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Native businesses face 'financial ruin' after 8(a) suspension

Jill Burke

Another Alaska Native-owned company has found itself tangled in litigation arising from alleged 8(a) contracting abuses. Cape Fox Corp., a village corporation established under the Alaska Native Settlement Claims Act, and two companies it owns -- APM LLC and 1CI Inc. -- are suing two of APM's former CEOs and four of those men's companies for $27 million in damages. It's the latest chapter in an ever-more-complicated narrative unfolding around the Native contracting world -- one in which Outside, non-Native managers, brought in for their ability to land lucrative government contracts, tactically structure business relationships to enrich themselves along the way.

The government contracting preferences that helped Cape Fox Corp. rebound from tough financial times in the last decade are now at the center of a criminal investigation, according to the United States Air Force. Last fall, the Air Force expelled 20 contractors from its procurement list, citing an extensive scheme to exploit and deceive an award process designed to assist small and disadvantaged businesses -- businesses which, if Native-owned, are given preferential treatment. Six of the companies named have direct ties to Cape Fox. The rest have ties to former APM chief executive Townsend Jackson, his brother Craig Jackson, and other family members.

The allegations are stark. The Air Force suspects the 20 companies in question received more than $700 million in ill-gotten government contracts, mostly through the U.S. Department of Defense. Although the turmoil started years ago, the fallout is far from over. A government investigation remains underway. The suspended companies have had their small business contracting privileges yanked -- a devastating financial blow. A congressman is demanding answers about how companies known to have problems continued to land contracts. And Cape Fox is now keeping the business partners that once had a heavy hand in its rising success at arm's reach, turning former allies into courtroom enemies.

In the 8(a) world the stakes are high. Within three years of its acceptance into the 8(a) program in 2003, APM landed more than $383 million in sole-source and competitively awarded contracts, according to the U.S. Small Business Administration and the Air Force. Contracts since then include more than $21 million in work last year for the Air Force, funded by the American Reinvestment and Recovery Act. But by then the company was already under investigation, and U.S. Sen. Tom Coburn, R-Okla., has sought answers as to how a company already on the radar for not complying with the rules continued to feed off of the flow of highly prized government gigs.

In August 2008, the Office of the Inspector General for the U.S. Small Business Administration discovered that APM never received SBA approval for the many management agreements, worth millions, into which it had entered with other companies and non-Native executives. The report showed that APM's relationships began with Townsend Jackson, a successful African American businessman from California, within months of APM's 2003 acceptance into the 8(a) program, and that steps were taken to hide information from the SBA that would have revealed APM's growing size -- a factor that could have cut off access to some of the high-dollar sole-source awards it received. The concealed information called into question $136 million dollars in 8(a) contracts received by APM that may have been affected by an accurate size determination, according to the OIG report.


OIG recommended that APM be immediately suspended from 8(a) contracting for its "repeated noncompliance" and "ongoing refusal to provide truthful and complete information," and that procurement agencies, like the Air Force, be warned about the suspensions so that any further contract awards could be avoided. One day later, the SBA said it would comply. Yet the Air Force kept doing business with APM and other Cape Fox companies or business ventures, including 1CI Inc., 1CI-All Cities JV, APM Construction Management LLC, APM LLC of Alaska, and Arctic Pipe and Materials.

It was more than a year later, in September 2009, that the Air Force suspended 19 companies implicated in the fraud scheme first uncovered by the OIG report. A 20th company, an APM joint venture named CON-COR, was suspended a month later. The audit and criminal investigation found that APM and the Jacksons conspired to hide APM's 8(a) ineligibility by failing to disclose the extensive list of companies owned or controlled by the Jacksons and by hiding Townsend Jackson's ownership level and influence in APM, and that the scheme allowed the men and the companies to bring in hundreds of millions of dollars to which they were not entitled, according to the Air Force's suspension letter.

Cape Fox Corp. is doing what it can to minimize the massive fallout by going after Jackson in federal court. The corporation alleges that Craig Jackson secretly operated 1CI for his personal gain and that both he and his brother skimmed money from APM. To date, the Jackson-controlled companies have pulled in more than $13 million through their 8(a) contracts with APM. But the investigation and suspensions have brought the money flow to a grinding halt. 1CI and APM have been booted out of the 8(a) program and are "facing financial ruin," according to the complaint, and parent entity Cape Fox Corp. has been asked to prove why it should also not be kicked out of the program.

When it comes to finger pointing, Cape Fox is not alone in positioning itself as a victim to predatory practices. Earlier this year, another Alaska Native-owned corporation -- Sitnasuak Native Corporation -- locked horns in court with former executives after unacceptable small business practices threatened its own 8(a) status. Sitnasuak has settled out of court with one executive, Jim Nunes, while litigation with the other -- longtime board president Robert Fagerstrom, ousted last spring -- remains ongoing. The company has since successfully defended its 8(a) status, said Trudy Sobocienski, Sitnasauk's current president.

CORRECTION: An earlier version of this story incorrectly stated that Sitnasuak is a subsidiary of The Kuskokwim Corp. It is not. The Kuskowkim Corp. is the parent company of Suulutaaq, which is suing a reporter and the San Francisco Chronicle for slander over a story looking into how stimulus money was spent, and contracts awarded, in California.)

Contact Jill Burke at jill(at)alaskadispatch.com.