Federal agencies want more beef plant information

PIERRE — More federal agencies are asking for information from the state related to the financial dealings of Aberdeen’s failed beef processing plant.

Pat Costello, the governor’s commissioner of economic development, disclosed on March 7 that the Housing and Urban Development, Energy and Treasury agencies want information from the Governor’s Office of Economic Development.

“The point is, we have a lot of questions from a lot of people,” Costello said.

The Legislature’s joint committee on government operations and audit met for four hours on March 7 about some of GOED’s financial practices and its involvement in the federal EB-5 immigrant investor program, which was used to fund the Northern Beef Packers plant in Aberdeen. The panel received two reviews from private accounting firms commissioned by Costello and the state Department of Legislative Audit.

In March 2013, state officials became aware that GOED and the EB-5 program were under investigation by federal authorities. That triggered a state investigation, followed by Costello on Oct. 15 contracting with a private accounting firm.

Despite the investigations, Costello says he believes the Aberdeen beef plant will be back in business with “a lot of jobs” within two years.

Costello told the legislative panel that state government provided $3.5 million in grants to the cattle processing plant before it was closed last year amid finance problems. He said the state treasury probably received nearly that much from taxes on the plant’s construction, equipment and operations. A $2 million state loan was repaid before the plant closed.

“In a reasonably short amount of time, we’re going to see a functioning beef plant,” Costello said.

White Oak Global Advisors received clearance in federal bankruptcy court on Dec. 3 to purchase the Northern Beef Packers operation for a reported $44.3 million.

Costello said White Oak’s interest is a good sign and he hopes White Oak will develop a manager or find someone else to re-open the plant. He said there is available cattle supply and he has been told the plant is “state of the art.”

“Certainly, there is demand,” he said.

Northern Beef was one of the South Dakota projects that received millions of dollars in loans from people in foreign countries through loan pools established by an Aberdeen business called SDRC Inc.

SDRC managed the EB-5 program for state government from 2009 until Costello terminated the relationship in Septemberr 2013. Investors provided $500,000 apiece as loans plus paid fees to SDRC. In turn, they hoped to qualify for permanent visa status to live anywhere in the United States. Many of the investors recruited by SDRC were from China and South Korea.

Costello’s predecessor, Richard Benda, signed the two contracts with SDRC and later went to work for SDRC in 2011 as loan monitor for the Northern Beef project.

Costello said on March 7 that EB-5 wasn’t the reason the beef plant didn’t make it.

“The failure was in the working capital. They ran out of money,” Costello said.

Investigations continue

After learning of the federal investigations and beginning the state investigation, the private accounting firm hired by Costello reviewed GOED’s disbursements from the Future Fund grant program during the period of Jan. 1, 2009, through Sept. 30, 2013.

Those events weren’t publicly disclosed as they occurred. But on Oct. 22, Benda was found dead of a gunshot wound to the abdomen at a relative’s farm near Lake Andes. Authorities later determined he died on Oct. 20 and used a stick to trigger the shotgun. His death was ruled a suicide.

The timing indicates Benda could have known at the time of his death that the private investigation of the Future Fund program was underway.

The attorney general reported in November that a $1 million Future Fund grant to Northern Beef as reimbursement for construction and equipment costs had $550,000 subsequently diverted to the EB-5 program. It was later learned that Benda delivered the check to Northern Beef in January 2011. That was after he left state employment.

The $550,000 reportedly was placed in a pre-arranged escrow account to pay Benda as loan monitor.

State officials said again on March 7 that Northern Beef didn’t commit any wrongdoing regarding the $550,000.

No state or federal charges have been filed so far.

“To our knowledge, the federal investigation is still ongoing,” GOED deputy commissioner Nathan Lukkes told the committee on March 7.

Costello disclosed that three other federal agencies — Housing and Urban Development; Energy; and Treasury — want information from GOED about operation of their programs by the state agency.

State agencies are changing some expense-reimbursement, travel, conflict of interest and background-check rules and policies in the wake of the findings by the accounting firms and Legislative Audit.

Benda was found to have double-billed for airline tickets to China twice and to Las Vegas.

The Legislature may consider allowing state agencies to conduct background checks as needed, members of the hearing panel said on March 7.

Asked whether he has spoken to Bollen since September, Costello told reporters, “Our conversations are through the attorneys.”

The committee plans to meet on the topic again, probably after the 2014 legislative session is completed March 31.

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