UPDATE: Rounds' brother oversaw EB-5 litigation
While former Gov. Mike Rounds says he was unaware of legal issues arising out of South Dakota's administration of the federal EB-5 program, his brother Dennis Rounds was in charge of overseeing litigation for the governor.
As executive director of South Dakota's Office of Risk Management and the state's Litigation and Legal Services Manager for the Governor, Dennis Rounds was in charge of overseeing lawsuits and minimizing risk. He held the job from 2005 to January 2011, according to his LinkedIn profile online.
On the LinkedIn website, Dennis Rounds describes his duties this way: "Provide leadership and direction on all activities within the SD Office of Risk Management including litigation management, claims administration and loss control programs associated with the SD Public Entity Pool for Liability and the Extraordinary Litigation Fund. Provide tort liability coverage to all employees of the State of South Dakota. Manage lawsuits, establish reserves, negotiate settlements, purchase insurance & resolve claims."
In a telephone interview with the Daily Republic, Dennis Rounds said he did not recall the so-called Darley case, filed in California. Dennis Rounds appeared genuinely surprised when some of the details of the unusual case were recounted to him and challenged the likelihood of some of the details, including whether a state employee who is not a lawyer could represent the state in court. (Details are included later in this article.)
"That just couldn't happen," Dennis Rounds said.
Dennis Rounds said all lawsuits, once filed against the state of South Dakota are "immediately brought over to the Office of Risk Management." He said so many lawsuits are in play at any given time that the office started keeping a continuously updated file so the status of litigation could be checked.
"We had a lot of lawsuits. I remember most of them. I don't remember that one (Darley) coming through. That doesn't mean it didn't come across my desk. It just doesn't ring a bell," Dennis Rounds said. "
He also stressed that he did not work directly for his brother, the governor, and that the Office of Risk Management needed to maintain a certain amount of independence from all the state offices it worked with. Dennis Rounds reported to the Commissioner for the Bureau of Administration, who reported to the governor's chief of staff.
Mike Rounds, now running for the U.S. Senate, told state lawmakers in September that he, as governor, and his office were not aware of litigation involving the state of South Dakota, the state's EB-5 operator and a California firm, Darley International. News reports last week revealed that, in July 2009, the governor's office was officially served to notify officials of a court hearing scheduled in October 2009. Rounds quickly amended his written testimony to reflect what the documents show -- that his office was notified of the litigation.
At the same time, Mike Rounds continued to say he had no personal knowledge of the Darley lawsuit.
A Rounds campaign spokesman told the Rapid City Journal that the matter was "a clerical, process issue" and that Gov. Rounds never saw the service documents. In his updated statement to state lawmakers on Friday, Mike Rounds continued to imply he was unaware of the lawsuit.
"We assume the document was simply forwarded to the Board of Regents, the attorney general's office or the general counsel. I had not seen that particular document until yesterday, October 1, 2014," Mike Rounds wrote.
The Rounds campaign issued this statement to the Daily Republic late Monday: "Gov. Rounds does not recall discussing the case with Dennis. However, the Bureau of Administration/Office of Risk Management would regularly compile a report containing brief summaries of every case against the state and their status. The Governor’s Office was included in the distribution of those reports. Since those reports included all on-going cases (some of them many years old), they usually contained hundreds of cases."
The EB-5 program, which the state embarked on shortly after Rounds took office as governor in 2003, allows qualified foreign investors to provide $500,000 to designated American business ventures in exchange for U.S. visas, or green cards, for the investor and members of his or her family. The program is overseen by the U.S. Citizenship and Immigration Services.
It has most recently been run in South Dakota out of an Aberdeen office called SDRC Inc., owned by the same man who previously headed the state-run EB-5 office -- Joop Bollen.
Critics dub EB-5 -- named for its section in federal law -- as citizenship for sale while its proponents, including Gov. Rounds, say it provides an economic boost to South Dakota.
Controversy over EB-5 has dogged Mike Rounds' Senate candidacy, from its basic green card-for-money premise to the fact that Bollen was allowed in January 2008 to turn the operation at Northern State University from a state-run economic development effort into a for-profit corporation, which has generated an estimated $108 million in profits from fees charged to foreign investors.
Six months after Bollen took South Dakota's EB-5 operation for-profit, the state was sued by Darley International. In July 2008, Darley sued the state-run EB-5 office, which remained opened as the South Dakota International Business Institute at NSU. (Bollen remained a state employee for two years after he took the EB-5 operation for-profit, according an email he sent to federal immigration officials in December 2009.)
Darley's owners claimed that SDIBI and a California law firm, Hanul Professional Law Firm, had circumvented and breached a 2007 contract granting Darley the rights to market South Dakota EB-5 projects to foreign investors, especially in China.
"Darley learned that SDIBI and Hanul, in violation of the Agreement, had contacted Darley's Chinese subagents," reads a statement filed in California court by Robert Stratmore, president of Darley International.
Initially, Bollen attempted to handle the Darley litigation without the benefit of a lawyer, including filing a brief in federal court himself. However, by January 2009, he informed a lawyer for NSU -- John Meyer -- that SDIBI had been sued and that the federal court had ordered arbitration in the matter, according to a statement Meyer filed in federal court.
By July 2009 the matter had mushroomed and five lawyers for the state were, according to a billing invoice, corresponding frequently and held two conference calls that month to discuss how to defend the state and Bollen in California state court, where the case had been refiled.
The lawyers involved in the correspondence and conference calls were John Meyer (NSU), James Shekleton (South Dakota Board of Regents) Jeff Hallem (South Dakota Attorney General's Office), Tim Engel (Governor's Office of Economic Development) and James Lynch, a California lawyer hired by the state.
According to South Dakota's current Secretary of Tourism and State Development, Pat Costello, Engel also has been representing the state's Office of Risk Management in the Darley case, which remains active.
"Mr. Engel has monitored the arbitration on behalf of, and as counsel for, GOED and the Office of Risk Management," wrote Costello to state Rep. Kathy Tyler, D-Big Stone City, in an Oct. 2 email.
Engel did not return a phone message from The Daily Republic Monday to discuss the details.