Alaska's natives getting hard lesson in modern business. Regional corporations run into financial difficulties
When the United States government granted Alaska's 70,000 Aleuts, Eskimos, and Indians $965 million and 44 million acres of land in 1971, there was a general feeling in Washington and elsewhere that historic justice had been done. But there is growing doubt here about how well all that money and land has been managed by the 13 regional native corporations established in the state under the Alaska Native Claims Settlement Act.
One of them, the Bering Straits Native Corporation, last month filed in US bankruptcy court for reorganization and protection from its creditors. It was the first such action by a regional corporation.
Several other regional native corporations have experienced financial difficulty, and only a few have been consistently profitable.
Responsibility for the difficulties Bering Straits and other native corporations are having remains to be determined. Some knowledgeable observers question the wisdom of expecting Alaska natives inexperienced in finance to make sophisticated business judgements. A pending law suit charges one of the state's largest banks with leading the Bering Straits Corporation into unwise investments.
The amount of land and natural resource wealth varies widely among the regional native corporations. Most have looked to resource extraction to generate a cash flow, investing in the state's traditional resource industries -- fishing and fish processing, timber, and minerals. These industries have slumped in recent years. Several of the corporations have acquired subsidiaries supporting Alaska's major resource developers.
The Bering Straits Corporation, facetiously called Dire Straits because of its penchant for losing money, is the first of the 13 regional native corporations to file for reorganization under Chapter 11 of the Bankruptcy Code.
Based in Nome, Bering Straits represents 6,500 Eskimo shareholders. The majority of them live within the boundaries of the corporation, which covers most of Alaska's Seward Peninsula and the eastern shore of Norton Sound. The region is one of the world's richest mineral zones, containing tungsten, uranium, gold, and other minerals.
In filing for bankruptcy protection, Bering Straits listed assets of $7.1 million and debt of $20.5 million owed to 100 creditors.
Native village corporations in the region, also established by the land-claims settlement, are Bering Straits's major creditors. They are owed $13.2 million in land-claims settlement payments that were to pass through Bering Straits to the village corporations. The deadline for transfer of those funds to the villages was March 1.
The money was lost through inept investments. The question now being asked in Alaska is: Who or what led Bering Straits to the brink of insolvency? The corporation's officials point to the lawyers, bankers, and other experts who flocked to the natives' cause in the days after adoption of the land-claims settlement.
But some financial planners hired by Bering Straits point out that authority to make decisions lies with the corporation's directors, who never complained about being misled until long after the investments turned bad.
The courts will settle the question of culpability. How it is resolved may determine whether Bering Straits can fashion a plan to pay its creditors and stay in business.
A case getting under way this week in Alaska Superior Court goes to the heart of the question of who is to blame for the corporation's mistakes. The law suit alleges settlement money for the 17 villages in the Bering Straits region was mismanaged by Alaska National Bank of the North. Court depositions indicate the bank had a hand in charting the corporation's troubled financial course through the 1970s. The bank president in that period was Frank N. Murkowski, a Republican who was elected to the US Senate in 1980.
The bank lost no money on loans for business ventures that flopped; they were guaranteed by millions of dollars in land-claims settlement payments deposited in the Bering Straits Corporation's account with the bank.
Mr. Murkowski and other bank officials have denied responsibility for the corporation's financial woes, saying Bering Straits made its own decisions.
The corporation tried to position itself to benefit from Alaska's oil boom, which started in the mid-1970s with construction of the trans-Alaska pipeline.
Bering Straits invested in construction companies, trucks and barge firms, mining projects, and bank stock. When the investment program fizzled, the corporation began selling its land to generate operation revenues.
The native corporation is involved in other law suits over its failed business endeavors, including one in connection with its investment in bank stock.
The corporation bought 112,000 shares of Alaska National Bank stock on contract in 1975, at $27 a share. Payments were halted in 1981, after Bering Straits had paid $23 a share, but still owed $4 a share plus $21 a share in interest charges to the Fairbanks, Alaska, group selling the stock, said Daniel Fondell, executive vice-president of Bering Straits. The stock was worth $12 a share when payments were stopped, Mr. Fondell said, adding: ``The sellers misrepresented the value of the stock to us at the time of the purchase.''
A state judge recently sided with the sellers against Bering Straits in a preliminary ruling. The judge found no basis for the corporation's claims of fraud, according to an individual involved in the case.
To some Alaskans the fault lies in the way Alaska's native land-claims settlement was implemented. Critics say a corporate system was set up that doesn't fit into the natives' traditional culture.
``The corporate structure . . . mandates a new method of thinking for those people whose historical approach to survival is based on a subsistence economy [fishing, hunting, trapping, and gathering],'' wrote Bering Straits shareholder June Degman in a recent newspaper editorial. ``At this time there are very few natives with a formal education. One could safely say we are the first generation formally educated and just one step removed from the Stone Age.''
A package of proposed amendments to the Native Land Claims Settlement Act began working its way through Congress last week with hearings by the House Committee on Interior and Insular Affairs.
The proposals would make it easier for native corporations to retain control of their lands, in part by preventing shareholders from selling stock to nonnatives.
Short of giving the Bering Straits Corporation more money, there is little Congress can do to help it avoid bankruptcy, said Glenn Fredericks, cochairman of the Alaska Federation of Natives, a lobbying group that is sponsoring the land-claims settlement reforms.
He added that Sen. Ted Stevens (R) of Alaska ``told us not to expect Congress to come up with any more money'' for native corporations.
While the native federation seeks to refine the land-claims settlement, it has reaffirmed the corporate structure it established as an alternative to reservations, Mr. Fredericks said. He expressed regret that Alaska natives were expected to master business principles so soon after receiving their land-claims entitlements.
``We weren't trained to run corporations,'' he says. ``They threw all this money at us and said, `Make a profit.' They should have just put the money in the bank and told us to take a long look at our future.''