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Rounds Missed Competitive Advantage of State-Run EB-5 Program

I don't think Mike Rounds understands competitive advantage. Check out how he rationalizes the privatization of South Dakota's EB-5 program:

South Dakota officials were closely involved with plans to bring in a private company to help run the state's EB-5 program in 2007, two years before the economic development effort was fully privatized.

...Rounds said he was briefed several times in 2007 on plans to reshape South Dakota's EB-5 program, including that there would be private companies involved. At the time, EB-5, which solicited investments from would-be immigrants, was run by the South Dakota International Business Institute, an arm of the South Dakota Board of Regents but under contracts with the Governor's Office of Economic Development.

"What they could not do at the current level through the Board of Regents office was ... set up a separate program where they could offer these partnerships," Rounds said. "The idea was to look more like a regular regional center (like the ones) that they were competing with" [David Montgomery, "Letter Laid out EB-5 Privatization Plans in 2007," that Sioux Falls paper, 2014.09.16].

Separate program... these partnerships... I feel like I do when I'm in the insurance office and my agent isn't making himself clear. Rounds is talking about the scheme under which his man Joop Bollen formed a private company to aggregate EB-5 dollars into loan pools, collect huge fees from the investors, and keep it all off the state books so that when things went south, interested citizens would have a heck of a hard time following the money trail.

But think about the business model. There are two ways to compete in business: offer something cheaper or offer something different. South Dakota got into EB-5 in 2004 to offer something different: to lure foreign dairy investors with the additional benefit of a green card through the then underused EB-5 program. Three years later, that advantage was fading, as more "regional centers" popped up to offer EB-5 investment opportunities.

To compete for more EB-5 money, the Rounds Administration thus needed to offer a different different or offer cost savings. Mike Rounds could have done both. Imagine this alternative-universe pitch from a governor with real competitive ganas:

Hey, EB-5 investors! Tired of being fleeced by all those private regional centers? Want to deal straight up with a state government that will handle your investment with efficiency, integrity, and rigorous public accountability? Sign up for South Dakota's EB-5 program! We are one of the only state-run EB-5 programs in the country.

Private regional centers will charge you fees of $30,000, $40,000, even $50,000 or more on your $500,000 investment. South Dakota will only charge you $1,500.

Private regional centers just want to recruit more investors to pad their pockets. South Dakota wants to help you come to America and ensure that your money supports viable projects that pay off for everyone.

South Dakota EB-5: We're different! We're better! We're cheaper! We're here to help you. [South Dakota Regional Center, promotional video, alternative universe, 2008]

With a pitch like that, South Dakota could have recruited more EB-5 investors than it knew what to do with.

But our Mike Rounds chose to do the opposite: he thought South Dakota could compete by doing the same privatization and charging the same hefty fees as other regional centers. His plan led to some brief profits for his cronies but ultimately to a huge failed project in Northern Beef Packers and corruption that led to dozens of investors losing their money and Governor Daugaard shelving the program in 2013. So much for competitive advantage.


  1. Nick Nemec 2014.09.17

    You really wonder if the Chief Insurance Agent In Charge even knew what was going on. Or alternatively he knew damn well what was going on and was one of those "South Dakota officials closely involved with plans to bring in a company to run the states EB-5 program.

    The question really has boiled down to, "What did Mike Rounds know and when did he know it?"

  2. Lynn 2014.09.17

    Thank you Old Guy for the link! Great article John!

  3. John Tsitrian 2014.09.17

    Thanks Lynn. Thanks WROG for posting the link here. And my thanks to RCJ for running it. I'll have a monthly column there for the foreseeable future.

  4. Roger Cornelius 2014.09.17

    That was a really good article, John. Right to the point of the Rounds Scandal, follow the money.
    I'm always interested in the comments section on RCJ editorials and related Rounds Scandal stories, most are Republicans and follow the party talking points.
    When it comes to comments about EB-5 and the Rounds scandal they are quiet, too quiet.

  5. Roger Elgersma 2014.09.17

    So,,, keep following the money. Check if Mr. Bollen still can account for where it all went. When the people at the top set up something that is less profitable to the investor and very profitable to those collecting the money, then we have to see if there were any kickbacks. There had to be a motive to get less efficient. All those other states had a motive also. They should be checked also. Ironic if the most corrupt state started the investigation. Did the feds check this.
    But how effective are the feds if all the locals are in collusion. Remember Scar Face, the bootlegger in Chicago in the twenties who could not get caught by the feds for anything else than tax evasion when he was supplying most of Chicago with illegal alcohol. All the locals kept their mouths shut so they could all be on the take with a piece of the action. Getting real hard to prove that is not happening here.

  6. John Tsitrian 2014.09.17

    Thanks Roger. Kudos to Cory and the Madville Mob for keeping so many of us abreast on developments and perspectives on this story.

  7. Jane Smith 2014.09.18

    That pitch would have been perfect. Low cost, high return! Can not loose that in any translation.
    It's obvious that Joop Bollen and James Park knew exactly what they were weaving. Joopster has a grad degree right? He probably can account for and knows where, what, when, how of all the fees and kickbacks. Son, daughter, ex wife, bride 1/2 his age wife, friends in high and low places, collegiate art donations, private ancient artifact collection,,,
    Message to Joopster, if you need more fingers to help count all that wealth, the people of SD will gladly help you.

  8. caheidelberger Post author | 2014.09.18

    Well done, John! Way to get the RCJ to pay attention! I look forward to a broader audience reading your intelligent observations.

  9. caheidelberger Post author | 2014.09.18

    (Curious, John: will the RCJ be publishing your contact information so readers can ask you questions about your columns? ;-) )

  10. John Tsitrian 2014.09.18

    lol, Cory. I'm in the book. During my earlier run at RCJ I used to get all sorts of nasty stuff in the mail, occasionally over the phone, and probably will again. I really got bombarded when I took an aggressive pro-choice tone during the big election campaigns a few years ago. I was most concerned about the effect of the harassment on my teen-aged daughter (she's now a UC Berkeley-trained Economist) but she dug in, even started a statewide organization called Students for Stephanie when she was at Stevens. Having been on the receiving end of public harassment at my home, I think the idea of encouraging folks to contact public figures at their domiciles invites, even encourages, that sort of thing.

  11. W R Old Guy 2014.09.18

    Who is the PAC that started running ads (I saw the first one this morning) showing MMR's connections to the EB-5 and Joop? The "Paid For" on the ad is almost unreadable to me due to the lack of contrast between the text and the background.

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