Politics & Government

Revealed: New Ethics Scandal Involves a South Dakota Senate Candidate

Once viewed as a lock for Republicans, the race for the open US Senate seat in South Dakota is now very competitive as corruption allegations plaguing GOP candidate and former Governor Mike Rounds boost the prospects of his challengers, including Democrat Rick Weiland and independent candidates Larry Pressler and Gordon Howie. In particular, Rounds has been dogged by accusations that an EB-5 visa program heavily promoted by his administration violated the law as it provided American visas to wealthy Chinese investors.

Now, records reveal that the same state agency that oversaw the controversial visa program also extended taxpayer assistance to companies in which Rounds and his campaign manager, Rob Skjonsberg, are investors. Governor Dennis Daugaard, Rounds' successor and former running mate, appointed a number of Rounds allies along with Skjonsberg to the board that made the investment decisions.

The relationship between Mike Rounds and Skjonsberg has been very close for over a decade. “My life took a 180-degree turn,” Skjonsberg recalled years ago when remembering the moment Rounds picked the former campaign volunteer to become his chief of staff after winning the gubernatorial election in 2002, calling the experience “one of the greatest opportunities and privileges in my life.” Since then, Skjonsberg's stock in state politics has been rising, as he has co-founded a political-consulting firm, taken on work for Rounds' insurance company, and was picked to serve as campaign manager to lead Rounds' quest for the open Senate seat this November.

The ties extend into an investment scheme that appears to have violated state ethics guidelines. Records show that an economic-development board overseen by Skjonsberg and other Rounds supporters provided special tax incentives and other state assistance to start-up companies that are part of the portfolio of a boutique investment firm called Lake Sharpe Investments. Lake Sharpe, which is run by Skjonsberg, counts Rounds as a personal investor to the project, according to documents obtained by The Nation.

In January of 2013, Skjonsberg was appointed by current Governor Daugaard to the South Dakota Board of Economic Development, a department within the Office of Economic Development tasked with promoting economic growth through loans, tax credits and other programs to boost local businesses. Six months prior to the appointment, Skjonsberg formed Lake Sharpe Investments, a company in which Rounds holds a position and an investor.

Lake Sharpe, through a private equity firm called Nordic Venture Partners, holds a number of investments in start-up companies, including an electronics fashion company. Two of the firm's investments are in South Dakota: Novita LLC, a start-up developing corn-oil technology and Design Tanks, a firm that manufactures fiber-glass storage tanks for the gas and agriculture industry. Skojnsberg is reportedly an expert in crop-fuel technology. He previously served as a lobbyist for POET, one of the state's largest ethanol producers, and as a founding board member of Growth Energy, a trade association for the ethanol industry.

Novita has been one of the largest recipients of state aid through a Board of Economic Development program that assists companies with upfront costs associated with expanding operations. On September 17, 2013, the state announced the firm would receive $771, 082 from the program. Twice this year, including as recently as August, the board voted to extend the permit for Novita given construction delays. The Board of Economic Development has also provided loans to the fiber-glass storage company partially owned by the Skjonsberg-Rounds investment firm. Records show the state board REDI loan program provided $900,000 to Design Tanks.

Skjonsberg, a member of the Board of Economic Development, voted in support of the permit extensions on behalf of Novita, according to minutes of board meetings.

South Dakota administrative rules state that Board of Economic Development members may not “participate in or vote upon a decision of the board relating to an applicant or loan servicing action relating to a borrower in which that individual has a direct personal or financial interest.”

“If there is a conflict, the burden is on the board member to let the other board members know,” says Jeff Erickson, the chairman of the Board of Economic Development. “They then are not allowed or able to vote. They have to recuse themselves not only from the discussion but also the vote.” Asked about Skjonsberg's investment in Novita LLC, Erickson said he could not recall the vote or Skjonsberg ever informing the board of his investment but said if he holds a stake in any firms applying for economic assistance, “he would have needed to disclose that and recuse himself.”

Tony Klein, the secretary of the board, also could not recall if Skjonsberg disclosed his investment into Novita but said recusals are noted in the board meeting minutes. A review of the minutes shows no such disclosure.

In response to an e-mail from The Nation, Skjonsberg provided the following statement:

I am a member of a LLC. That LLC is subsequently invested in a separate fund. That separate investment fund, twice removed, has their own independent management and they make their own investment decisions. I am not fully versed on the investments, now three times removed, made by this separate fund—but nonetheless I've come to understand that the perception of a conflict has arisen. I've advised both the commissioner and the board chair that I have taken steps to ensure the perceived conflict is avoided in the future.

J. Pat Costello, the commissioner of the Governor's Office of Economic Development, which oversees the board, e-mailed The Nation to say that Skjonsberg was not present for the discussion of the merits of the Novita application and only voted for permit extension requests. Asked if the ethics rules prohibiting board conflicts of interest applied to Skjonsberg's votes on the Novita permit extension, Costello e-mailed to say, “Yes, the ethics rule apply to all related votes including the extensions.”

The money granted to the firm has not yet been delivered.

The claim that Skjonsberg wasn't aware of his own investments surprised Cory Allen Heidelberger, a left-leaning watchdog blogger in the state. “What's disturbing is that he did not recognize this when he got on the board. I find it incredible that he claims he didn't know that big chunks of his money were going to this particular project,” Heidelberger told The Nation.

“This situation, when we look at the context of what was going on with EB-5, they seem they think they are entitled to pad their own interests, and no one will catch them with their hand in the cookie jar,” he adds.

Ethics forms show that the value of Rounds' investment in Lake Sharpe, the firm with a stake in Novita and other start-ups, increased from between $15,000 and $50,000 in 2012 and early 2013 to between $50,000 and $100,000 in the following reporting period. (Senate disclosures allow candidates to disclose investments in a range of values rather than a specific amount).

Other Economic Development Board members hold close ties to the former governor. Board member Mike Lukens, who raised the permit extension for Novita, was originally appointed by Rounds. Board members Dale Clement, Ted Hustead, Greg Heineman, and John Calvin are donors to Rounds' US Senate campaign committee.

As governor, Rounds used the Office of Economic Development to effectively privatize the EB-5 program by providing a no-bid contract to a private company called SDRC Inc. to administer the effort, which grants American visas to foreigners who invest at least $500,000 into job-creating US companies. Northern Beef Packers, one high-profile EB-5 project in South Dakota, raised nearly $100 million from the EB-5 program, while executives from SDRC pocketed millions of dollars through fees. Just two days before leaving office, Richard Benda, then-secretary of development under Rounds, approved a $600,000 loan to Northern Beef Packers. Benda then joined SRDC and was accused of using investment project money to pay a personal loan. Soon after Northern Beef Packers received increased state assistance, the firm declared bankruptcy.

The EB-5 under Rounds has also been accused of lax oversight and few safeguards to prevent fraud in other investments in the state. Federal investigators have subpoenaed the state economic development office, and state investigators are reportedly probing the involvement of Rounds and his administration in the EB-5 program. Last year, Benda died in circumstances that are widely believed to be suicide.

Lee Fang is a reporting fellow with The Investigative Fund at The Nation Institute, now known as Type Investigations, now known as Type Investigations.

This piece originally appeared at The Nation and is posted here with permission.

About the reporter

Lee Fang

Lee Fang

Lee Fang is a journalist with The Intercept with a longstanding interest in how public policy is influenced by organized interest groups.

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