For Immediate Release: Monday, September 8th, 2014
Rep. Kathy Tyler:
State employee Joop Bollen committed over $140 million fraud managing EB5 program with approval of Gov. Mike Rounds
Legislative Executive Board must direct GOAC to issue subpoenas
Sioux Falls (September 8, 2014) — Joop Bollen committed an act of fraud under Board of Regents Fraud policy that has earned him and his partners over $140 million managing the EB5 citizenship-for-sale program with the approval of Governor Mike Rounds, according to sources unveiled by Rep. Kathy Tyler (D-Big Stone City).
EB5 Citizenship-for-sale Kings Joop Bollen & Mike Rounds
As a result, Rep. Kathy Tyler will demand that the executive board direct GOAC to subpoena Joop Bollen and all his financial documents, Mike Rounds, Dennis Daugaard, Aberdeen attorney Jeff Sveen, and former Board of Regents President Harvey Jewett on Tuesday, September 9th, in Pierre.
Joop Bollen and Mike Rounds duped the South Dakota taxpayers, says Rep. Kathy Tyler: “Within the scope of his public employment, Joop Bollen and his partners intentionally deprived the Board of Regents something of value – over $140 million in EB5 fees that could have stayed with the state – and Governor Mike Rounds approved the entire fraudulent scheme.”
The South Dakota Board of Regents Fraud policy states:
A. Fraud shall be defined to include the following for purposes of this policy:
1. Conduct within the scope of employment, or conduct apparently within the scope of employment, and representations to the Board, or any of the institutions governed by it or any affiliated organizations that constitutes:
a. Intentional or deliberate act to deprive the State of South Dakota, the Board, any of the institutions governed by it or any affiliated organizations or students of something of value (property, money, services, or opportunities).
b. Deception, false representation of fact by either conduct or other communication, or concealing what should have been disclosed, or made when the actor knew or should have known that the other party relied upon his or her representations, leading to injury of the State of South Dakota, the Board, any of the institutions governed by it or any affiliated organizations or students.
South Dakota Board of Regents Fraud policy is very clear, says Rep. Kathy Tyler: “State employee Joop Bollen granted SDRC Inc, a private company he formed on January 10, 2008, the exclusive contract to administer the EB5 program on January 15, 2008. SDRC Inc has deprived South Dakota taxpayers of $140 million in ill-gotten EB5 gains. It’s a simple case of massive fraud with the approval of Governor Mike Rounds.”
Mike Rounds himself said knew how much money SDRC Inc stood to take from the state when he privatized the program with a no-bid contract in December of 2009, according to an interview with Mitchell Daily Republic reporter Denise Ross:
For his part, Rounds says he was aware in general that SDRC Inc. would need to fund it’s operations. “We knew there had to be a way in place to fund the operation. We understood that,” Rounds says without elaborating.
“State program became for-profit before securing Northern Beef financing.” Denise Ross, AgWeek, 4.9.14
The $140 million fraud figure comes from existing research by Argus Leader reporter David Montgomery and a confidential EB5 immigrant investor recruitment contract between the South Dakota International Business Institute in collaboration with Korean EB5 recruiter Hanul Law Corporation and Darley International LLC that has previously never been released.
Based on the Darley-SDIBI-Hanul exclusive recruitment contract, we know that Joop and his confederates jammed Darley, so they could harvest all of the $50,000 per immigrant investor fees. With 800 immigrant investors after the formation of SDRC, Inc, the recruitment fees for SDRC, Inc are a cool $40 million.
According to an Argus Leader report on November 6, 2013, we know that Joop Bollen, SDRC, Inc., and Siegel Barnett, Shultz split up a 1% origination fee and a $10,000 yearly fee per investor, a 1% equity kicker in the projects financed by the loan pools, and a $30,000 administrative fee on each loan in the EB5 loan pools. The 1% origination fee was $5,000 per immigrant investor ($4 million total) and the yearly $10,000 per immigrant investor fee resulted in $8 million annually or another cool $40 million over the last 5 years. Added to that is the equity kicker of 1%. If one assume an 80/20 equity to debt capitalization, the $400 million loan pools are the debt portion of a $2 billion capitalization. The equity portion would represent $1.6 billion. The 1% equity kicker is thus $16 million. Lastly, Joop and his confederates would have been able to invest the harvested fees. If one assumes $80 million invested for 3 years at 8%, it comes to $19.2 million.
Thus, in total, the fraudulent scheme totals over $140 million.
$50,000 recruitment fee per investor (800 immigrant investors) = $40 million
1% origination fee per investor at $5,000 per investor = $4 million
$10,000 loan monitoring fee per investor for five years = $40 million
1% equity ownership (assuming 80/20 equity to debt ratio at $2 billion capitalization) = $16 million
800 immigrant investors at $30,000 one time administration fee on loans = $24 million
Return on Capital = $19.2 million
TOTAL THEFT: $143.2 million
The EB5 scandal is a simple tale as old as time, says Rep. Kathy Tyler. “This EB5 scandal is about money, greed, and absolute power that corrupts absolutely. Joop Bollen and his partners committed fraud against the state to capture the lucrative EB5 fees. Mike Rounds sealed the deal with a no-bid contract to a state employee. Who is going to hold these folks accountable?”
As a result of the revelations, Rep. Kathy Tyler will make a motion for the State Legislature’s Executive Board meeting on Tuesday, September 9th, 2014, to direct the Government Operations & Audit Committee to subpoena Joop Bollen and his financial records, Mike Rounds, Dennis Daugaard, Aberdeen attorney Jeff Sveen, and Board of Regents President Harvey Jewett as well as all SDRC Inc’s financial records.
State leaders have a responsibility to end the $140 million fraud, says Tyler. “While Governor Dennis Daugaard is paying a private attorney $50,000 to recoup $550,000 from a futures fund grant, Joop Bollen and his partners are defrauding South Dakota taxpayers of nearly $140 million. The legislature’s executive board can put an end to this on Tuesday. It’s a $140 million fraud. I hope my counterparts will join me in this effort for the people of South Dakota.”
The list of individuals who should be subpoenaed to testify about their knowledge of this fraud include:
Mike Rounds, former Governor:
Dennis Daugaard, Governor:
Joop Bollen, former state employee
Jeff Sveen, Aberdeen attorney for Bollen
Harvey Jewett, former Board of Regents President
Tad Perry, former Board of Regents Executive Director
Patrick Schloss, former Northern State University President
Dr. James Smith, current Northern State University President
Neil Fulton, former Chief of Staff to Governor Mike Rounds
The list of documents that need to be subpoenaed:
SDRC Inc: All bank records and tax returns
Joop Bollen’s personal bank records and tax returns
Rep. Kathy Tyler’s prepared remarks follow:
September 8, 2014
Good afternoon. I’m Representative Kathy Tyler, and I thank you so much for being here. What I want to do today is reveal documents proving that Joop Bollen and his associates have committed a potential $140 million fraud managing the state’s EB5 program, sometimes called the citizenship-for-sale program, in contracts between Northern State University & the Department of Tourism and State Development and in applications by the state of South Dakota with the United States Citizenship and Immigration Services. This was approved by Governor Mike Rounds and continues today.
Hopefully I will be able to answer how and why Joop Bollen and his associates pulled off a $140 million fraud against the state and how I arrived at the $140 million Bollen and his associates stole. It’s truly a tale as old as time: this is a simple story of massive fraud – the kind of fraud that occurs when money, greed, and absolute power corrupt absolutely.
Many reporters including KELOLAND reporter Ben Dunsmoor, Pierre correspondent Bob Mercer, Mitchell Daily Republic reporter Denise Ross, and Argus Leader reporters David Montgomery & Jonathon Ellis have done an excellent job tying threads together. I will be relying in part on their existing reporting and revealing new documents to supplement their work.
As Ben Dunsmoor reported, on December 22nd, 2009, Governor Mike Rounds granted SDRC Inc a lucrative no-bid contract to fully administer the EB5 citizenship-for-sale program – but SDRC Inc’s origin is almost two years earlier between a man and his mirror. This is the beginning of the $140 million fraud.
On January 10, 2008, the Secretary of State’s office certified SDRC Inc, a company Joop Bollen formed, to operate in South Dakota. Five short days later on January 15, 2008, the South Dakota International Business Institute, based at Northern State University, signed a contract with SDRC Inc. This contract outlined in detail SDRC Inc’s role in the state’s EB-5 program: SDRC, Inc, in effect, took over the entire program. Signatories include Joop Bollen on behalf of the state & James Park of Hanul Law Corporation on behalf of SDRC Inc. This contract was the precursor to the no-bid contract approved by Governor Mike Rounds in December of 2009.
Okay, so what’s the big deal? The big deal is that at that time Joop Bollen was high ranking state official who signed a contract on behalf of the state with a company he owned. This bears repeating: On January 15, 2008, Joop Bollen, a state employee, granted SDRC Inc, a private company he formed on January 10, 2008, a contract to administer the EB5 program. A state employee formed a private company to manage the EB5 program. Then on behalf of the state, he gave his own company the contract to privately manage the this program – and with it lucrative EB5 fees that could have accrued to the state.
Contracting with SDRC Inc on the taxpayer dime to manage the EB5 program for private gain is a clear violation of Board of Regents Fraud Policy.
The Board of Regents Fraud policy states:
A. Fraud shall be defined to include the following for purposes of this policy:
1. Conduct within the scope of employment, or conduct apparently within the scope of employment, and representations to the Board, or any of the institutions governed by it or any affiliated organizations that constitutes:
a. Intentional or deliberate act to deprive the State of South Dakota, the Board, any of the institutions governed by it or any affiliated organizations or students of something of value (property, money, services, or opportunities).
b. Deception, false representation of fact by either conduct or other communication, or concealing what should have been disclosed, or made when the actor knew or should have known that the other party relied upon his or her representations, leading to injury of the State of South Dakota, the Board, any of the institutions governed by it or any affiliated organizations or students.
This was the opportunity of Joop Bollen’s lifetime, and he repeatedly lied in official documents to pull off the fraud. Within the scope of his public employment, Joop Bollen and his partners intentionally deprived the Board of Regents something of value – over $140 million in EB5 fees that could have stayed with the state. Bollen fraudulently omitted SDRC, Inc.’s role managing the EB5 program in semi-annual contracts with Northern State University and the Department of Tourism and State Development. And Bollen misrepresented the relationship between the state and SDRC, Inc. to the United States Citizenship and Immigration Services in documents requesting EB-5 expansion and explaining SDRC, Inc.’s role in that expansion. And he committed these deceptions, while he was a highly paid and high ranking state employee.
Folks, the story is really that simple. Joop Bollen and his associates created a system to enrich themselves to the tune of $140 million at the expense of South Dakota taxpayers with the approval of Governor Mike Rounds – and Bollen repeatedly misrepresented himself and SDRC, Inc in official documents to do it.
Now, we can ask why would Governor Mike Rounds allow a state employee to sign a contract with himself? Who wrote, reviewed & approved this contract on behalf of the state with a five-day-old company? Why Governor Mike Rounds and Governor Dennis Daugaard have turned a blind eye to this clear case of ongoing fraud? And ultimately, what was the motivation for many players to allow this fraud to happen–to allow the state to throw away the potential for millions of dollars of income from the EB-5 program?
It all boils down to money and greed.
Okay, this is where the timeline of events becomes important. When South Dakota was looking for wealthy foreign investors for dairy projects across Northeast South Dakota, Joop Bollen couldn’t find them all by himself from the Northern State University campus. He needed help. Enter James Park of Hanul Professional Law Corporation, who had the Korean rolodex to finance dairies in South Dakota. But as projects got bigger and more numerous, it soon became apparent that the foreign rolodex needed to be expanded. So they brought in a third party, Darley International LLC, an international recruitment agency with extensive contacts in Asia. As you can see in this never-before-released confidential contract, Hanul and SDIBI granted Darley exclusive recruiting rights in China and the former Soviet Union on the following terms for the recruiting agency:
EB5 Investment Fee Structure:
$30,000
Darley International LLC
$20,000
Hanul in partnership with SDIBI
$50,000
TOTAL recruitment fees per investor – paid by the immigrant investor
With over 800 immigrant investors, we’re talking big money – $40 million with a $24 mil to $28 million immediately going to Darley.
But large sums of unregulated money are often followed by immense greed. With investors increasingly coming from China, Bollen and Park would leave a lot of money on the table. If Bollen and Park wanted to cut Darley out of the picture, they had to concoct a workaround.
Enter SDRC Inc: Bollen forms SDRC Inc to outsource the lucrative EB5 franchise from public control to private control, so SDRC Inc can harvest the fees that would have gone to Darley.
Based on this exclusive recruitment contract and information from a court case, we know that Joop and his associates jammed Darley, so they could harvest the entire $50,000 recruitment fee per immigrant investor. With 800 immigrant investors after the formation of SDRC, Inc, the recruitment fees for Joop, SDRC, Inc., James Park, and Hanul Law Corporation total $40 million. According to exclusive court documents, Bollen was also taking a previously undisclosed 1% ownership equity position in EB5 investments for another $16 million.
But that’s just the beginning. In a November 6, 2013 Argus Leader article, David Montgomery shows that SDRC Inc., took a 1% “closing fee” on every loan, a $10,000 yearly fee per investor, and a $30,000 “administrative fee” on each loan in the EB5 loan pools. The 1% closing fee was $5,000 per immigrant investor ($4 million total) and the yearly $10,000 per immigrant investor fee resulted in $8 million annually for another cool $40 million over the last 5 years. Lastly, Joop and his associates would have been able to invest the harvested fees. If one assumes $80 million invested for 3 years at 8%, it comes to another $19.2 million. Thus, in total, the fraudulent scheme surpasses $140 million for Joop and his associates.
$50,000 recruitment fee per investor (800 immigrant investors)
$40 million
1% closing fee per investor at $5,000 per investor
$4 million
$10,000 loan monitoring fee per investor for five years
$40 million
1% equity ownership (assuming 80/20 equity to debt ratio at $2 billion capitalization)
$16 million
$30,000 one time administration fee on loans (800 immigrant investors)
$24 million
Return on Capital
$19.2 million
TOTAL THEFT
$143.2 million
Who in his right mind would let a state employee fraudulently give himself a contract worth $143 million then let him walk away with the money? There’s at least one person who knew what kind of scheme Bollen was setting up to enrich himself, and that’s Governor Mike Rounds.
The following comes from Mike Rounds In an interview with Mitchell Daily Republic reporter Denise Ross from April 2014
For his part, Rounds says he was aware in general that SDRC Inc. would need to fund its operations. “We knew there had to be a way in place to fund the operation. We understood that,” Rounds says without elaborating.
“State program became for-profit before securing Northern Beef financing.” Denise Ross, AgWeek, 4.9.14
Mike Rounds knew Joop Bollen and partners were going to become immensely wealthy ripping of the state – and Mike Rounds approved the whole fraudulent scheme.
State leaders have a responsibility to investigate the extent of this $140 million fraud. We had a highly paid, high ranking state employee signing a lucrative contract with himself. Mike Rounds approved a no bid contract for work that could have been done through a state office and put millions into the state coffers. While Governor Dennis Daugaard is paying a private attorney $50,000 to recoup $550,000 from a futures fund grant, Joop Bollen and his associates are defrauding South Dakota taxpayers of over $140 million with the approval of Governor Mike Rounds. Where is all of the money? We know who lost in this fiasco; now we need to know who gained from this fraudulent scheme.
The legislature’s Executive Board has the power to instruct GOAC, to do just that, to do finish what they started, to make sure the intent of HCR 1010 is accomplished. Tomorrow, I will make a motion for the Executive Board to instruct GOAC to subpoena Joop Bollen and all his financial documents, Mike Rounds, Dennis Daugaard, Aberdeen attorney Jeff Sveen, and former Board of Regents President Harvey Jewett among others who are listed in the press packet. I hope my counterparts will join me in finding answers for the people of South Dakota.
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