EB-5 to surface yet again in 2015 legislative session

PIERRE -- When the legislative session opens Jan. 13, state lawmakers will consider at least two more pieces of legislation tied to the EB-5 controversy that, at times, dominated South Dakota politics in 2014.

The proposals are intended to deter future actions similar to misconduct discovered during the 2013 investigation by the state attorney general and found during various audits and reviews conducted in 2013 and 2014 by a private firm and by the state auditor general.

Another topic of debate during the 2015 session will be the conduct by the Legislature's Government Operations and Audit Committee.

The Legislature passed a resolution in the 2014 session requesting GOAC members review the economic development activities of state government. The panel of House and Senate members met six times from March 7 through Nov. 19 and issued a 77-page final report.

EB-5 is a federal program that, in South Dakota's case, was conducted for years by state government and then contracted to a private company, SDRC Inc., in 2009. Republican Gov Dennis Daugaard's administration quietly closed down EB-5 activities in September 2013.

The program allows foreign investors to place at least $500,000 as a loan or a direct investment in a U.S. business project that will save or create new jobs within specific industries that vary from location to location. In return, the investors and their families get green cards.

Two of the key legislators behind the 2014 resolution asking GOAC to review economic development actions see the conduct and results of GOAC's activities differently.

House Democratic leader Bernie Hunhoff, of Yankton, was the resolution's prime sponsor as a result of an agreement reached between leaders of the Democratic legislative caucuses and leaders of the Republican legislative caucuses.

The resolution gave GOAC wide authority, including the power to subpoena witnesses. Instead, GOAC's chairman, Sen. Larry Tidemann, R-Brookings, cautiously interpreted the panel's scope. So did the Legislature's Executive Board.

Both panels had a predominance of Republican members. Their overall position was the Legislature shouldn't be investigating toward possible criminal prosecution. GOAC also didn't require some key witnesses to answer committee questions in person.

Daugaard was willing to do so, but former Gov. Mike Rounds said he would answer written questions in writing. The committee took the same approach with Daugaard.

Joop Bollen declined the committee's invitation to testify, but answered written questions.

Bollen is the former state employee who led the expansion of EB-5 in South Dakota during the Rounds administration and was head of SDRC Inc.

State Rep. Susan Wismer, of Britton, was the Democratic candidate for governor against Daugaard. She served on GOAC and asked for a subpoena to be issued against Bollen. GOAC's other Democrat, Sen. Larry Lucas, of Pickstown, wasn't at that meeting. Wismer's motion died for lack of a second. None of the Republicans needed to cast a vote.

House Republican leader David Lust, of Rapid City, said in hindsight he wished GOAC had issued the subpoena to Bollen, though granted it's unknown whether he would have answered questions.

State Attorney General Marty Jackley met with GOAC members in private. According to several legislators, his general advice was that it would be fruitless, in terms of producing information, to subpoena Bollen.

However, Jackley revealed one big piece of new information during the public portion of that July 29 meeting. He said he had directed his office in October 2013 to prepare arrest papers for Richard Benda and that a state grand jury was to be convened.

Benda's body was found Oct. 22, 2013, at a relative's farm near Lake Andes. The official cause of death was a shotgun wound to the abdomen. The death was determined to have occurred Oct. 20, 2013. It was ruled a suicide.

He was state secretary of tourism and development for the Rounds administration from 2006 through early January 2011 when Daugaard was sworn into office as governor.

Benda arranged several large grants from the governor's Future Fund in December 2010 to benefit Northern Beef Packers, a meat processing plant that was being built outside Aberdeen. The project received funding from several rounds of EB-5 investors from South Korea and China who put money into loan pools run by Bollen through SDRC Inc.

Bollen also recruited Benda to work for SDRC Inc. after his state employment ended in January 2011.

The attorney general's investigation in 2013 found that $550,000 from one of the Future Funds grants was redirected by Northern Beef to SDRC Inc. to pay for a loan monitor, who was Benda.

Jackley and the auditor general found that Benda had increased the amounts of two other Future Fund grants to another quasi-government body, the South Dakota Development Corp. One of the grants was increased by $550,000 for SDDC to help Northern Beef. The other grant wasn't completed with Northern Beef.

The $550,000 diversion and three double-billed airline tickets, including two to China, provided the reason for the attorney general's planned prosecution of Benda.

The committee served as a forum for other information that surfaced in the summer and fall about a 2008-2009 legal action brought against Bollen and one of his lawyers from South Korea. Bollen officially worked for the state Board of Regents at Northern State University at the time, so state government provided his legal counsel. That lawsuit ended when a California arbitrator ruled in no one's favor.

Bollen was forced off campus by NSU officials in 2009, but Benda wanted Bollen to continue EB-5 activities. That led to the state contract between Benda at the state Department of Tourism and State Development and Bollen at SDRC Inc.

He formed SDRC Inc. in early 2008 while working at NSU.

The panel received testimony from Jim Shekleton, an attorney for the regents. It didn't talk to any other state government employees from the time when Rounds was governor, nor either of Rounds' three chiefs of staff.

Hunhoff's comments about whether GOAC fulfilled the legislative resolution made his disappointment clear. He put his response in writing:

"Did the EB-5 scandal unfold because of a culture of unchecked cronyism, or because of one man's rogue behavior? GOAC's conclusion places all the blame on Richard Benda, and the committee members didn't make much of an effort to delve further.

"They (GOAC) accepted the administration's audits, even though they were very narrowly crafted to only ask if the books balanced. GOAC didn't ask for any further audits or reports, and they didn't issue a single subpoena. The written answers they allowed were quickly discredited.

"Legislators who voted for HCR 1010 wanted to know what happened, whether we can recover missing monies and how we can prevent similar problems from occurring in the future. We don't have answers to any of those questions.

"We were not asking for a criminal investigation. That's the business of the (state Division of Criminal Investigation) and the FBI. We wanted a discussion of what went wrong and how do we fix it. Unfortunately, we didn't get it, probably because a deeper search might have been too embarrassing for certain parties.

"The recommended reforms are pitifully weak, but hopefully the full Legislature will at least consider stronger measures," Hunhoff said.

Lust, formerly of Aberdeen, said the Legislature didn't have much experience in extra-legislative matters such as EB-5.

"That's probably a good thing you haven't had to do it very often," Lust said.

The timing of a U.S. Senate campaign in which Rounds was the Republican candidate, and Wismer's candidacy for governor, raised the tension.

Democratic candidate Rick Weiland ran ads on EB-5 against Rounds, and the two independent candidates, former Republican U.S. Sen. Larry Pressler and former Republican legislator Gordon Howie, likewise went after Rounds on EB-5 when they debated.

"I think the environment was a little too political for my taste on both sides," Lust said.

Lust said forcing Bollen to appear before GOAC would have answered some of the criticism about the panel.

"He (Bollen) and Benda clearly were at the epicenter of EB-5," he said.

But that was part of the challenge. Legislators learned as they went along, and legislators varied a lot in how much they wanted to know and how far they wanted to go trying to find answers.

"In many ways it was like chasing a phantom," Lust said. "It probably went as well as expected."

With the election campaigns over, much of the zeal about EB-5 has dissipated, Lust said. The unknown is whether federal prosecutors will proceed with a criminal case or even issue a report. Lust said that would probably refuel the legislative and public debates.

He said one of his hopes was the Legislature could learn from the EB-5 experience about how to deal with a situation in the future regarding what steps can be taken.

"That, I think, would be very valuable," Lust said.