Confused by all this business about Northern Beef Packers and EB-5 visas? You're not alone. It's a convoluted mess and even experts who've been delving into the issue for a long time don't understand everything.
Here's a quick summary I prepared for Sunday's paper, with added hyperlinks back to specific articles and documents. (Some articles are linked more than once.) I also updated this to include Sunday's story.
You can read all our coverage from the beginning here.
Northern Beef Packers is a meatpacking plant in Aberdeen currently in bankruptcy.
The intention was to create a huge boost for South Dakotaâs economy by slaughtering cattle here instead of in other states. Its construction had many delays, and it finally opened in 2012, only to cease operation earlier this year when the plant declared bankruptcy.
Ultimately, most of Northern Beefâs $115 million cost was paid by wealthy foreign investors under the federal EB-5 visa program.
EB-5 lets wealthy foreigners get U.S. green cards by investing $500,000 in American business projects that create jobs. Itâs been around for decades, though a change around five years ago let EB-5 investors make loans to projects instead of direct investments.
Under the loan model, for example, a project might seek $25 million in funding. Fifty wealthy foreigners would be recruited to invest $500,000 each in a specially created company, which would in turn loan $25 million at a low interest rate to the project. The project would pay off that loan over a period of time, such as five years.
From 2004 to 2009, South Dakota ran its EB-5 program out of a state agency, the South Dakota International Business Institute, based out of Northern State University and funded by the Governorâs Office of Economic Development. That agencyâs director was Joop Bollen, and by the end of his time there, he was spending most or all of his time recruiting EB-5 investors.
In December 2009, then-economic development secretary Richard Benda signed a contract with Bollenâs private company, SDRC Inc., to manage EB-5 for the state. That same day, Bollen resigned his state position. The switch was proposed by Benda after the NSU president suggested EB-5 wasnât a good fit at the university.
Both before and after South Dakotaâs EB-5 program was privatized, Benda aggressively promoted EB-5 investments in South Dakota, including by traveling overseas to China to speak at seminars devoted to finding investors for the Northern Beef project.
After leaving office at the end of 2010, Benda went to work for Bollenâs SDRC as a loan monitor for SDRCâs two loans to Northern Beef. He worked in this position for several years before moving on to other private sector jobs.
SDRC was able to receive a potentially huge payday for recruiting and organizing EB-5 investments. On just one fund, which loaned $35 million to Northern Beef, each of 70 investors paid $10,000 per year on top of a one-time $30,000 âexpenseâ fee â which amount to millions of dollars. This is actually standard â or even low â for other privately run EB-5 projects around the country, experts say.
Northern Beef wasn't the only big project in South Dakota to use EB-5 money as funding. Businesses ranging from power companies to dairies and meatpackers to a hotel and casino have all used the funding -- many successfully. Some used the money to pay for construction, while others used low-interest EB-5 loans to replace more expensive bank loans. At least one EB-5 project other than the beef plant, however, ended up as a high-profile bankruptcy.
Secret offshore investors
EB-5 wasnât the only source of funds for Northern Beef. The company also took out a mysterious $30 million high-interest loan from a Virgin Islands company with unknown investors, created for the sole purpose of loaning money to Northern Beef. Later, EB-5 money was used to remove the loan by buying the company, Epoch Star.
To get that loan, Northern Beef sought and received a declaration from the state Banking Commission that Epoch Star was ânot in the business of lending money,â thus exempting it from money-lending regulations and bank taxes.
One of the facts on which the commission based its ruling was Epoch Starâs assertion that none of its funders were a bank, but in a separate document the commission didnât see, Chinese EB-5 investors were told the loan came from the âcapital arm subsidiaryâ of a âmajor Asian bank.â
The governor during all the events up to this point was Mike Rounds, who served from 2003 to 2010. Rounds promoted Northern Beef Packers as part of his South Dakota Certified Beef initiative, and endorsed the use of EB-5 funding as a way to bring money into the state to promote local projects. He signed off on the proposal by Benda to let Bollen take his EB-5 efforts private and was briefed on the banking commission's decision. Rounds is currently running for U.S. Senate.
In early 2013, Gov. Dennis Daugaard became aware of âalleged misconductâ at the Governorâs Office of Economic Development before he took office in 2011. The nature of that misconduct is unknown, but six months later, in September, Daugaardâs administration canceled its contract with SDRC âfor cause, effective immediately.â
Daugaard also forwarded the allegations to South Dakota Attorney General Marty Jackley, who is investigating. Federal officials also are investigating both GOED and Northern Beef, with a particular focus on the EB-5 program.
On Oct. 20, Benda was fatally shot near Lake Andes, where he was on a hunting trip. The circumstances surrounding his death remain under investigation and are expected to be released in the next several weeks.
