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Bollen Runs De Facto Bank on EB-5 Money — License? Bank Franchise Tax?

Bob Mercer puzzles through the deliberately dizzying financials of the EB-5 visa investment program that Joop Bollen privately and secretively administered through SDRC Inc. for the Governor's Office of Economic Development until Governor Dennis Daugaard canceled his lucrative state contract in September. Let me try to give you the short version to set up one nagging legal question.

Basically, every time Bollen and GOED found another project to favor with green-card-buyers' money, Bollen created a new lending entity, a series of legal fictions called "SDIF Limited Partnerships." SDIF is short for South Dakota Investment Fund. Go to the Secretary of State's corporate database, search "SDIF", and you get 11 such entities, numbered 1 through 10, then jumping to 20. (Mercer and I both wonder what happened to 11–19.)

Each SDIF LP lists Joop Bollen as its registered agent. Each was created to handle funds for an economic development project. SDRC Inc. collected the money from EB-5 visa investors and channeled it to the appropriate SDIF LP. Each LP then acted on paper as the official lender of those EB-5 funds to the designated project. Bollen's SDRC website still lists the match-ups between SDIF LPs 1 through 10 and their borrower projects:

Mercer reports that SDIF LP 20 was a third lending pool for Dakota Provisions.

So we have one private corporation, SDRC Inc., run by one man, Joop Bollen, creating eleven separate legal fictions to act as lenders to multiple businesses around South Dakota.

Now let's reach back to another detail in the EB-5 story. In 2010, Northern Beef Packers, which had received two rounds of EB-5 funding (one through SDIF LP 6) and would receive a third (through SDIF LP 9) needed an infusion of cash from mysterious offshore investors Epoch Star Limited. To avoid falling under South Dakota banking regulations, which would have required revealing their identities and paying South Dakota bank franchise tax, Epoch Star and GOED's Richard Benda got the South Dakota Banking Commission to declare that Epoch Star was not a bank... even though it was.

Now back to all these SDIF limited partnerships: as far as I know, Joop Bollen has never appeared before the South Dakota Banking Commission to either receive licensing as a bank, mortgage lender or broker, or money lender or to request exemption from South Dakota's laws and regulations for banks, mortgage lenders, or money lenders. But these lending and mortgage agreements between SDIF LPs 6 and 9 and Northern Beef Packers show Joop Bollen and his Aberdeen lawyer Jeffrey Sveen engaging in all sorts of banky business, with loans, mortgages, interest, origination fees, the works.

So in practice, Joop Bollen, under the contract authority of the Governor's Office of Economic Development, has been acting like a bank. But none of his multifarious corporate entities holds a bank license. None of those entities has received an official exemption from bank license requirements of the sort that Epoch Star had to obtain for similar activities. And none of these entities has paid South Dakota bank franchise tax.

I'm neither an accountant, a banker, or a lawyer. But Bollen and Sveen's banking activities are one more part of the GOED/EB-5 affair that does not add up.

17 Comments

  1. interested party 2013.11.20

    why is bel brands not on that list, cory?

  2. Chris Francis 2013.11.20

    Using the 'Wayback Machine', http://archive.org/web/ , I found a now deleted section from the SDRC webpage in question, not sure it's anything new, but not sure why it's been removed either, here's the text:

    Past Model : SDIBI Equity Projects
    Twelve European Dairy projects have been completed. These large state-of-the-art dairy projects are constructed in South Dakota and owned/managed by the European families without investment from outsiders. An additional ten projects have been completed under the past equity model with pooled investment of Asian investors who directly invested in the operation as limited partners. One additional equity based project was completed with 70 investors who invested directly in a meat processing facility as limited partners. These equity based project are numbered 1-10 and a summary of each follows:

    10th Northern Beef Packers Limited Partnership
    Located in Aberdeen in South Dakota
    70 cases

    9th Diary
    Located in Kingsbury County in South Dakota
    February 2007 : Filed Petition for Alien Entrepreneur with USCIS
    4 cases

    8th Diary
    Located in Marshall County in South Dakota
    September- December 2006 : Filed Petition for Alien Entrepreneur with the USCIS
    December-March 2005 : Petition approved
    31 cases

    7th Diary
    Located in Lake County in South Dakota
    August 31, 2006 : Filed Petition for Alien Entrepreneur with the USCIS
    October 5- 27 2006 : Petition Approved
    4 cases

    6th Diary
    Located in Hamlin County in South Dakota
    January 21, 2006 : Petition for Alien Entrepreneur with USCIS
    February 3, 2006 : Petition Approved
    August 2006 : Conditional resident status granted. Transfer of investment fund from escrow. Began construction of dairy farm in May 2006.
    December 2006 : Completed construction of dairy farm. Started to produce milk.
    2 cases

    5th Diary
    Located in Lake County, South Dakota.
    October 7, 2005 : Filed Petition for Alien Entrepreneur with USCIS
    December 1, 2005 : Petition Approved
    July 2006 : Conditional Resident Status Granted. Transferred investment fund from Escrow. Began Construction of Dairy Farm in April, 2006.
    November 2006 : Completed Construction of Dairy Farm. Started to Produce Milk.
    2 cases

    4th Diary
    Located in Turner County in South Dakota
    September 6, 2005 : Filed Petition for Alien Entrepreneur with USCIS
    October 27, 2005 : Petition Approved.
    June 2006 : Conditional resident status granted. Transfer of investment from Escrow. Began construction of dairy farm.
    January 2007 Completed construction of dairy farm.
    4 cases

    3th Diary (should read 3rd)
    Located in Clark County in South Dakota
    September 12, 20055 : Filed Petition for Alien Entrepreneur with USCIS
    October 28, 2005 : Petition Approved
    July 2006 : Conditional resident status granted. Transfer of investment fund from Escrow. Began construction of dairy farm in April, 2006.
    November 2006 : Completed construction of dairy farm. Started to produce milk.
    4 cases

    2nd Diary
    Located in Brookings County in South Dakota.
    June 15, 2005 : Filed Petition for Alien Entrepreneur with USCIS
    June 22, 2005 : Petition Approved
    March 2006 : Conditional resident status granted. Transfer of investment fund from Escrow. Began construction of dairy farm.
    November 2006 Completed construction of dairy farm. Started to produce milk.
    4 cases

    1st Diary
    Located in McCook County in South Dakota
    June 15, 2005 : Filed petition for alien entrepreneur with USCIS
    June 22, 2005 : Petition Approved
    February 27, 2006 : First immigration visa interview
    March 2006 : Conditional resident status granted. Transfer of investment fund from Escrow. Began construction of dairy farm.
    November 2006 : Completed construction of dairy farm. Started to produce milk
    6 cases

    November 2007 : Will file application to remove conditional resident status.

  3. Chris Francis 2013.11.20

    Heartwarming information on the decline of the small family farm presented by the state as a positive, nods to interested party for the read:

    In 1981, the state had approximately 4,650 dairy operations. Today, we have 305.
    • In 1981, we ended the year with 159,000 head and 1.69 billion lbs. of production.
    • In 2011, we ended the year with 89,000 head and 1.87 billion lbs. of production.
    • In 30 years, the state herd was reduced by 42% but milk production increased by 11%.
    • In 1995 South Dakota had 4 herds over 500 head. Today we have 42.

    Then they drop this:

    • South Dakota needs to double its current dairy herd to keep pace with desired processing growth.

  4. caheidelberger Post author | 2013.11.20

    As far as I know, Larry, Bel Brands has not received or been promised any EB -5 money.

  5. Bob Mercer 2013.11.20

    Cory,

    I have looked at the same angle you're writing about here. I don't know that an investment fund functioning as a loan pool meets the definition of banking. I haven't seen the contractual arrangements so I don't know whether a foreign citizen seeking an EB-5 program visa would be lending the $500,000 to the SDIF loan pool, which then re-loans the money to the project, or the investor is making a loan to the project through the loan pool mechanism -- or if there is some other arrangement altogether.

    Privately placed investments are common in our U.S. economy. Likewise private loans are common. There are many lending arrangements that don't fall under the definition of banking.

    I don't mean to argue with you or to disparage your theory. But if you asked me to approach five people asking them to each loan you $1, so that you could make a $5 improvement in your web site's operation, and that you would repay them in five years at 2 percent annual interest, would we be engaged in banking?

  6. Sid 2013.11.20

    The issue is not whether this was "banking". The State Banking Comission is charged with regulating lenders and, more particularly pursuant to Title 54 of the Codified Laws, with licensing and regulating "Mortgage Lenders". These foreign monies were being gathered and then the SDRC, an unlicensed for profit corporation, was forming, in effect, subsidiaries, known as the SDIF's which made loans secured by mortgages on the real estate owned by the various projects. None of the SDIF's were ever licensed although they were clearly set up solely to be in the "business" of lending mortgage monies. By not being licensed, SDIF LP-6 and LP-9 were able to avoid regulatory oversight which might have called into question the subordination of the EB-5 mortgages to White Oak Advisors on the Northern Beef plant. This oversight might not have avoided the results of the bankruptcy, but might have very well provided some sort of intervention before the entire scheme collapsed.

  7. Lanny V Stricherz 2013.11.20

    Thanks Chris Francis for some real enlightenment, but being I am not the brightest bulb in the lamp, will someone please explain the incongruity of these numbers:
    In 1981, we ended the year with 159,000 head and 1.69 billion lbs. of production.
    • In 2011, we ended the year with 89,000 head and 1.87 billion lbs. of production.
    Or is this where corporate America got their ideas about how to lay off workers and get more productivity and more profits? Can someone with a farming background please tell me then if the cows get worn out as far as milk production earlier?

  8. caheidelberger Post author | 2013.11.20

    Bob, no sweat: I welcome argument and disparagement, as I don't want to follow any theory that is wrong.

    But obviously, there is a huge difference between you and I making a casual agreement to loan each other some spare change and one corporation creating 11 sub-entities to handle millions of dollars of financing governed by contracts that look very much like what we'd expect from a bank.

    I'll defer to you, Sid, and any other experts on banking law and practice that we can find to tell me where the threshold is between our just passing cash around and really engaging in the business of banking. But on pure smell test, SDRC smells an awful lot like a bank or mortgage lender.

    But what I smell and what you smell doesn't matter as much as what the banking commission might smell. What does it take to get the banking commission to look into a financial operation and determine if it must seek licensing. Has the banking commission ever discussed the financial operations of SDIBI/SDRC Inc?

  9. Winston 2013.11.21

    Doesn't the fact that the NBP asked for a declaratory judgment from the State Banking Commission on its intended financial relationship with Epoch, Pine, and Anvil Asian prove in theory and establish the legal presumption that the aforementioned $ 5 loan analogy is actually banking absent an actual DJ from the SBC stating the contrary?

  10. Bob Mercer 2013.11.21

    Winston,

    I think either Cory or I would need to move off-shore. I don't know whether Lake Madison or Lake Oahe qualifies.

  11. caheidelberger Post author | 2013.11.21

    I'll see you at the lake, Bob! Bring your briefcase stuffed with ones and fives!

    Winston, that's a good comparison. Epoch Star, SDRC, and GOED felt they had to get permission from the SD Banking Commission to make that one transaction. SDRC and its subsidiaries—reality check: all still one guy, working under orders/authority of Richard Benda and Mike Rounds—have dished out many more loans, mortgages, credit agreements, lots of banky stuff, without ever seeking the Banking Commission's permission. What's the difference, on paper, between Epoch Star, Wells Fargo, and SDRC/SDIF6?

  12. Charlie Hoffman 2013.11.24

    Lanny the Bull stops here. The 100 meter dash keeps getting bested naturally, but very slowly. In the 80's half of the rib eyes were too tough to cut with a knife; yet today few are not perfectly marbled. Diet in both cases a huge factor but in beef production genetic selection for tenderness along with AI and ET made the Wow factor happen. Diet, genetic testing and mass reproduction of "The Great Ones" are cranking out the milk.

  13. caheidelberger Post author | 2013.11.24

    But Charlie, Lanny's point then does stand that we're putting more dairy farmers out of work, doesn't it?

  14. Charlie Hoffman 2013.11.24

    CAH I'd look at it as fewer hooves on the ground, better conversion of sunlight into milk, and much less manure needing a place to be spread.

  15. Disgusted Dakotan 2013.11.24

    Mr Hoffman glibly glides over the mass amount of hormones that are pumped into these milk cows or the family farm killing regulations on raw milk that he and his ilk push.

    What are your thoughts on the ugly EB5 scandal surrounding your candidate Mike Rounds, Mr. Hoffman? What are you going to do to keep our SD tax dollars from being poured down a Communist Chinese hole like Rounds did with NBP?

  16. interested party 2013.11.24

    Charlie: can't do that prostate exam unless you come to New Mexico.

  17. caheidelberger Post author | 2013.11.24

    I can see that possible enviro-efficiency argument, Charlie... though obviously "Disgusted" (who should check her/his email for a confirmation request from me) can point to some concomitant health issues.

    But those efficiency advances, promoted by science and the state, have led to fewer dairy farms and farm owners, right?

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