The EB-5 scheme didn't produce much in the way of beef, but it sure did a lot of fleecing.
[Potential readers beware: this is a piece of very long-form journalism.]
The Watertown Public Opinion in an editorial (June 3) republished in the Aberdeen newspaper (June 7) asks why the federal justice department was asked to investigate the EB-5 affair in South Dakota and why, in declining to pursue any further actions, it refuses to provide information on what it found and the basis for its decision. The editorial focuses on the issues raised by the decision:
First, how was [Richard] Benda able to divert more than $500,000 for his own use without raising red flags? Were others involved? What happened to the money once it was diverted and can any of it be recovered?..However, what became the EB-5 scandal has two narrative lines that go back many years long before the death of Richard Benda forced the breaking of some news about what was taking place in South Dakota government. One narrative line is the establishment and history of the South Dakota International Business Institute (SDIBI) on the NSU campus. In 1994, the creation of the SDIBI was announced to the public and the faculty at the same time. The faculty were puzzled because the initiation of a new program is generally proposed and discussed in faculty forums as it goes through the implementation process. They were puzzled but not surprised, as they assumed the program was something dreamed up and imposed by the Board of Regents. The Regents often have agendas that have little to do with education or scholarly research. Still, the establishment of the SDIBI sparked inquiries and commentary that extended onto other state campuses, partly of out resentment that NSU was the chosen site for a special program, but predominantly out of curiosity about just what a South Dakota International Business Institute was supposed to do and how it related to any academic functions.
What exactly were the Feds looking for when they conducted their probe? What started their investigation of Benda, SDRC and EB-5? What exactly did they find?
What were [the] allegations [that started the probe] and why not discuss what the FBI findings were? How did that affect the decision not to file charges?
Probably worst of all is the specter that politics and the 2014 U.S Senate race came into play when Democratic appointee U.S. Attorney for S.D. Brendan Johnson more than hinted something was afoot during the election. Today, with the election decided, and the FBI's decision, we know nothing will be done. It leaves an awful taste in our mouth, and if Johnson ever runs for office in South Dakota, as many suspect he will, he will need to be held accountable for what he said and more importantly, what he did not say.
All this silence does is raise questions about what happened, who may have been involved, and if there were problems with the administration of the program.
Silence, when it comes to government leads to questions and the more questions that are left unanswered leads to even more questions.
That's why openness in government is so important. And the real lesson on the EB-5 mess: The more the public is denied access or answers, the less trust there is.
The peculiar circumstance of the SDIBI was that it maintained a degree of separation from the NSU administration. When its director, Joop Bollen, got the Regents involved in some legal entanglements, NSU and the Regents knew nothing about his actions. When the Dean of the School of Business was asked about why NSU was not supervising Bollen's activities, he replied that NSU administrators were given only occasional updates on Bollen's activities, with the understanding that his main reporting responsibility was to the Governnor's Office of Economic Development. His response was affirmed by testimony of NSU's counsel. However, Mike Rounds said when he was governor he was not aware of Bollen's activities because Bollen was an employee of the Board of Regents.
Eventually, in this narrative, the new president of NSU reviewed the university budget and asks why the university is funding and housing an activity that has no apparent relevance to its mission, teaching and research. The SDIBI left NSU and located its residence in the offices of the Aberdeen Development Corporation, a tax-funded corporation subsidized by the city and the county which also has nebulous history in terms of its mission and actual function. When Bollen moved, he took all the SDIBI records with him and they have never been made available for examination.
The history of the SDIBI is murky because of apparent dissembling on the part of people involved with it and the remarkable incoherence of its origins, purpose, and function. It began in 1994 by declaration of the Board of Regents, and in its early years did show some efforts to establish relationships with foreign institutions of higher learning. For brief times it publicized alliances in Poland and Germany, but news about those kinds of efforts trailed off. In 2004, it qualified to be a regional center by the United States Citizenship and Immigration Services (USCIS) and began its involvement in the EB-5 program. And that is when it got involved in the second narrative line regarding the Northern Beef Packers.
Although Northern has divested itself of connections with economic development and EB-5, its international programs occupy a separate and somewhat unusual status within the academic community. The international program is now called the Center for Excellence in International Business & Entrepreneurship (CEIBE). and under the general title of International Programs it operates an Academic English Program which seems to have no connections or relationships to the academic programs in English or foreign languages, but operates with a detached independence. This is noteworthy because of the negative perception it creates among potential and present students. I have been questioned about why NSU seems to have such low regard for its academic programs within the College of Arts and Sciences. There seems to be money and attention given to the international program while other basic academic areas are being diminished. One of my retired colleagues said it looked as if the university was being maintained as a cover for business schemes of dubious nature.
The narrative line of the Northern Beef Packers has shady beginnings. When the plans for a turkey processing plant formed and Huron was designated as its site, an outfit from Connecticut called Ridgeway Farms announced that it would build a beef-processing plant in conjunction with it. As with the background story of the South Dakota International Business Institute, the information surrounding these plans is fragmented, guarded, and suspicious. Governor Mike Rounds was initially in support of the plans. It is when he launched his idea of promoting South Dakota Certified Beef as a value-added measure for the state's agriculture. Some complications and conflicts, which are tucked away under that blanket of secrecy under which so much of South Dakota operates, arose and suddenly the plans for a beef plant in Huron were abandoned. Ridgeway Farms had planned to feature Hereford Beef in the kind of marketing promotion that has been successful for Angus beef. No one has spoken on the record about what went wrong, but some people in Huron have claimed that Gov. Rounds and Ridgeway executives got into a dispute over a division of authority between the state, which was helping raise financing, and the Ridgeway people, who had reputations for shaky and shady business practices. The rumor was that Gov. Rounds pulled his support and encouraged some investors to do likewise.
In November 2005, Ridgeway moved its headquarters out of Huron to Flandreau. It had financial support from the Farmers Union, the Flandreau city council, and the Flandreau economic development organization. But during the early part of 2006, Ridgefield Farms went silent on the progress of its plans, and in August of that year 75 of its investors voted to have all its assets in Flandreau turned over to Farmers Union Industries, which shortly thereafter won a judgment for $1 million from Ridgeway and then filed a lawsuit to recover $3 million it and others had invested in the project. Ridgeway left the state.
However, Dennis Hellwig, a livestock auction barn owner in Aberdeen, says he received a call from Phillip Friend of Ridgeway Farms urging him to get involved in a beef plant for Aberdeen, and that's how Northern Beef Packers began. There isn't much that anyone got right. The plant is located on land once owned by Hellwig, which has more detractions than advantages. Largely, it was a matter of a bunch of people who hadn't the vaguest idea of what they were doing bumbling around in a business that requires aggressive and brilliant marketing, a host of environmental protection and waste product disposal measures, and people with sound knowledge and experience to run the business. It had none of those, and when it hired some, they quickly disappeared, probably out of dismay and frustration at the bungled enterprise. Its biggest problem was a lack of investors. The enterprise was not able to sell all the TIF (tax increment financing) bonds it was authorized. That's where the EB-5 loans came in. They were a way to try to rescue those who had invested, pay the contractors, and move the plant.toward completion.
Facts about the failures of the enterprise came out in court transcripts, and Denise Ross writing for the Mitchell Daily Republic published some revealing interviews with people involved in the court actions. Joop Bollen became closely associated with the Hanul Law Firm which recruited and organized the EB-5 investors with him, working with lawyers James Parks of Los Angeles and Si-Il Jang, of South Korea. At one point they hired a Los Angeles firm, Maverick Spade, to help organize the finances and assist with the recruiting of investors. The lead person for Maverick Spade, David Kang, told Denise Ross that Joop Bollen and James Park had somehow displaced NBP CEO David Palmer and had taken control of the accounts, the money, and ran the daily operations. Kang attributes their presumptuous incompetence for the final failure of the enterprise: "They were in over their heads. They didn't understand how to do development, construction projects, things of that nature. That's ultimately why they fell flat on their face."
A conspicuous omission in the accounts of what was going on with Northern Beef Packers is the testimony and other information that could be supplied by people such as David Palmer and others who were officers in the corporation. In that there is a parallel to how the South Dakota International Business Institute was handled at Northern State. The people who were nominally in charge of Bollen and the SDIBI. the dean of the school of business and the academic dean of the university, were told that Bollen and the SDIBI were accountable to the Governor/s Office of Economic Development, not the university. This is a most peculiar circumstance that would not occur in most states. The peculiarity is that a political office is allowed to impose a program on a university and then is told that the university has no authority to know or monitor what that program is doing, although it is contributing funds, academic credibility, personnel and space to the program. In most states the governing boards and the university officers and faculty would intently guard against allowing politically connected programs to compromise the academic integrity and openness of the university. However, in South Dakota universities have been sanctioned a number of times for nor following the rules of academic freedom and integrity. The current president of NSU, James Smith, asserted his responsibility as an academic officer in questioning the university's relationship to Joop Bollen and the SDIBI and removed them from the campus and the university purview. Bollen moved his operation into the offices of the Aberdeen Development Corpration and took all the SDIBI records with him.
It was not surprising that the EB-5 scheme and operation would receive political cover from the state administration and legislature, because political plots, intrusions, and secrecy are the established ways of doing business. As the Watertown Public Opinion states, what is surprising is that the FBI and U.S. Department of Justice have not issued any information on their findings and the reasons for taking no action. Given the record of deviousness and secrecy in the history of the SDIBI and the Northern Beef Packers, the public can only conclude, cynically and portentously, that political subversion and subterfuge extends beyond state government and its corporate bed fellows. When corporate schemes involve government, government, at the local, state, and federal level, finds ways to keep the people from knowing what is being done to them in them.
Something that has never been addressed is the role of law firms in the fleecing of public funds and the destruction of public trust. Probably because lawyers are considered officers of the courts and promote themselves as advocates for clients who find themselves embroiled in legal issues, the public tends to think that law firms are restrained from participating in the scams and the bilking of the kind that is demonstrated by the way Hanul Law and its accomplices handled the EB-5 program in South Dakota. The bottom line of this scam is that 160 Chinese and Korean investors were defrauded of a half million dollars each. The state committed $30 million to the beef plant, although not all of it was paid out. In all the commotion and wrangling, local law firms get mentioned, statements are issued from them, but all the public gets is a picture of chaos and dissembling, and the only aspect of the picture that is clear is the dishonesty, the secrecy, and the betrayal of the public trust.
There are lawyers aplenty, but none representing the public interest.
The law firm that is persistently present in every aspect of the EB-5 scam and numerous associated schemes is Siegel, Barnett and Schutz. The names of the firm's members are are on court documents and are listed in business papers not as attorneys representing clients but as active participants in the organizations and events involved.
The connection of Siegel, Barnett, and; Schutz to NSU is the construction of the Barnett Center on the NSU campus. Prior to the construction of that athletic center, NSU held its basketball games in the Aberdeen Civic Center, so that the construction of an on-campus facility was a huge boost for the college. It came about when Joseph H. Barnett, a principal in the law firm and a 19-year legislator who served as Republican majority leader and speaker of the South Dakota house, promoted funding for the center in the legislature. The building was completed in 1987, two years after Barnett died in office in 1985. Barnett was hugely influential in Republican politics who was often said to be the source of Bill Janklow's power.
The construction of the building marks the time when the Barnett law firm became a continuing presence on the South Dakota Board of Regents, which Janklow converted into a political, rather than an educational, arm of government. The wife of a member of the Barnett law firm was appointed by Janklow to the Board. She was succeeded by the appointment of Harvey Jewett in 1997, who has been reappointed twice, with his current term expiring in 2017. Until the past year, Jewett was listed as a partner in the Barnett law firm. His biography on the Regents web page still lists that affiliation. He is no longer listed as a firm member. When Jewett was appointed a regent, some of the senior professors commented that NSU was now a part of the Jewett fiefdom. In addition to being a member of Siegel, Barnett, and Schutz, he was a top executive in the Super 8 Motel corporate structure.
During the mid-1990s is when there was much questioning and discussion concerning the establishment of the South Dakota International Business Institute and just what the function of Joop Bollen was. Most of the questioning was coming from other campuses. When Jewett was appointed a regent, personnel from other campuses said that he was, in effect, the CEO of Northern State. The series of presidents who served NSU in the 1990s and the next twenty years were regarded as surrogates for the regents, not functioning college presidents.
The extent of the "Jewett fiefdom" is defined by his activities in conjunction with another member of the Siegel, Barnett, and Schutz law firm, Jeff Sveen. Sveen is the chairman of the board of a firm that used $55 million in EB-5 loans from 110 investors in its start up and is largely an enterprise of the Hutterite colonies, Dakota Provisions in Huron. The firm is owned by Dakota Turkey Growers, a consortium of 44 Hutterite colonies. Sveen's name appears in many documents related to the EB-5 business. Dakota Provisions was initially a plant devised to process and sell turkeys raised by the Hutterite colonies. It has branched into other meat products. The original plans for building a beef plant was in conjunction with the building of the turkey processing plant in Huron, where the two businesses would share the infrastructure for water supply and waste disposal.
Sveen has been involved with the incorporation of many Hutterite colonies and is listed as the agent for many of the nonprofit corporations. In a dispute over management and ownership of the Hutterville Colony near Stratford, Sveen was listed as agent for both the contending corporations. He was removed as agent by the Hutterian Brethern, but the court appointed Harvey Jewett as a receiver of the Colony to divide the property between the contending factions to settle the dispute. The state supreme court decided that the courts had no jur isdiction in settling a religious dispute and nullified the court a ctions. The Hutterian Brethern then sued the Siegel, Barnett, and Schutz firm for racketeering violations, but the suit was dismissed. The Rapid City Journal summarized Sveen's role with the Hutterites this way:
Aberdeen attorney Jeffrey Sveen is chairman of the board for the Dakota Turkey Growers business, and is one of two managers for Dakota Gobblers, according to documents from the state. The two businesses are part of the turkey processing operation. He was also involved in some financial matters involving the Aberdeen beef plant, according to records at the Brown County Clerk of Courts office.
Sveen also represents dozens of Hutterite colonies in the region...The involvement of the Board of Regents and NSU in the EB-5 related affairs has never been fully explored or explained, even though Joop Bollen drew them into costly legal actions. Bollen was never held in any way responsible for his actions, his failures of responsibility to the NSU administration, his taking of records from NSU, or his writing his own contract with the state when he privatized his EB-5 regional center.
The state has refused to investigate or explain how he was allowed to perform as he did or to reveal any documents or information that might indicate how he was granted such extreme privileges. Now the FBI closes an investigation without any explanations. The final opportunity to get some explanation of how so much conniving and destruction of public trust could take place is in the filing of freedom of information requests from the U.S. justice department.
Governments may wish to keep a lid on who was involved in the fleecing of investors and the duping of the public, but the smell of corrupt practices is too strong to ignore. There are people out there who know things, Eventually someone might have the decency to explain.