(Head) Commerce accuses recreational vehicle company of misusing loan funds

(Sub) Officials froze loan after sensitive materials found at facility, feared lawsuit

 

By Michael Standaert, North Dakota News Cooperative

Just two years after welcoming recreational vehicle company Hoefer Group to the state with open arms, North Dakota’s Department of Commerce appears ready to show it the way out.

The latest move is part of a larger saga of controversy surrounding the company’s efforts to produce RVs in Dunseith.

This includes potentially sensitive defense and aerospace materials and documents found at its site and a loan freeze by Commerce last fall, as well as fears by Commerce officials late this summer that they may be sued by Hoefer.

The high drama led to a state of semi-paralysis at the company for most of the last year. No RV units were finished and hiring slowed. 

This appears to come partly out of concerns related to fully opening the facility to the public while the materials remained at the site, and partly due to time spent on a lawsuit and dealing with authorities.

On Nov. 3, representatives of Commerce made a request to company CEO Charles Hoefer for financial records regarding expenditures from a $2.25 million line of inventory financing credit awarded to Hoefer Group in early 2022 by the North Dakota Development Fund. This followed three similar requests in October.

The inquiries were prompted, according to the notice Hoefer shared with NDNC, by the slow progress toward producing RVs, which site officials say they noticed at the July 13 soft opening in Dunseith.

“We have concerns that you may have misused the loan funds,” Shayden Akason, head of investments and innovation at Commerce, wrote in an email to Hoefer. The email was forwarded to NDNC by Hoefer Nov. 3.

Commerce will turn the matter over to its legal team and “presume you’ve defaulted on the loan agreement” if Hoefer hasn’t filed the records by Nov. 10, the email reads.

In the notice, Akason said that Hoefer had acknowledged diverting $700,000 in capital meant to go toward inventory to facility projects, legal services and reporting.

Hoefer said he had already discussed the possibility that remediation costs would be covered by the loan with state officials in the past few months, and emails about those discussions were viewed by NDNC.

“They told me to do it,” Hoefer said, adding that Jessica Tooke, CEO of the North Dakota Development Fund, “sat there and went through my bank statements this spring and told me how to spend it and told me what to do.”

Hoefer also claimed that working capital costs were also covered under the loan agreement.

“I sent (Tooke) my 2022 financials and the draw request in June after she sat down at the site with me and she approved it,” Hoefer said. “And now they're alleging that I misspent from the first half of the year.”

The material viewed by NDNC included emails sent by Hoefer in early July before the soft opening that mentioned initial discussions he had with Akason about increasing the loan from $2.25 million to $3 million to cover remediation costs and delays in production.

NDNC received no response from Akason from a Nov. 1 query asking about whether those discussions took place or if anything was agreed upon.

An Aug. 14 recording of a conversation between Tooke and Hoefer relays several pieces of information that go counter to the narrative Commerce appears to be trying to portray.

In the recording, Tooke advises moving forward with requests to the NDDF board regarding an increase in the line of credit up to $3 million, which would be within the loan authorization limit, she said. Tooke added that this would need board approval and suggested it could be approved at an upcoming NDDF meeting.

“I think the board would be completely understanding of it,” Tooke said of the request. “I don’t see an issue with it by any means.”

Tooke also states that she had “heard nothing but good” from NDDF and Commerce participants at the soft opening, so if there were concerns, they don’t appear to have been voiced to her at that time.

The mention of “legal services and reporting” in the email to Hoefer about misuse of funds is related to a lawsuit filed against Benchmark Electronics and Dunseith resident William Tuttle first in April, then amended in August.

An early July email from Hoefer to Commerce officials also suggested that Hoefer and his lawyer were advised by Commerce in filing the lawsuit. Hoefer describes the suit as an attempt to prompt authorities to remove the potentially sensitive materials.

Commerce has not responded to questions about the accuracy of those statements and how much input it had on the decision to file a lawsuit.

The lawsuit against Benchmark – settled in mid-October – was related to potentially sensitive aerospace and defense components and documents found at the facility in the months following the start of renovations in August 2022.

Benchmark occupied the site into 2015 and had a working relationship after this with the company that remained there, Chiptronics, Inc.

In separate visits, authorities from the Internal Revenue Service, Federal Aviation Administration, and a group of armed forces investigators led by the Army Criminal Investigation Division, collected materials in March, May and June of this year, respectively. Only the Army CID has confirmed an active investigation after queries from NDNC.

Since first being approached on Sept. 25 by NDNC about the state’s relationship with Hoefer, Commerce officials have declined requests to answer questions in person and have only answered via email. Records requests made to Commerce in late September had only partially been completed by Nov. 5.

Troubles begin

All public facing by Commerce regarding its relationship with Hoefer Group up to this point has been positive, including at the July 13 soft opening, attended by Commissioner Josh Teigen and other department representatives.

Under the surface, however, there have long been problems. Just a year ago, Hoefer himself was seriously contemplating a move.

“My concern given the current escalation is that we're heading for a fracture with the local community that might be irreparable,” CEO Charles Hoefer wrote in a Sept. 19, 2022 email to Commerce officials raising the possibility of relocation.

After the July 2022 dismissal of Tuttle, Hoefer claims he began uncovering materials at the site related to work done by Tuttle’s former company, Chiptronics. Tuttle apparently was a well-respected member of the Dunseith community and a former tenant of the building, and the city suggested he could work for Hoefer RV.

These materials included financial documents, tax returns, shipping records and physical components related to aerospace and defense work done at the site. Documents and components were related to work done at the site for former tenant Benchmark, as well as Honeywell, Lockheed Martin and others.

One of those was a company called Axelo, Inc. of Texas, which received a 2017 research grant from Research North Dakota for $103,000, along with a private sector matching grant of the same, on sensors used in unmanned aircraft systems.

According to a Commerce record, Axelo had an agreement with Chiptronics and Wahpeton-based company ComDel on manufacturing. NDDF Chairman, James Albrecht is also president of ComDel.

The extent of these relationships and work conducted at the site were never disclosed in his dealings with NDDF, Commerce or city officials before bought the site, Hoefer said.

In the days and weeks before the Hoefer email speculating a move, several state and federal officials were contacted about the materials. They include agents from the North Dakota Bureau of Criminal Investigation (BCI), the U.S. Department of Homeland Security, the FBI and the Pentagon. Several agents then visited the site.

Local BCI agent Craig Zachmeier had already contacted IRS agents in mid-August 2022. Zachmeier also indicated he had prepared charging documents on Tuttle by Sept. 13, 2022, according to written and audio records reviewed by NDNC. No charges have been officially filed.

Zachmeier declined to comment when contacted by NDNC.

Through his attorney and through relatives, Tuttle has declined requests to speak about his side of the story.

State of fear

A series of attempted break-ins at the facility along with several stalking incidents after local and federal agents visited in September 2022 left Hoefer and his family in a state of fear, he said.

Hoefer claims local police were not helpful or only partially helpful during this period in allaying those concerns, leaving him feeling exposed to growing community mistrust and resentment related to his firing of Tuttle.

Agent Zachmeier acknowledged the issues with local police in a recording reviewed by NDNC. The recording was during a discussion between Zachmeier, Hoefer and IRS agents visiting the site for an evidence collection this March.

It was that mid and late September 2022 period when Hoefer felt most exposed, and abandoned, he said.

Despite those concerns, Commissioner Teigen notified Hoefer on Sept. 27, 2022 that his $2.25 million line of inventory financing credit was being frozen until “this situation has resolved itself and operations have begun,” wrote Teigen.

“I know you have already notified the Attorney General's office and I have faith that the proper authorities have taken or will take the adequate steps to mitigate any risk that may exist,” wrote Teigen, according to records obtained by NDNC in an open records request.

Hoefer said authorities failed to do much of anything, and he had to ask Bottineau police to provide personal protection. State officials apparently did not believe Hoefer’s claims, and moved to shut off his funding with the loan freeze.

Hoefer said he contacted the Attorney General’s office around August or September 2022. Akason also recalled reaching out to the AG’s office, but said he “did not get a response.” Hoefer said he’d also attempted to set up a meeting with the AG’s office through Akason at the time, but this request was never fulfilled.

According to Akason, “Our primary concern was and is protecting our investment and in order to best do that, we believed it in the fund's best interest to freeze further draws on capital until the situation allowed for Mr. Hoefer to focus on the business and operations to begin.”

There was no response to questions sent to the AG’s office Oct. 31 about when it first learned of Hoefer’s situation, what actions were taken to address the allegations regarding local police inaction, and whether federal authorities had any say in how the state proceeded in its investigations.

The AG’s office previously confirmed an ongoing investigation related to issues at Hoefer’s facility.

Oct. 1, days after the loan freeze, Tooke visited the site to discern the situation herself.

Hoefer said Tooke quickly recognized the seriousness of the situation, which she affirms in a recording reviewed by NDNC. Shortly after this, the freeze on the line of credit was lifted.

In the Aug. 14 recording, Tooke says: “When I came out, and came back (to Commerce) and said, ‘Hey guys, this legitimately is what's going on,’ it’s never been a question of, you know, disbelief from there on.”

Unredacted documents reviewed from a records request made by NDNC to Commerce covering the period between March through August 2023 show no signs of concern on the part of officials about Hoefer potentially misusing funding.

On the contrary, most are positive. Much of the discussion revolved around officials preparing for the soft opening in July as well as addressing concerns in the community of Dunseith related to friction between Hoefer and Tuttle.

In early May, writing to another Commerce official, Tooke said, “I can't wait for you to see everything that Charles has been working on. That building has taken on a full 180 and is simply amazing. But as far as the issue that we have going on, I have been honestly holding Charles' hand through the whole process and we are making progress …”

Local knowledge about the difficulties Hoefer faced getting the site cleared of sensitive components and documents, and their collection by federal investigators, does not appear to have been widespread.

Commerce told NDNC that it is not responsible for smoothing out community friction.

Officials also acknowledged that Tooke was present for both the FAA and Army CID evidence collections, and remotely for the IRS collections, but that her presence was “simply to ensure Mr. Hoefer was making progress on executing his business plan proposed to the NDDF, which is to manufacture RV units.”

Security camera footage from Hoefer’s facility shows Tooke assisting in moving files and boxes with Department of Defense agents whose badges are clearly displayed during their visit in late June.

Commerce feared lawsuit

In late August this year, Commerce itself was preparing for what looked to be an irreparable fracture with Hoefer out of fear he was preparing to sue the state.

This came after Hoefer sent its amended lawsuit to Commerce officials, along with a proposal for a “civil liabilities discharge” that would release the department from any potential lawsuit related to its knowledge of activities at the site that were not disclosed to Hoefer before the purchase.

Several local and state entities, including representatives from Commerce, held almost monthly meetings with Tuttle on Chiptronics activities between 2015 and up to the latter half of 2019. Around 150 pages of records held by the Bottineau EDC and documents provided by Commerce after an open records request detail this relationship.

Commerce reacted to Hoefer’s proposal by reaching out to the AG’s office to assist, according to documentation obtained by NDNC through an open records request with the Attorney General’s office.

The email from Hoefer also proposed increasing the line of credit, lowering interest rate terms, and moving forward with another lender that would be subordinate to NDDF’s position in the lending hierarchy.

Akason told NDNC that the requests by Hoefer “felt a bit like blackmail, extortion, or whatever other word you might want to put on it” but also noted that Hoefer said he had no intention of filing a lawsuit against Commerce.

Hoefer also told NDNC he has no plans to sue Commerce, and said he had other discussions with Commerce prior to sending the proposed civil liabilities discharge so they understood what was coming. On the financial requests, Hoefer said these were also discussed over the previous months with Akason and Tooke.

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Jessica Tooke, North Dakota Department of Commerce