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Legislative Audit joins EB-5 probe

Scope of EB-5 probe grows

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Because of state contract, Legislative Audit review covers SDRC finances

PIERRE — The state Department of Legislative Audit is attempting to determine whether the correct amounts of money were placed into two special state accounts from fees and interest collected on EB-5 immigrant investment projects in South Dakota.

SDRC Inc., an Aberdeen-based company, held a contract with state government since 2009 to administer and manage EB-5 investment activities in South Dakota on state government’s behalf.

The contract called for specific shares of fees and interest to be paid by SDRC to accounts established in the agreement. As a result, the Legislative Audit probe can look at SDRC’s finances to see whether the requirements were met.

Pat Costello, state commissioner of economic development, terminated the contract in September after learning results of an attorney general’s investigation into activities involving Richard Benda.

Benda was secretary of tourism and state development from 2006 through early 2011 in the Rounds administration. He signed the contract with SDRC president Joop Bollen.

One month after the SDRC contract was halted, Benda died on Oct. 20 from a gunshot wound to his abdomen. The death was ruled a suicide by state Attorney General Marty Jackley.

Two weeks before Benda died, Costello had already commissioned an outside investigation into his office’s activities involving the Future Fund grant program.

On Oct. 10, the Pierre accounting firm of Stulken, Petersen, Lingle, Walti and Jones agreed to Costello’s request to review each disbursement from the Future Fund program for the period of Jan. 1, 2009, through Sept. 30, 2013.

Jackley’s previous investigation found that $550,000 was diverted from a Future Fund grant approved by then-Gov. Mike Rounds in December 2010 during Rounds’ last full month in office.

The $1 million was paid to Northern Beef Packers of Aberdeen in January 2011 during the first days after Daugaard took office. Benda, who wasn’t retained by Daugaard, arranged to pick up the check and delivered it to NBP.

NBP sent $550,000 to an escrow account under a previous agreement with SDRC for loan monitoring. Benda was hired by SDRC at $225,000 annually to monitor the flow of EB-5 loan money to Northern Beef.

Jackley looked into Benda’s travel activities after state government in March of this year received a subpoena from a federal grand jury for eight sets of information.

On Nov. 7, the Stulken, Petersen firm agreed to Costello’s subsequent request to review disbursements from two other programs, Dakota Seeds and Proof of Concept, administered by GOED.

On Nov. 26 the Fargo office of the Eide Bailly accounting firm agreed to Costello’s request for a review of internal controls over GOED’s cash management and accounting functions as well as for 10 business-assistance programs managed by GOED including the Future Fund.

On Nov. 27, state Auditor General Marty Guindon agreed to Costello’s request that the Department of Legislative Audit perform a financial and compliance audit of the financial statements for GOED’s general funds and other funds from July 1, 2009, through June 30, 2013.

Those include vendor relationships where the vendor has responsibility for program compliance and for completeness and accuracy of information.

Costello told Gov. Dennis Daugaard in a Nov. 27 memo he expected the Eide Bailly report to be finished Jan. 3, 2014, and the Legislative Audit report to be completed Jan. 24, 2014.

Tony Venhuizen, a spokesman for the governor, confirmed that the scope of Legislative Audit’s work includes two of the special accounts required under the SDRC contract.

“These two funds revert to the state as provided in the contract, which is why they are included in the audit,” Venhuizen said.

He noted that a third special account doesn’t revert to the state and therefore isn’t included in the audit.

“It is anticipated that this information will be included in the audit report which is expected to be received by Jan. 24,” Venhuizen said.

Projects that received financing through the EB-5 loan pools created by SDRC included Northern Beef Packers; Dakota Provisions of Huron; Deadwood Mountain Grand casino complex; and Basin Electric’s Deer Creek Station electricity generation plant.

Several projects were disallowed after funds were raised. Those included a third round of financing for Dakota Provisions and financing for the Buffalo Ridge II wind-generation electricity project in Brookings and Deuel counties.

The financing typically came from Chinese and Korean citizens recruited in their home countries.

They each put up $500,000 as a loan, plus another $30,000 to $50,000 or more in fees, in hope of receiving a permanent visa for the investor and family to live anywhere in the United States.