NEWS

Daugaard considers suing to recover EB-5 money

David Montgomery
dmontgomery@argusleader.com

Gov. Dennis Daugaard is considering a lawsuit to recover more than half a million dollars prosecutors say was stolen by former Cabinet secretary Richard Benda.

Benda was on the verge of indictment at the time of his death last October on felony theft charges. He was accused of redirecting $550,000 of a $1 million grant to an Aberdeen beef plant to his own salary. The alleged theft happened after Benda left office and was working for a private company monitoring the beef plant's loans.

Daugaard has said several times that he's trying to get that money back, but his administration didn't offer any details until this week. A private lawyer has been working for months to explore whether the state has a case to reclaim that $550,000.

"If there's a possibility that there are public funds that can be recovered, the state should make some effort to attempt to recover that," said Daugaard adviser Tony Venhuizen.

But in the murky world surrounding Benda and the state's EB-5 program, nothing is certain — including whether South Dakota will be able to get its money back.

To prevail in a court of law, the state would first have to prove it was entitled to receive its money, and then find a way to get that money. Even if the state makes its case, if the money's been spent or is otherwise inaccessible, South Dakota could come up empty.

Venhuizen wouldn't talk about specific difficulties involved with recovering the money.

"At this point, given that it's a matter of pending litigation, I don't know that I want to say that much about it," Venhuizen said.

The money in question was a $1 million grant from the state's Future Fund intended to reimburse Aberdeen's Northern Beef Packers plant for construction costs.

The grant had been increased to $1 million by Benda in December 2010, after Benda already has agreed to go to work for SDRC Inc. as a monitor for loans to the beef plant. He then hand-delivered the check after leaving office. Northern Beef cashed the check.

A draft criminal complaint prepared before Benda's death by Attorney General Marty Jackley's office accused the former cabinet secretary of "diverting economic development grant funds intended for the benefit of Northern Beef Packers to his own use and purpose." Benda was maintaining his innocence at the time of his death.

Former Gov. Mike Rounds, who left office at the same time as Benda, said last week that Northern Beef had owed money to SDRC but was pressured into paying promptly.

"When Mr. Benda delivered the check to the plant, he also asked for the fees of a company that was supposed to monitor their loan for the next two years," Rounds said at a debate for U.S. Senate, for which Rounds is a candidate. "He asked for $550,000 up front to cover that. The company knew that they owed the money, but they thought they had time to pay it. That's where the challenge is at."

Benda was the employee of SDRC charged with monitoring Northern Beef's loans.

It's unclear where the money went after that. But Paul Bachand, the Pierre lawyer hired by Daugaard's administration to investigate, might know. Last month, Bachand was given confidential documents prepared last year by criminal investigators. Under the special court order obtained with Attorney General Marty Jackley's consent, Bachand can review but not copy the investigation file and isn't allowed to disclose its contents to anyone other than Daugaard and other top state officials.

The trove of documents Bachand obtained includes witness interviews, emails and letters, bank statements, canceled checks, "evidence of wire transfers and other evidence of transfers of funds," Benda's credit card statements, receipts and cellphone records, and Northern Beef's private contracts, employment records, time sheets and other relevant records.

"It's a voluminous record," Venhuizen said. "I'm sure that's taking some time."

It's also taking some money. Bachand has billed the state $21,222.49 for work done since Nov. 1. Most of that money, Venhuizen said, relates to Bachand's study of the missing $550,000.

Bachand is billing the state at a rate of $155 per hour, meaning he's put in almost 137 hours of work since November.

That's more expensive than lawyers from the attorney general's office would have cost. The attorney general's office charges $87 an hour for legal advice when not providing it free. The Governor's Office of Economic Development hired an outside lawyer in part to avoid conflicts because the attorney general's office also had conducted the initial investigation.

Jackley and Venhuizen said the work could have been given to a separate lawyer under a "conflict wall," but that it seemed easier and cleaner to hire outside counsel. The Governor's Office of Economic Development has a history of hiring its own lawyers instead of using the attorney general's office.

The attorney general's Benda investigation file also previously was made available to the state auditor general, on a similar confidential basis, for an audit of the state's economic development office released earlier this year.

State lawmakers in both parties said they support the governor's exploration of recovering that money, though Democrats are frustrated it had not happened earlier.

"If there's a possibility of recovering (its money), I think it's worth looking into, certainly," said Rep. David Lust, the House Majority Leader. "Any time the state loses money, whether it's a bad debt or anything, it's worth considering your options for collection."

Lust, a lawyer who has worked on debt collection cases, said proving the state's claim might prove easier than getting the money. Unlike a criminal trial against Benda, where prosecutors would have to prove wrongdoing beyond a reasonable doubt, a civil trial would only require a "preponderance of evidence that the money was wrongly taken."

But the direct recipient of the state's grant, the Northern Beef Plant, went bankrupt last year and was sold at auction to a San Francisco investment firm.

"If you're a bankrupt corporation, you may not even defend it," Lust said. "You may just let the judgment hold or be attached and say 'good luck collecting it.' "

The two other potential options would be to recover the money from Benda's heirs, or to go after SDRC Inc., the still-existing company for which Benda was working at the time.

SDRC Inc. has money to pay such a claim. Under the terms of its contract to run South Dakota's EB-5 program, it was required to maintain $3 million in legal insurance and also two "indemnification funds" to cover potential legal costs — money that's monitored and controlled. As of July 31, those funds had more than $2.3 million between them.

Going after Benda's heirs could be trickier, and also could mean an uncomfortable spectacle of the state trying to claw money back from Benda's underage daughter.

Lust said everyone has tried to be sensitive to Benda's family, but that the state could have a good case.

"Just from a pure legal standpoint, if an estate has an asset that the decedent has obtained illegally, it shouldn't be an asset of the estate to begin with," Lust said.

Venhuizen wouldn't comment on the matter.

"Certainly, everyone has sympathy for the Benda family," he said. "But we're going to wait until we get advice from the attorney about if there's a claim available and who the defendants might be."

Democrats said Daugaard is right to try to get the money back but questioned why it's still being investigated.

"We've been saying that all along — where's the missing money?" said Rep. Bernie Hunhoff, the outgoing Democratic House leader. "I can't believe it's taken this long to even initiate anything."

Venhuizen said the state is trying to be careful.

"They need to evaluate whether there's a viable civil claim. If so, who that defendant or defendants would be, what is the likelihood of recovery, and then ... weigh the possibility of recovery against the cost of litigation," he said.