No talk and no action: shareholders of the struggling 13th Regional Corp. -- angry and seemingly powerless -- want answers about where the money has gone. And while the state has confirmed it's investigating the ailing corporation, it won't say why.
The 13th Regional Corp. has come under investigation by Alaska's Division of Banking and Securities. But why and what might come of the inquiry remains unknown. Citing confidentiality, state officials aren't willing to talk about it.
The secret investigation is just one more incident over a long road, spanning years now, in which shareholders say they can't seem to get answers about or help with the troubled corporation or its board members, who routinely dodge demands for transparency and adherence to state reporting laws.
Even the state's highest politicians -- to whom shareholders have gone for assistance -- aren't exactly jumping at the chance to insert themselves in the controversy. These unhappy and deeply frustrated shareholders of Alaska's only landless Native corporation may also be among Alaska's corporate shareholders with the least clout.
Data filed with the state earlier this month shows just under 10 percent, or 500, of the Native corporation's 5,200 shareholders call Alaska home. With nearly 90 percent of the shareholders living in other states, what incentive do Alaska's government leaders or agencies have to lend a hand?
A few shareholders who have become de-facto watchdogs, like Carl Hart, who years ago was in discussions about potentially joining the board himself, are growing weary of the fight. It's a worthy fight, Hart said in a recent interview, but one in which he and a handful of other shareholders need reinforcement.
It's important "to make these people accountable for their role in driving this corporation into the ground, but more importantly, to hold them accountable for turning their noses to their shareholders and failing to meet their fiduciary duties to report their failures to shareholders," he said.
Hart has ongoing concerns about the corporation's business activities and what's happened to the money it generated in 2010, including whether the income may have offset lingering financial liabilities.
In December 2009, Alaska Dispatch reported on the strange cloud of mystery under which the 13th Regional Corp., apparently in dire financial straits, was operating. More than a year later, little seems to have changed, but for a passing admission by State of Alaska personnel that some kind of investigation was under way as recently as August 2010.
The corporation's unknown status is a maddening phenomena for shareholders who believe board members of the 13th have played fast and loose with what money may still exist and who have failed, as required by law, to be transparent about the corporation's affairs and fiscal status. They have nagged state agencies to do something -- anything -- to get the attention of board members and force some kind of helpful action. And, they have called on Alaska's Congressional delegation, in hopes it might reasonably be concerned about a failing corporation given that Alaska Native corporations owe their very existence to federal mandates that not only gave birth to them, but that also endow them with special access to government contracts and instill in them significant responsibility to use earnings to improve the lives of shareholders.
Thirty-six years after the creation of the 13th Regional Corp., who's looking out for its shareholders now?
Members of the corporation are so estranged from its dealings that in the months that have passed since Alaska Dispatch first reported on the corporation's ghostly existence, several shareholders, generally all Outsiders, have e-mailed looking for help. Who do they contact? How can they register to receive their annual dividend payment? Those who have stayed in contact with the corporation, however loosely, know that there have been no dividend payments for years. Unless there is a drastic turnaround, it's possible they may never see a payment again.
The money is one thing. But for the vigilant shareholders of the 13th, demanding responsible conduct -- as if it believed shareholders are at minimum owed insight into what's going on -- comes down to doing the right thing. So far, they feel "doing the right thing" may be an extinct instinct among people with any shred of power or influence over the situation.
A mission gone awry
The 13th Regional Corp. and Alaska's other 12 Native corporations, established by the Alaska Native Claims Settlement Act, are unique in the business world. The for-profit entities were created by Congress to stimulate economic development and provide for the welfare of their shareholders, Alaska Natives. The 1971 act settled aboriginal land claims with the U.S. government, thus clearing legal hurdles to construction of the trans-Alaska oil pipeline.
Nearly $1 billion and 44 million acres were handed over in the settlement, and 12 regional corporations and 200 village corporations were formed to manage the assets and disburse funds to more than 120,000 shareholders. Four years later, in 1975, another regional corporation -- the 13th Regional Corporation -- was created and given $52 million, but no land, to compensate about 4,500 Alaskans who no longer lived in the state.
The original shareholders, comprised of Alaska Natives who had moved Outside, each received 100 shares of stock. Today the corporation has self-reported it has about 5,200 shareholders. There have only been a few small dividend payments over the years, and over its lifetime the corporation has suffered from poor investments, evictions, near bankruptcy, questionable deals, lawsuits and sporadic oversight.
In a December 2008 letter to shareholders, posted on the 13th's now-defunct website, board members pointed to three "lightning strikes" that "undermined" the corporation's ability to recover: litigation; maxed credit lines and an inability to keep a subsidiary, for-profit construction operation afloat; and a failed land deal investment in Spokane, Wash. Despite the grim outlook, the board stated it believed "there can be a very viable future of no small significance for the 13th and its shareholders that is worth pursuing."
For shareholders, the sentiment is little more than smoke and mirrors. More than two years later, there are still no answers, no openly shared financial data, no annual meetings convened.
Shareholders must do the heavy-lifting
In a December 2009 interview, Alaska's Division of Banking and Securities explained that Native corporations are meant to be as autonomous as possible, with shareholders owning and -- ideally -- overseeing the investment, but they need to be proactive, according to Roger Prince, a spokesman and staffer within the division.
"It's like any multinational corporation. You can show up (to meetings) whether you own one share or a million shares," he said.
At the time, three 13th Regional Corp. shareholders, including a former board chairman, detailed their frustration with the current state of affairs. Among the complaints: missed meetings, lack of board responsiveness, failure to disseminate up-to-date financial reports and the recent closure of the corporation's Washington state offices. And the corporation, established in Alaska but also registered in the state of Washington, had lost its ability to do business in Washington.
Corporations are regulated by the state, and are required to file reports with the Department of Revenue and Economic Development, and the Division of Banking and Securities, but the departments have little power to force accountability to shareholders. Oversight goals exist to ensure that annual reports and taxes are filed, and that elections follow the rules. And in the case of the Banking and Securities Division, if a corporation's assets fall below $1 million in worth, or it has fewer than 500 shareholders, it doesn't need to file reports at all.
It turns out, according to data filed Jan. 4, 2011, that the 13th has indeed fallen beneath that threshold, as indicated by a form signed by board president Michael Rawley.
Unhappy shareholders have a right to call meetings to force action, and if they're really unhappy, they can take a corporation to court.
But it's easier said than done, attorney John Havelock told Alaska Dispatch in December 2009. Havelock has represented shareholders and village corporations in the past. In his view, even though Native regional corporations function in theory under shareholder vigilance and guidance, reality tarnishes the model.
"A business corporation is a business machine," Havelock said. "It is good at generating profits and for generating income for those that work within it. That directors are elected by shareholders does not make a corporation democratic. Large corporations, like most Native regionals, are sham democracies. Imagine if a municipal council could use municipal resources to elect themselves and pick successors."
The investigation
Carl Hart, a shareholder of the 13th Regional Corp., has been a persistent thorn in the side for the corporation that seems to want to do things its own way. The question is whether his vigilance will ever pay off.
When following up on what actions Alaska's Division of Banking and Securities had taken regarding various complaints he'd filed about actions by board members of the 13th -- specifically, whether they had sent honest literature to shareholders representing the corporation's financial condition -- he learned in August 2010 that action taken by the division was "confidential" because it had resulted in a "negotiated settlement." And there was one more hitch: the board members were not cooperating.
"We are likely at a stalemate, because the board members state that their terms have expired and likely will not be signing the consent order," Lorie Hovanec, director of the Division of Banking and Securities wrote Hart in an e-mail on Aug. 25, adding that she would keep him updated if there was any further action, provided "that action becomes public."
By September, Hart had tried using the Freedom of Information Act to get more information about the division's interactions with the 13th and its board members, but was again met with obstacles Hart was told all but one of the records "responsive" to his request would be kept out of view since they were "part of an investigative file under the Alaska Securities Act" and therefore confidential.
The documents the state did provide amounted to little more than a form letter asking the corporation to update its contact information and to list its current board members. A footnote in a Sept. 24 letter sent to Hart reveals that at least three other records relating to the situation exist but will remain shielded from public view: a letter to the corporation's five listed directors; a document relating to the investigation; and an audio recording of a phone call between a member of the Banking and Securities staff and a person who received the letter the division had sent to the directors.
Although the division appears to be looking into some aspect of the corporation's dealings, it is not authorized to meddle in "matters involving failures or acts of management" with which shareholders may disagree, according to the division's complaint form for ANCSA Corporations.
Its authority is limited to dealing with whether proxy solicitations are carried out lawfully and that they contain truthful information, and that the corporations file their reports on time.
Contacted for more information about the status of the 13th, the Division of Banking and Securities said it could neither confirm nor deny the existence of any investigations.
Sending out an S.O.S.
Shareholders continue to hope someone will step up and help. But the options may be limited, and the situation may be at the point where 13th Regional Corp. shareholders need to consider court action. Under Alaska law, a superior court judge can order the corporation to hold an annual meeting -- a first step in the attempt to regain some normalized operations.
But for the shareholders that feels like more hoops to jump through with minimal incentive. They've already spent their own time and money trying to keep track of a corporation that's supposed to be accountable to them. Filing a lawsuit would mean traveling to Alaska and paying more money into a process that has thus far failed them.
Then there's the matter of getting the corporation financially functional. Is bankruptcy the answer? If not, how to turn things around? And how can anyone know what action is best if the board remains evasive and its dealings are kept secret?
Is there a role for Congress to play, the body that brought Native corporations into existence to begin with? Is the situation bad enough that tinkering with federal law is warranted or even desirable?
Alaska Dispatch contacted the state's Congressional delegation to find out what, if anything, it's doing to help. Turns out the issue is a tricky subject, and the entire delegation is, at this point, directing the burden of a solution onto the shareholders.
"We've had contact with concerned shareholders of the corporation for more than a year and we've done our best to educate them on the options they may have," said Mike Brumas in Sen. Lisa Murkowski's office. "We have encouraged the shareholders who have contacted us to pursue their legal remedies under the Alaska Corporations Code. We have not come to any conclusions if a legislative solution would be viable."
Alaska Native corporations were a substantial and generous ally for Murkowski in her re-election race last fall and she has been open about her desire to protect the corporations' status under federal law, particularly with respect to beneficial contracting preferences with the U.S. Small Business Administration. And she has resisted some -- not all -- of the calls for greater accountability and reform by Native corporation critics like Missouri Democratic U.S. Sen. Claire McCaskill. Changing the rules to deal with a nearly defunct corporation may not be appropriate if it might also affect the state's other corporations.
Sen. Mark Begich is also aware there are issues with the 13th, according to his spokesperson, Julie Hasquet. Still, she didn't offer much in terms of what Begich's office might be willing to do to help. Begich "hopes the Corporation will be responsible to its shareholders as it is required to be, and he sincerely hopes the operations will improve," she said via e-mail.
Meredith Kenny in U.S. Rep. Don Young's office offered a similar refrain. "Congressman Young understands the concerns of these shareholders and sympathizes with them; however, it has not yet been decided that federal legislation is the answer to this issue," she said.
No pots of gold at rainbow's end
Earlier this month, the 13th Regional Corp. filed its biennial report with Alaska's Division of Corporations and Business Licensing. The report names current board members, who are carryovers from the last batch, the same group that would have told Alaska Division of Banking and Securities a settlement agreement could not be signed because their terms had expired. It also names a new attorney and a new mailing address in Washington state. But the report doesn't contain any financial information and is not required to do so.
When contacted for comment, one of the newly re-named officers, Jacqueline Rashleger, secretary, responded that she had resigned some time ago from the 13th Regional Corp.'s board of directors after being diagnosed with late-stage colon cancer more than a year ago.
Others, like Chris Kiana, who is listed as both a director and the corporation's vice president, referred us to board President Michael Rawley, who did not return our inquiries.
Hart and other shareholders are irate. How can the board present one image to state regulators and yet fail so miserably in its duty to let shareholders -- the true owners of the corporation -- know what's going on and to give them an opportunity to hold board members accountable for bad decisions?
And so it is that Alaska's distant, indigenous corporation shareholders are left, again, fighting a lonely fight. And no one's ready to make the recommended move of taking the corporation to court.
"It all comes down to money," Hart said, adding there's no sense spending good money on a bad financial picture.
They've even tried -- but failed - to find a lawyer willing to take the case on pro-bono. "Shareholders would have to expend a huge amount of money to sue the directors, and to what end? It's not as if there's a pot at the end of the litigation rainbow from which the 13th can rise from the ashes.
"These directors have pretty much dug the 13th's grave, lowered the coffin, thrown boulders and dirt in the hole, and then walked away, never turning back to respond to the screams of the shareholders that they've buried," he said.
Contact Jill Burke at jill(at)alaskadispatch.com