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Sveen Angled for Legal Cover from Banking Commission for SDRC Inc. Lending

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.


  1. Bill Fleming 2014.10.05

    Sounds like Sveen could perhaps have interned at the mythical, iconic lawfirm, Dewey, Cheatham & Howe.

  2. lesliengland 2014.10.05

    Hahahaha, in the "Big Lebowski" the nihlists ransom letter and every communication thereafter threatened against "no monkey business" in a Transylvanian accent!!

    Perhaps sib can help us determine why the 1st EB5 transaction was not doing banking business because of the sole transaction idea, preventing anymore monkey business. I didn't read the statutes, rules and regs if any, and cases thereunder, so I am not sure but I suspect neo-this or that, nihilism rejecting theism, SDGOP monkey business, and sibby are somehow all related. (snark-sorry) Was the banking commissioner for the slaughterhouse an administrative law judge, I wonder?

  3. Bill Fleming 2014.10.06

    Is there really an implied promise that green card bidders (aka EB-5 investors) will get their capital back after 5 years?

  4. Bill Fleming 2014.10.06

    For simplicity sake, here's a hypothetical model:

    Joop et al identify 150 foreign millionaires who want to immigrate to the US and bring their families with.

    Each millionaire plunks down a million bucks with the expectation that he will get his money back in 5 years and get permanent visas for himself and his family.

    Total funds raised $150 million.

    Something goes wrong with the business plan. The big project goes bankrupt, the foreign capital goes to pay off creditors, the foreign investors lose all their money, and don't get any visas.

    Meanwhile some combination of South Dakota salesmen, managers and contractors walks off with a $150 million in foreign money for which the investors have received absolutely nothing.

    Is that (or something like that) possible?

    Has it actually happened?

  5. lesliengland 2014.10.06

    was joop protected in bankruptcy by the mortgage pledging slaughterhouse assets as collateral? were proceeds recouped from sale of assets? what did joop do with the proceeds? look at sveen's letter to the banking commissioner explaining any obligation to repay investors after 5 years. Has that happened under limited partnerships 1, 2, 3, 4 or 5?

  6. mike from iowa 2014.10.06

    EB-5 investments have to be "at risk" or they are not allowed. Any implied or guaranteed return queers the deal.

    Your law firm is missing some partners-specifically Dunnit and Moore.

  7. lesliengland 2014.10.06

    the partnership between a sd limited liability company and the foreign investors gets paid back after 5 years, according to sveen's letter. what loan docs support this statement? how does the company influence repayment to individual investors?

  8. Francis Schaffer 2014.10.06

    My head is swimming with the last few days of blogs. Cory, are you making this stuff up? I won't comment as I don't know that anything I say will add to the discussion. I viewed the Board of Regents agenda, many executive sessions. I understand the legal one and the personnel matters but since Joop is no longer an employee or hopefully prospective employee he will not be covered in those sessions, the one for legal counsel well, I imagine it will include nothing else. I wonder if J Sveen will be present during any of these executive sessions.

  9. lesliengland 2014.10.06

    Are the Regents acting just like Tidemann did, tying the hands of the investigation into what the heck happened with joop?

  10. Francis Schaffer 2014.10.06

    My guess is that a reason will be there is a lawsuit going on and they won't comment. If the bus needs traction, my guess is Joop will be used, unless everyone is in on it and they have to keep quiet.

  11. Francis Schaffer 2014.10.06

    mike from iowa, seems clear there can be no guarantee of a return of the 'investment'. Wow, having it both ways.

  12. mike from iowa 2014.10.06

    If an investment through EB-5 is very successful,investments may get paid back over time. If the business breaks even or fails the investments are lost.

  13. Bill Fleming 2014.10.06

    Along with the Green Cards, right? i.e. EB-5 is a pretty risky way to try to get US Citizenship. So why does Mikey like it?

  14. Bill Dithmer 2014.10.06

    Bill Fleming, "for simplicity sake," Yes yes yes and yes, it has already happened.

    The Blindman

  15. mike from iowa 2014.10.06

    Angelique Brunner, president of EB5 Capital, a D.C. firm that coordinates EB-5 investments, said investors are far more interested in obtaining green cards than big returns.

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