been created and five years have passed, the partnership is then paid back the principle [sic].

The actual money is deposited into a bank in Brookings, South Dakota. The bank then prepares whatever loan documents may be necessary, which usually includes a Promissory Note and a Security Agreement. It may or may not include a Mortgage. The partnership is not open to the public and is not open to any United States citizens.

As we discussed, I do not think such an isolated transaction would require the partnership to obtain a money lending license. Could you please verify that for my records. The program, as stated earlier, is controlled by the State of South Dakota with the partnership only acting as a conduit for the investment, which is required by the Department of Immigration [Jeffrey T. Sveen, letter to Roger Novotny, South Dakota Banking Commission, 2010.02.18].

Notice that Sveen says nothing of the bankly nature of SDRC Inc. that he freely averred in his 2011 letter. Instead, he focuses Novotny's attention on the partnerships, legal fictions created by SDRC Inc., limbs with no purpose or corporate will independent of SDRC Inc.

To say that the "business" of this corporate Frankenstein was "obtaining visas for foreign individuals" requires a creative blindness. Helping foreigners get visas was a means toward the end, economic development, for which South Dakota contracted with SDRC Inc. If those foreigners had not been providing $500,000 a pop (plus tens of thousands in fees and 1% ownership stakes for SDRC Inc.) that SDRC Inc. could then loan out to favored businesses, obtaining visas would have been none of South Dakota's business.

SDRC Inc. itself calls these limited partnerships its "Loan Projects." The limited partnerships issued mortgages prepared by Sveen and listing SDRC Inc. chief Joop Bollen as the lender. Northern Beef Packers had to pay SDRC Inc. (not the loan fund partnership!) sizable fees to monitor its loan.

The first business favored with a loan from SDRC Inc. was Dakota Provisions, the turkey plant in Huron for which Sveen traveled to China in 2008 to recruit EB-5 investors who ultimately made possible $60 million in SDRC Inc. loans to the Huron plant... of which Sveen is now chairman, agent, and primary shareholder.

SDRC Inc. set up loan funds in 2008. It gave out loans in 2009. Sveen said in 2011 that it worked like a bank. But in 2010, when Sveen decided to chat with the director of the banking commission about SDRC Inc's operations, he soft-pedaled what SDRC Inc. was really doing and asked for a piece of paper to "verify" his interpretation.

Director Novotny provided that piece of paper. In a March 10, 2010, letter to "Jeff", Novotny wrote, "Based upon the facts presented I do not disagree with your conclusion."

Novotny's letter is nothing like the declaratory ruling that Epoch Star Limited obtained less than four months later to verify that it did not need to obtain a lending license or pay bank franchise tax to loan $30 million to Northern Beef Packers. Epoch Star's investors wanted official assurance, obtained through public due process, that they would not get hit with license fees or taxes. Sveen and SDRC Inc. avoided such public scrutiny and presented the director of the Banking Commission far less than the full picture of their operation but just enough to get him to write a letter that might—might—get them out of trouble with the Banking Commission if anyone ever asked questions.

The Brown County Commission has asked the big question: where's our bank franchise tax from SDRC Inc.? If Novotny's March 2010 letter to Sveen answered that question, you can bet the Banking Commission would have quickly cited that letter and put that fire out. But current state banking director Bret Afdahl has done no such thing; instead, his office is looking into Brown County's question.

SDRC Inc. worked like a bank. Jeff Sveen told others that, but he avoided telling the Banking Commission that. That omission is one more sign that SDRC Inc. was up to monkey business that cost South Dakota a lot of money.

p.s.: In the Everything Connects file, Roger Novotny retired in 2011, but his wife Nila still works for the state. She's the administrative assistant in the Capitol who accepted service against the state in the Darley v. SDIBI case in July 2009... which came about because Joop Bollen founded SDRC Inc. to pirate the EB-5 visa fees and profits away from Darley.


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