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.
It's getting into 60 Minutes territory, now. 60m@cbsnews.com
This cesspool is far from being drained. The legislature needs to start acting like one. Why are the present legislative [non]leaders silent? Why are the committee chairs and members silent? Government is not a spectator sport. The legislature should: 1) investigate what they are able to investigate, even with the on-going parallel investigations - the legislature can focus on the GOED from October to present, perhaps even appointing a special investigator - it's likely negligent, perhaps criminally so to expect or depend on the AG's office that likely was advising or failing to provide oversight to apparently investigate itself; 2) order independent audits of the GOED - what exactly is the ROI, if any; 3) how is the cesspool receiving state taxpayer funds, what are the annual independent 3rd party audits; 4) what is the legislative oversight (besides the virtually none that failed to occur previously); 5) who were the legislators, committee chairs and members who should have provided oversight to cesspool and apparently miserably failed an semblance of stewardship, and remove them from appropriate committees; 6) why is secretive government involved in picking winners in business; 7) whether the Vermont model is better public stewardship and economic development; and 8) what would be the true, auditable impact if the GOED were defunded.
The legislature, if it chooses to ACT like one, should put fixes into the economic development and taxpayer stewardship law in 2014 - and not wait for "final" reports so they "fix" things in 2015 or 2016.
[As an aside one would think the SD banksters would be furious that their future profits were shoveled off to 120 Koreans and Chinese, and likely others. It's the height of hypocrisy in a state hawking "local control, local business" that the state government is instrumental in shopping shady off-shore loans to displace local lenders.]
The same local merchants who talk and advertise shopping locally are quite often the only residents you see if one happens to drift into a Rapid City or Sioux Falls store like Mennards or Sam's Club on a weekend.
The key to this whole "create jobs" requirement is that the United States Citizen and Immigration Services (USCIS) defines "create" as "preserve" as well. The USCIS also uses a multiplier to determine how many jobs a EB-5 investor has created or preserved in order to justify their eventual green card. If the multiplier assigned is high, then it creates a potential for further EB 5 investments down the road under the "preserve" designation, and if the multiplier is high enough then it is potentially possible that the project funded with EB 5 funds will never realistically max-out on its potential foreign investors; which makes it convenient for those who are collecting fees on EB-5 investments.
This "preserve" designation also allows the transfer of loans like the one involving NBP and the initial Hong Kong investors at a 29% interest rate to an eventual loan at 3.5% interest rate by the other Chinese investors to not only potentially happen, but it also makes the initial high interest rate gain by the initial investing group to be both attractive and potentially reoccurring even if it is for a short period of time as long as the multiplier assessment assigned initially by the USCIS is accommodating:
http://www.uscis.gov/sites/default/files/USCIS/Resources/Resources%20for%20Congress/Congressional%20Reports/EB-5%20Investor%20Pilot%20Program.pdf
http://www.ieyenews.com/wordpress/scottish-beef-company-gets-secret-loan-from-secret-cayman-company/
hey John, If you live in district 26 we have two people,Democrat SEN. Lucas and republican Representative Schaeffer who have no idea what is going on but they just go along with the people in Pierre who tell them how to dress and what to do and like to see there name in the paper once in awhile!!!!!!!
John, How in the world do you expect the State to get something as complicated as EB-5 under control, when they can't even get the possible murder out to the public as to what happened. I was told last week that Benda was shot in the gut, which would not be a suicide as the silence from the AG would lead one to believe.
Winston, EB-5s jobs creation is to be for state residents. From things I have heard the two failed Veblen Dairy productions were staffed by illegal immigrants. What about the other 6 Dairy productions funded by EB-5?
And why did a former South Dakota Agriculture Secretary resign?
I do hope you are writing a book on this Cory. I cannot keep up with all the twists and turns but I read every article with EB-5 mentioned. It really is too bad that we have no transparency in State Government...except for my salary. It makes it very difficult to trust anyone and even more of a challenge to wonder what they are thinking if/when they look you in the eye.
Lanny, in October 2008, INS arrested 27 people at the Veblen dairies for immigration violations, identity theft, and using false ID.
Douglas, don't complicate things! Walt Bones resigned last spring. He did tour and promote NBP, as well as EB-5 visa user Michael Crinion's proposed Hanson County mega-dairy... the one Stace Nelson helped block. I can't connect dots beyond that... can anyone else?
Mr. Pauli, it appears you make a pretty good living. That is what this good-old-boy scenario in the University system is about and why everybody is afeared of it. It is insane that people are paid more than twice what a good teacher should make.
Ah, but I am a great teacher...not a good one :-)
No doubt this common core business will sort out the other great teachers and get them 100 large, and send the bad ones to the whiner zone at less than a third of that. Except this common core business doesn't have the raises for good teachers in it that our voters voted down.
what's the definition of a good teacher Grud? What's the definition of a bad teacher?
What's the definition of a good blogger, Mr. Reitzel? What's the definition of a bad blogger?
We all know it it our guts. The good ones get $100K a year. The bad ones whine.
Seriously, if teachers were interested in paying good teachers more then who better to come up with a definition of "good teachers?" Except they didn't. They whined. They got their own bonuses repealed. And now they get to follow the same rules they would have before except there is no money attached.
1.2.3.4 is looking pretty good right about now if you are against Common Core.
Tweet! Wrong topic! Let nothing distract us from figuring just where all this EB-5 money went. $30 million loan promised from mystery lenders running an offshore account. NBP pays those offshore investors $35 million EB-5 money to buy a lender that only delivered $3 million. To whom did NBP give that money?
The Veblen story, however, did give rise to the case of Chang v. US, 327 F. 3d 911, which held that an established multiplier for a particular Regional Center designation could not be revisited by the AAO (Administrative Appeals Office); which could make any EB 5 investment with a generous multiplier a potential cash cow (no pun intended).
Mr. H, surely they could not have given $3 million dollars to anybody on this blog. Or is it the $32 million that is missing? All of this type of fake numbering math really does confuse me because I don't understand who is getting what money from who. I dare say we need people to provide a clear trail of the monies unless these monies are part of private business interests.
Mr Bones has a dairy, was it funded by the EB5 program? Do all the dairies funded by the EB5 program have illegal helpers? Does that matter to the EB5 program? Does that help the economy of South Dakota? How much of the money that is paid for help stays in South Dakota? Does the EB5 program really help Economic Development in the US? Is the EB5 program really doing what it was originally suppose to do? Why are the people of SD losing their money in these EB5 developments?
Democrats are obviously outgunned in South Dakota politics, but we do have some, or do we?
Why is the state Democratic Party standing by while all this EB-5 scandal is happening? I realize they may well feel powerless, but they do have a voice, where is it?
Surely there is at least one Democrat is the state house or senate that has some gumption to stand up and start asking the hard questions.
The Republican Party is on lock down on EB-5, as well they probably should be. That should not prevent our Democratic Party to follow their silence.
The Republican Party is to blame for this scandal and it certainly looks like their is enough blame to go around.
Right now, I am blaming Democrats for not demanding answers and disclosures about all these investigations.
It is pretty amazing that the state Democratic Party isn't raising hell about this. It seems to me that if Democrats continue to stand by, they could be thought of as being in on the fix. Democrats need to show why they should be in charge.
I'm not sure how all of this worked but I thought if it was ok'd by the regional center that they were fine in terms of being qualified as a EB-5 program. Not that it should be that way.
I think if someone wanted to do an investigation on NBP and wasn't allowed to look into EB-5 that they would find plenty of other things that were questionable and shady.
It cost twice as much, reports are that they used substandard equipment, reports are that people involved with the construction had no experience in the meat processing business, and so on.
The big question I have with that is not the EB-5 part of things but why was the state pushing this project so hard yet had all the wrong people involved with it
Joe, You hit on something. "It cost twice as much, reports are that they used substandard equipment, (sounds like the first Keystone pipeline)reports are that people involved with the construction had no experience in the meat processing business, (sounds like Hyperion and Powertech) and so on.
Reminds me of 1977 when I started in business for myself in the food business and had 12 years of sales experience in that field. Interest rate of 15 to 18% and all that I wanted was 10k. I could turn my money 30 to 40 times a year and got turned down. But farmers who could only turn their money 1 to 3 times a year were getting 100k like no problem. Course five years later they were going broke like flies and I after struggling mightily, was finally starting to make it.
Why does the state, like those bankers back then seem to pick the wrong pony to ride?
Sounds like Epoch Star Limited was another example of the sophisticated investor's ruse to fleece the unsophisticated investor. No need a mask and a gun. So where's the money?
Until people start going to jail for shenanigans like this they will keep happening.
Its one thing if the EB-5 program is doing this stuff on their own, but when the state is openly backing it is when I have a problem.
If I'm the governor and I'm supporting this plant I'm not only making sure it is being built right, but I'm also making sure its being ran right
I wonder who at Epoch Star got to rich on the several million dollar profit from the sale of the NBP loan to SDRC.