Last updated on 2014.09.23
Will Huron's turkey plant be drawn into the GOED/SDRC/EB-5 scandal just in time for Thanksgiving?
In his solid reporting on South Dakota's newly scrutinized EB-5 visa investor program, David Montgomery notes that Dakota Provisions, the big turkey plant South Dakota Hutterites own in Huron, used EB-5 money refinance their loans:
“It’s a terrific program,” Ken Rutledge, CEO of Huron’s Dakota Provisions turkey processing plant, said of EB-5.
Dakota Provisions borrowed $55 million from 110 foreign EB-5 investors....
For Dakota Provisions, EB-5 was a late addition to its financing. The turkey plant, which opened in 2006, initially paid for construction with bank loans.
It then replaced that debt with a 2009 EB-5 loan.
“It was a business decision we made that gave us funding at a lower interest rate,” Rutledge said [David Montgomery, "Beef Plant Investigation: EB-5 Results Mixed in South Dakota," that Sioux Falls paper, 2013.11.10].
Those EB-5 dollars didn't create jobs in Huron; they just replaced debt. Hold that thought.
Northern Beef Packers used EB-5 dollars in an even wilder debt-buyout scheme. As Montgomery reported Monday, Northern Beef Packers used $35 million from 70 Chinese investors to buy Epoch Star Limited, the secretive British Virgin Island financiers who had agreed to throw NBP a $30-million lifeline at 29% interest. (Epoch also skirted hundreds of thousands of dollars of bank franchise tax by telling the South Dakota Banking Commission in 2010 that they weren't a bank, even though SDRC Inc., the private company running our EB-5 program, told investors that Epoch Star was "a major Asian bank's capital arm subsidiary"... but let's chop those weeds later!)
Those EB-5 dollars didn't create jobs in Aberdeen; they just replaced debt.
Still holding that thought?
Montgomery has been citing Michael Gibson as an expert on the EB-5 visa investment program. Read what Gibson said about some shady EB-5 projects in this Bloomberg interview in March 2012:
Some claims about job generation are dubious, said Michael Gibson, a Tampa-based investment adviser who vets EB-5 deals for foreigners. When a project “substitutes EB-5 capital for more expensive bank financing or bond funding or even equity,” he said, “that isn’t really creating new economic activity. It’s margin for the developer” [Dune Lawrence, "Coming to America Costs $500,000 with Job Plan Prone to Failures," Bloomberg, 2012.03.22].
The Bloomberg article discusses a Brooklyn real estate development that wanted to use EB-5 money to pay off loans. The United States Customs and Immigration Service ruled against that plan.
“If this is simply a debt replacement,” Gibson said, it isn’t “bringing new capital to stimulate job creation” [Lawrence, 2012.03.22].
EB-5 visa rules require that EB-5 investment go toward creating jobs. At least some of the EB-5 money sunk into Dakota Provisions and Northern Beef Packers did not create jobs; it simply replaced capital already invested in each project. Expert Michael Gibson and the USCIS appear to be saying that's not how EB-5 is supposed to work.
Amazing: only in South Dakota can you find a turkey plant and a beef plant made from baloney.
p.s.: Northern Beef Packers used $35 million to buy a company that made a $30-million financing arrangement but actually loaned NBP only $3 million. That company, Epoch Star, dodged state banking regulations that would have told us who they are and who thus profited by selling their operation to the beneficiary of their loan. Does something not add up there?
Related Reading: South Dakota Banking Commission's ruling that Epoch Star Limited was not a bank, July 1, 2010.