Lower Brule Tribal Council members were among those who received payments from a taxpayer guaranteed loan that was used to buy a failing Wall Street brokerage firm.
But the payments to tribal members were not illegal and simply part of doing business in Indian Country.
Those are among the conclusions of a U.S. Department of Interior investigation into the tribe’s purchase of Westrock Group, a brokerage that went bankrupt shortly after the Lower Brule tribe bought it. The six-page Office of Inspector General investigation was completed earlier this year but not publicly released until Argus Leader Media filed a request under the Freedom of Information Act.
The findings contradict previous claims made by tribal officials that they did not receive money from the deal, which hinged on a $22 million loan guarantee from the Bureau of Indian Affairs. The tribe, through its entity known as the Lower Brule Community Development Enterprises, used $20 million of the loan guarantee to acquire Westrock after the Great American Life Insurance Co. bought the guarantee. The influx of cash allowed the tribe to pay off Westrock’s debt.
“Payments were also made to the board of directors for the tribal businesses and their subsidiaries, which consisted almost exclusively of Tribal Council members,” the OIG investigation says. “When those Tribal Council members attended board meetings with LBCDE, they were paid stipends, as well as travel and per diem – a common practice for tribal business entities.”
Gavin Clarkson, a consultant who helped structure the deal and who said last year that no tribal members received proceeds from the deal, did not respond.
The tribe ultimately defaulted on the loan, and the Burau of Indian Affairs refused to honor the guarantee with Great American Life. Great American has sued the Interior Department, meaning the tribe’s default could end up costing taxpayers $20 million.
The Westrock deal was a key subject of a 2015 Human Rights Watch report that accused former tribal leaders under Chairman Michael Jandreau of corruption and diverting federal funds meant for education and social services programs, leading to increased poverty on the central South Dakota reservation.
Arvind Ganesan, the report’s author and the director of the business and human rights division at Human Rights Watch, said the OIG investigation “basically confirms everything we said.”
“They don’t even deny that tribal members made money off it,” Ganesan said.
But the OIG investigation, he added, failed to answer fundamental questions surrounding the ill-fated Westrock deal. How much money did tribal members and others receive from the deal? Why did the report conclude that nothing illegal occurred when it appeared the loan guarantee was used to defraud the government or a private business?
“Isn’t there some sense that fraud was taking place?” Ganesan said.
The Rapid City office of OIG, which conducted the investigation, did not respond to questions.
The OIG investigation was also critical of the BIA’s process for issuing loan guarantees. The former chief of the bureau’s Division of Capital Investment, Philip Viles, told investigators that the loans were “inherently risky.” Despite that, there was bureaucratic pressure to use as much of the loan budget as possible regardless of risk to taxpayers, and Viles’ performance ratings were tied to issuing loans.
“Each year,” the OIG investigation concluded, “DCI received a budget (capacity) representing the amount of government funds it could obligate for future loan guarantees. Viles said DCI felt tremendous pressure to use all funds to either maintain or increase future budgets.”
Besides tribal members and Westrock shareholders making money on the deal, the investigation says that consultants and lawyers working for the tribe also profited by the deal, but the report doesn’t say how much money they received.
“People profited of it, and now the government could be left holding the bag, “Ganesan said.