South Dakota Focuses on EB-5: Investigations Galore

By David North, November 11, 2013

A fairly obscure element of the current immigration law — the EB-5 investor program that lets an alien buy a family-size set of green cards for half a million dollars — is suddenly getting lots of unfriendly attention in South Dakota.

Why are the state's politicians, the media, and at least half a dozen groups of government investigators focusing on this program?

There are multiple causes for this interest, including the mysterious shooting death of a leading state political appointee and EB-5 middleman, Richard Benda, the spectacular collapses of two major EB-5-supported ventures in the state, and an unusual tie between the EB-5 activity (which is a 99-plus percent federal program) and the South Dakota state government.

Benda. Benda died on October 20, apparently while pheasant hunting; that he died of a bullet wound in a season when shotguns are the prime weapons led to speculation that his may not have been an accidental death.

The police are investigating — that's just one of the inquiries — and an autopsy presumably has been done, but unlike an equally prominent death in, say, the New York metropolitan area where the local tabloids would be full of speculation, the South Dakota newspapers have written nothing about the investigation since the coverage of his death. Maybe South Dakota lawmen are truly tight-lipped.

Benda, who was deeply involved in raising EB-5 funds, including trips to China, served in the cabinet of recently retired Republican governor, Michael Rounds. Rounds is widely expected to be the Republican nominee for an open seat in the U.S. Senate in 2014. The current governor, another Republican, is Dennis Daugaard.

EB-5 Financial Disasters. While other EB-5 projects in the state have survived, and perhaps prospered, two of them have been spectacular failures. Most recently it was the bankruptcy of Northern Beef Packers in Aberdeen. This involved an investment of about $152 million, including $80 million from EB-5 sources. The meat processing plant is now on the auction block with an opening bid of just $12 million, according to the local press, which raised some questions:

But we all know money doesn't just disappear. It always lands in someone's pocket. So who are those someones? Where'd the money go? Was it all lost in delays and mistakes? How did a $40 million slaughterhouse turn into a $115 million project? Taxpayers, investors, and workers deserve to know.

Another journalist, Patrick Lalley, managing editor of the Sioux Falls Argus-Leader, the largest newspaper in the state, wrote about Northern Beef:

Consider this scenario . . .

A company was created in the British Virgin Islands with the expressed intent of loaning the beef plant $30 million at 29 percent interest. That company was owned by another company in the Cayman Islands, and both companies were run by a third firm that was incorporated in the Caymans but based in Hong Kong.

Pretty straightforward, right?

To do that [i.e., make the loan] the beef plant backers needed the state banking commission to sign off on the contention that the Virgin Islands company — that was created for the sole purpose of making the $30 million loan — was NOT lending money under South Dakota law.

Sure. Why not? The proposal received unanimous approval from the state banking commission.

In an earlier, somewhat similar situation, one of the state's biggest dairies, Veblen Dairies, which accounted for fully 15 percent of the state's milk production and was also EB-5 funded, collapsed. This was reported by the alternative paper, Madville Times.

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In both instances, groups of EB-5 investors from Asia lost substantial sums, though I gather that some of the beef plant investors secured green cards.

EB-5 and State Government. Regional centers, licensed by U.S. Citizenship and Immigration Services (USCIS), are the brokers that arrange EB-5 investments that lead to green cards. There are hundreds of the centers, from Maine on the east to Guam in the western Pacific. Virtually all are private, for-profit entities. In 48 of the 50 states they have nothing to do with state government.

In Vermont, home of Senate Judiciary Committee Chair Patrick Leahy (D), the regional center is part of the state government and has operated without apparent problems. In South Dakota it is both more complicated and more controversial.

The South Dakota Regional Center, Inc. (SDRC) was an almost independent wing of the state's Northern State University for years, then it was spun off as a private, for-profit company under contract with the state Department of Tourism and State Development; the department's secretary at the time (2009) was Benda, all as reported by the Argus-Leader.

While it had a contract with the state, SDRC continued to have permission from USCIS to operate under EB-5. To my knowledge no other regional center in the nation had quite that arrangement. SDRC was the EB-5 middleman in both the Northern Beef and the Veblen Dairy cases, and in many others.

The Investigations. It is against this lush and complex background that up to six separate governmental investigations are now underway, all dealing in one way or another with EB-5 as it has played out in South Dakota. My source for the estimated number of investigations is Bob Mercer, of the Aberdeen News, yet another South Dakota reporter fascinated with the situation.

In addition to an FBI investigation of the EB-5 program in South Dakota, about which we know little, and the ongoing state attorney general's examination of the Benda death, Mercer says that there are a couple of different inquiries started by the governor's office regarding the past dealings of the state's tourist and development department and, if the FBI is also looking at the death of Benda that adds to five. Mercer implies there may be at least one more investigation.

Let me help Mercer with some more, DC-based possibilities, which could take the grand total number of investigations to six or seven.

It would certainly make sense for the leader of USCIS, Alejandro Mayorkas, to check out what was going on in the state, if only to better protect the program from its critics. (USCIS not only has a legal obligation to run the EB-5 program, under Mayorkas it has gone out of its way to promote it vigorously as a way to bring more money and more immigrants to the United States, as a CIS report spelled out a couple of years ago.)

Mayorkas would have an additional reason to be briefed: He has been nominated for the DHS deputy secretaryship and his confirmation has been opposed, often on EB-5 grounds, by a Republican senator from neighboring Iowa, Chuck Grassley. So Mayorkas certainly would want his own take on the events in South Dakota.

Now, elsewhere in the Department of Homeland Security there is the Office of the Inspector General and its own beleaguered acting inspector general, Charles K. Edwards. He is under attack for nepotism in his own office and for having, it is said, staff help him write a PhD dissertation on government time. But he is still on the job, and has started an investigation of Mayorkas and the EB-5 program.

Given this background, it is highly likely that Edwards has dispatched one or two of his key people to South Dakota for yet another investigation.

One More Straw. Meanwhile, back in South Dakota, Governor Daugaard, perhaps seeking to distance himself on EB-5 from his predecessor (Rounds) — for whom he served for two terms as lieutenant governor — has not only ordered investigations into the past operations of the EB-5 program in the state, he has cancelled the contract the regional center had with the state government.

According to the Associated Press, his spokesman, Tony Venhuizen, said that the state's "economic development office will, for the time being, handle what the regional center did."

Not so. If one works for a governor, one may get an inflated idea of a governor's powers. Venhuizen's statement is incorrect because USCIS, not any person or persons in South Dakota, decides who can, and who cannot, function as a regional center. [It was my own statement here that turns out to be incorrect; see this correction.]

The regional center (SDRC), which I sense has its own incorporation papers, still has a set of (perhaps tarnished) credentials from USCIS and a totally separate funding source. So the regional center that raised so much money for the perhaps wastefully built and certainly failing slaughterhouse is still in business, whether the governor likes it or not.

At least the governor's heart was in the right place on this one.