South Dakota Sued for Botched Visa Program
A group of Chinese investors sued various South Dakota entities involved in the state's disastrous EB-5 program in state court, hoping to recover their $18.5 million investment.
Also known as the Employment-Based Fifth Preference Immigrant Investor Program, EB-5 is a federal program that grants foreigners conditional resident status in exchange for $500,000 to $1 million investments in American businesses.
In September, the federal government shut down South Dakota's EB-5 program, which was run locally by the South Dakota Regional Center under the supervision of the Department of Tourism and State Development, for ongoing corruption.
Now plaintiff LP6 Claimants, a group of Chinese nationals who invested in South Dakota meat processing plant Northern Beef Packers as part of the EB-5 program, are suing to recover their squandered investment.
Defendants include the South Dakota Department of Tourism and State Development, the South Dakota Regional Center, the SD Investment Fund LLC 6, and Joop Bollen, a former state employee who ran the regional center.
Plaintiffs claim the defendants solicited their investments through written materials that contained "misrepresentations and omissions" about Northern Beef Packers, the company they were to invest in.
For example, defendants represented Northern as "substantially complete" and operating from a "sustainable business model," according to the complaint. They also claimed that the project was "sufficiently sound to generate jobs and repay the loan from the investors" and that it was "locally owned and led by recognized beef industry experts."
In actuality, the company was owned by foreign investors and had been "plagued by years of delays and was already in need of additional financing," the complaint says.
Defendants also failed to disclose to investors that "Northern Beef Packers had been unable to sell tax increment financing bonds to finance the project," that "substantial liens had been filed against the project," that Northern was delinquent on its property taxes, and that "loans to the project were extraordinarily high-risk because the project was undercapitalized and its assets were not sufficient to repay or secure any loan."
In addition, earlier EB-5 investors had "ousted Northern Beef Packers' management and had become the managers and owners of Northern Beef Packers," according to the complaint.
Plaintiffs say that when they made their initial investments, they were told the plant would open in 2010. But it was not operational until 2012, a full two years behind schedule, according to the complaint.
Eight months after opening, it "laid off 108 of its employees because of inadequate financing," the investors say. In 2013, the company filed for bankruptcy and it has not reopened.
Plaintiffs are suing all defendants for fraud and breach of fiduciary duty, and they are suing the Department of Tourism for "aiding and abetting" that breach by permitting the program to continue "without proper supervision and approval."
The department was supposed to be responsible for "approving all EB-5 program projects; rejecting projects for lack of feasibility or financial soundness; and [ensuring] that the project was not marketed if not financially sound," according to the complaint.
Plaintiffs also want to pierce the corporate veil to hold regional center manager Joop Bollen accountable.
"Continued recognition of the defendant entities as separate legal entities would produce injustice and inequitable consequences by allowing Bollen to attempt to avoid personal liability for his wrongful conduct and the wrongful conduct committed by South Dakota Regional Center or GP 6 as mere instrumentalities of Bollen and the department," the complaint says.
The state terminated its contract with the regional center in 2013 after it discovered misappropriation of EB-5 investment funds. The program was handed over to the governor's office until the feds shut it down in September.
Although Gov. Dennis Daugaard's chief of staff, Tony Venhuizen, declined to comment on this latest development, the state has already sued the regional center for failing to contribute to an "indemnity fund" which would presumably cover litigation such as this.
Plaintiffs' attorney, Steven Sandven, did not respond to an email request for comment sent after business hours on Wednesday or a Thursday morning phone call.
- South Dakota
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