The EB-5 scandal in South Dakota illustrates an attitude toward business that is dominant in the state. People like to brag about the state's work ethic, but there is little ethical in the work that people who have lead the state have done. All communities want to develop economically. Businesses that supply good products and services at competitive prices and provide decent livings for their employees are a major asset. But they are increasingly hard to find. South Dakota has adopted the attitude that any enterprise which makes money for someone is to be revered and the people have been conditioned to overlook the quality and integrity of enterprises. And so, we have the credit card industry which comes in, exploits the usury laws and the employees, and then as with Capital One, leaves when it so chooses. The explanation is that it is a business decisions, and it is accepted, because in South Dakota business decisions are considered acts of God. And that is one of the reasons there has been no acts of justice regarding the EB-5 business. To those who are so conditioned to believe that predatory capitalism is sacred, punishing dishonesty and wrongful exploitation in a business dealing is sacrilege.
The punishment for committing such a sacrilege is written into state law. It has specific provisions protecting the secrecy of how businesses conduct themselves:
1-27-1.6. Certain financial, commercial, and proprietary information exempt from disclosure.
1-27-29. Disclosure of information concerning private entity restricted. No state agency may disclose that it is conducting a financial investigation, examination, or audit of a private entity while the financial investigation, examination, or audit is ongoing, except as provided by § 1-27-31.Violation of those laws is listed as a Class 1 Misdemeanor:
(1) Class 1 misdemeanor: one year imprisonment in a county jail or two thousand dollars fine, or both;Those laws are the inspired word of St. Janklow. When he was conspiring with banks to create the usury industry in South Dakota, the banks provided funds to the state. Janklow wanted those funds secret. The problem was that he had a Democratic state treasurer, Dick Butler, who believed that any money coming in to the state belonged to the people and they had the right to know about it. Janklow, however, wanted the money his collusion with the banks produced kept secret and he wouldn't even tell Dick Butler what bank it was kept in. When Butler initiated investigations Janklow had the above law written and pushed through the state legislatureo by his head water carrier, Mike Rounds, who was the state Senate Majority Leader at the time. As he did not want to go to jail, Dick Butler gave up his inquiry and any mention that it had been going on.
That piece of legislation established the Divine Right of Shysters in South Dakota. And it is the reason that the state has not done anything until recently about the EB-5 scandal. South Dakota has the usual laws that provide for investigation and commensurate punishment for thievery and robbery committed with force or with weapons. However, state laws specially exempt robbery by business from investigation or any public knowledge of investigation.
The EB-5 scandal was also investigated by the U.S. Justice Department through its F.B.I. division. Many people thought that if the state would not pursue an investigation and bring the miscreants to justice, the federal government would. During the course of the investigation, the U.S. Attorney's office maintained an ominous silence, and when the F.B.I finished its investigation, it announced that no charges would be filed. It did not disclose what its investigation revealed, and Cory Heidelberger, among others, has made a Freedom of Information Act request which has not been responded to yet. However, there has been action on the part of the U.S. Citizenship and Immigration Services, part of the Dept. of Homeland Security, which oversees the EB-5 program, when it notified South Dakota that it was making the state ineligible to run the program any longer. This seems to have inspired the state to try to get some of purloined money back with a lawsuit.
EB-5 investments fall under the definition of a security which puts them under the scrutiny of the federal Securities Exchange Commission. The Commission has a long set of rules and court precedents dealing with business fraud. A professor at the Wharton School of Business at the U. of Pennsylvania explains that few cases of securities fraud are pushed through the criminal courts:
“Only a small fraction of all securities fraud cases are handled as criminal cases,” notes Wharton legal studies professor William S. Laufer. One reason for this, Laufer says, is that even when criminal convictions are obtained, prison sentences for these non-violent, white-collar crimes are not common. At the same time, studies have shown that civil fines often match or exceed those levied in criminal cases. Hence, prosecutors find there is little to gain in exchange for the extra effort it takes to bring criminal cases.
In a criminal case, prosecutors must prove the defendant intended to commit a crime, Laufer says, while this isn’t required in a civil case. A criminal case requires proof beyond a reasonable doubt, while proof in a civil case requires only a preponderance of the evidence. Moreover, he adds, many well-heeled defendants in securities cases can afford teams of lawyers, many of whom are former prosecutors or regulators adept at finding the holes in the prosecutors’ cases.
“U.S. Attorneys don’t like to indict [on criminal charges] unless they are 95% sure of getting convictions,” adds John C. Coffee Jr., a law professor at Columbia University who studies securities cases. “They have to pick and choose which cases to prosecute, and typically they give priority to cases involving organized crime or violence.”
As for the EB-5 investors obtaining some justice, a Florida law firm which specializes in EB-5 matters explains the difficulty there:
One major form of investor protection is to sue for a return of the investment, but this recourse does not help the EB-5 investor achieve permanent resident status.