South Dakota Lawsuit Could Put EB-5 Visa Project on Hold: Part I
With the economy in the doldrums, it would be a shame for a dispute about EB-5 investor recruitment to put a job creation project on indefinite hold.
Unfortunately, that's what appears to be happening in South Dakota. A lawsuit against the South Dakota Regional Center (SDRC) is threatening to halt progress on construction of the Northern Beef Packers (NBP) cattle processing facility, an effort that has backing from the State of South Dakota, local governments, and EB-5 visa investments.
Commissions for foreign promoters
It all started with a disagreement about commissions being paid for investor recruitment. Henry Global Consulting Group was working with NBP to recruit Chinese investors for the construction project. At some point last year, NBP allegedly determined that since Henry Global didn't deliver the number of investors it had agreed to recruit, the former was under no obligation to pay a commission for the investors.
Website for the Henry Global Consulting Group
To clarify: These would be investors that the NBP project didn't receive because Henry Global was unable to recruit them. The commission was $50,000 per investor, allegedly, with the potential earn up to double that amount via a success fee.
As of this month, the issue has reached new levels of confusion. Sources tell us that Henry Global recruited four investors currently living in the United States to sue SDRC. Those individuals have since dropped the lawsuit, but the company has convinced other investors to sue the regional center instead.
Aside from those facts, much of what we know about the lawsuit is unverified. How exactly Henry Global convinced these plaintiffs to sign on to a lawsuit against their own partnership isn't clear. The lawsuit alleges that several significant facts about the project's history were never disclosed to investors and that the presentation of the project in the offering memo was "incomplete and inaccurate." Individuals at Henry Global have said it's an SEC compliance issue, but they did not elaborate further.
The Henry Global Website states that the company operates from over 50 branches, four of which are located in the United States and include offices in Los Angeles, New York, Boston, and San Francisco. The company is not a registered broker-dealer in the United States, however.
Henry Global's US locations
According to Joop Bollen, an SDRC principal who is named in the lawsuit, it was Henry Global's responsibility to provide investors with all the necessary details about the NBP project during the recruiting process. He also says that the first four plaintiffs dropped out because they never even realized that Henry Global signed them on to a lawsuit in the first place. Others were soon recruited, however, and Bollen claims that Henry Global is now guaranteeing the investors a return of principal and full compensation for all legal fees if they join the lawsuit.
Website for Northern Beef Packers, Aberdeen, South Dakota
We reached out to Henry Global for further comments and clarification, but we did not receive a reply prior to publication.
A history of delays
Unfortunately, this lawsuit is only the latest in a series of setbacks for the NBP project. In fact, to say that construction of the beef packing facility has had its share of ups and downs over the past several years would be an understatement.
Michael Gibson of USAdvisors.org filming Joop Bollen of SDRC in front of the meat packing facility, 2008
In 2007, a handful of families residing a mile north of the construction site filed a lawsuit against NBP and two other businesses. The suit alleged that these businesses had or would create a nuisance.
Although that suit and a similar one that followed it were dismissed, additional trouble arrived the following year when a digging company filed a $2.1 million lien against NBP. NBP, in turn, filed a civil lawsuit against the digging company alleging that the contractor "overcharged and double-charged for dirt-work."
In March of 2009, local publications reported that 7 companies had filed liens against the beef processing plant. By 2011, that number rose to 20, which put the total in excess of $10 million according to Aberdeen News in Aberdeen, South Dakota. Repayment was "in place for all but one business" as of last June, but the lawsuit against the digging company was still in the court system.
And on top of that, there's this from Aberdeen News:
Southern Dakota Contracting filed a civil suit against Northern Beef Packers in March seeking $562,965 plus interest for excavation work. Northern Beef disputes part of the cost, Kaiser said. That suit is also making its way through the courts.
At times in the past, Northern Beef's property taxes have been delinquent. The plant's property taxes are [now] up to date, said Dorene Borchard, Brown County chief deputy treasurer.
Mike Rounds (R-SD)
This was a project that had the support of former South Dakota Governor Mike Rounds
, who helped NBP secure a $1 million grant from state coffers to support the construction. Richard Benda, the former South Dakota Secretary of Tourism and State Development worked as loan monitor for the NBP effort and even traveled to China to promote the project to potential EB-5 investors.
Yet in spite of its promotional support from public officials and monetary support from South Dakota taxpayers, the plant, as reported by Aberdeen News "has been a long time coming." With a history of lawsuits, liens, and tax issues, the NBP project is still not operational nearly six years after the site was purchased by the original developers.
The current lawsuit, then, is only the most recent in a series of challenges that have stymied the efforts of developers, investors, and the state to create jobs in South Dakota.
In Part II of this series, we consider SDRC's response to the current lawsuit.
Update: The original incarnation of this article listed addresses for Henry Global's Los Angeles, New York, and Detroit locations. We have since learned that Henry Global no longer maintains a Detroit office and have modified the text and images to display the current locations of Henry Global's US operations.