Mamtek's sucralose project in Moberly, Mo. (photo by Ty Cacek Bloomberg Businessweek)
In the recent article from Bloomberg Businessweek's Susan Berfield, A Missouri Town's Sweet Dreams Turn Sour, the author describes in great detail how the hopes of one small midwestern town collapsed under the weight of lofty promises and false promotion involving a project partially funded by EB-5 visa investors. This follows our reporting of the story in September.
Her investigation reveals that, in the rush to create desperately needed jobs in a small town without many options, city planners and economic development officials did not ask many questions about promoter/developer Bruce Cole and his plans to create a large manufacturing plant despite having little experience or financial resources:
Although Cole would not comment, interviews with former Mamtek executives, consultants, and city officials, as well as a review of the bond offering, legal filings, and other records made public, tell the story of Mamtek?s collapse. It?s a tale of economic desperation, the lure of Chinese wealth, and, most of all, people?s need to believe. ?We all thought this was going to be awesome. We thought everything had been checked out,? says Lindsey. ?Shame on us.
Berfield writes that Cole did try to shop his dream to other states, but they were not receptive to his claims without evidence to support his assertions:
They really didn?t show up with a lot of material,? says Russell Staiger, president of the Bismarck-Mandan Development Assn. ?We never saw any information about their financials. It was all just talk. They didn?t even bring any sucralose. We have an expression up here: a rancher who?s all hat and no cattle.
The following saga of development and mismanagement is well chronicled in the article, including the injection of equity from private investors and the bond offering made by the City of Moberly. Throughout this stage, developer Cole was constantly short of cash, a problem for which he was counting on EB-5 visa funding to help make payments:
Although Cole didn?t mention it in his official pitch, he was counting on raising millions through the U.S. EB-5 visa program...Mamtek intended to set up its own center to attract Chinese investors for the sucralose plant and other Moberly projects. Mamtek applied for expedited approval in January, which Cole hoped would come in April. The government denied the request. Cole told Lindsey and other Mamtek employees that the company?s EB-5 application would be approved later through the regular process. In the meantime, he said, he was close to raising a great deal of money from other investors. No one had any reason not to believe him.
In the meantime, other Mamtek personnel and investors, unaware of the financial difficulties, continued to pour money into the operation and hire job seekers, receiving over 5,000 applications for the 120 jobs scheduled for the sucralose plant. To compound the difficulties, the market price for sucralose dropped substantially as Indian and Chinese manufacturers came on line, depressing the price from $250/kilo to as little as $90/kilo. Mamtek's plan to sell at $170/kilo had to be revised in light of current market conditions to as little as $120/kilo, just above operating margin.
In the meantime, Cole was busy shuttling back and forth to China, where he hired well-known Chinese migration agent Well Trend to promote his project offering to unsuspecting wealthy Chinese investors:
Cole hoped to get those millions from an EB-5 project in Philadelphia that had stalled. (Mamtek?s own EB-5 approval came in mid-August, though before then the company did attract a total of $2 million from four Chinese investors.)
The President of Well Trend, a Mr. Wang, has said that the company makes field trips and does in depth, comprehensive EB-5 research to get the most realistic data and objective information that they then pass on to their clients:
It is a rigorous, robust business concept which has produced impressive achievements and reputation, winning customers, peers and praise
Well Trend's goal is selective U.S. investment, cognitive and rational selection of EB-5 projects, experience immigration track record, stable operation and low risk projects
Fortunately, Well Trend's lack of due diligence on Mamtek or Cole resulted in only four investors placing their funds in the sucralose project despite the fact that the agency gave it a five star ranking and placed it second on their list of preferred EB-5 visa investments, behind only CMB and ahead of Pennsylvania's SETA and the Kimpton Hotel offerings.
Well Trend was not the only promoter of the project. Former Missouri Governor Bob Holden formed the company MidWest US-China Association to promote ventures like Mamtek to the Chinese. The Association promotes itself as a "hub to form meaningful partnerships that make full use of the opportunities that collaboration between the Midwest U.S. and China provides, bringing long-term growth to each region."
Our members benefit from MWCA's intentional networking approach that offers more intimate delegation settings with a high value for dialogue and one-to-one interaction. New partnerships are forged as ideas are exchanged. Meaningful information is shared. Real business results are evident.
When asked for comments after the project?s failure, Holden downplayed his role, saying that he was only there to solicit investments and that "the association did not check to see whether the company was legitimate or had the funds necessary to sustain a major project."
"I don?t have the staff to go in and do all the due diligence," Holden said. "That would take a considerable amount of money with not a good rate of return."
Bloomberg reports that the SEC is now investigating as well the Missouri Attorney General's office and state lawmakers. The trustee for the bond issued by Moberly, UMB Bank, is suing Mamtek in federal court and trying to force what is left of the company into bankruptcy.
The immigration agency in Beijing that pitched Mamtek to its clients, each out $500,000 and an EB-5 visa, says it may sue Cole.
The report by Berfield finishes with this thought:
Officials in Missouri, quick to welcome Mamtek, are now loath to take responsibility for its demise. Moberly trusted the expertise of Mamtek?s own counsel as well as the appraisal firm and the bond underwriters, Morgan Keegan (which settled a fraud case this past summer related to subprime mortgage securities and is now up for sale).
Morgan Keegan said its due diligence focused on the city?s finances and that it relied on Moberly and the state?s Economic Development Dept. to verify Mamtek?s financial condition. Economic Development was wary of placing too many demands on companies interested in doing business in the state. That sends the message that they are ?obviously not welcome in Missouri,? said David Kerr, the now-retired director of the department, during hearings held by the Missouri House of Representatives in November.