An investigation into the past business activities of the Osage Limited Liability Company is continuing with a Tulsa area law firm now examining business transactions conducted under prior LLC leadership, which resulted in millions of dollars in losses.

Shield Law Group, PLC, headed by Osage attorney Amanda Proctor, is now investigating those past transactions, according to a Feb. 26 statement released by Proctor. The law firm’s services are being retained by Osage Nation Principal Chief Geoffrey Standing Bear who announced his office would be investigating the LLC last summer shortly after taking oath as Chief.

Standing Bear requested a 2014 fiscal year budget modification from the Fourth ON Congress during its first Congressional special session to shift money into his office’s professional fees budget line. Standing Bear said he planned to use part of the money to hire Tulsa auditor Paul Bradford on contract to assist his office and other entities including the ON Congressional Office of Fiscal Performance and Review to examine the LLC’s history of business transactions under former CEO Carol Leese, who resigned in early 2014.

Bradford, along with other ON government officials, examined various LLC transactions including passive investments, joint business ventures and subsidiary operations executed by Leese from his 2008 hiring to his resignation. Bradford responded with initial findings that he raised to Standing Bear, prompting further investigation for potential prosecution of any suspected wrongdoing by those involved. Standing Bear hired Jenks-based Shield Law Group in February to continue helping in the investigation efforts. Shield Law Group’s expenses will be covered by Attorney General Jeff Jones’s office budget, which approves and pays outside attorney contracts for the Nation. 

In her statement, Proctor said her office “will review internally any instances of fraud, fraudulent transfer, securities fraud, negligent misrepresentation, breach of fiduciary duty and/or other wrongdoing perpetrated under the auspices of the Osage, LLC. The lawyers’ efforts will build upon an extensive investigation conducted by the Office of the Principal Chiefs, the Office of the Osage Nation Attorney General, the Osage Nation Police Department and the Osage Nation Office of Fiscal and Performance Review.” 

Proctor, whose firm focuses on Indian Country law and tribal clientele, also said: “Under the direction of the Office of the Principal Chiefs and the Attorney General of the Nation, the law firm will pursue claims against any parties found to have misappropriated the Nation’s funds or abused their positions of authority.”

At the focus of the investigation is how the appropriated tribal funds from the ON Congress were spent. Altogether, the Osage LLC received $19.1 million through five appropriation bills since the First ON Congress established the LLC in a 2008 law. Those appropriation bills passed into law include ONCA 08-30 ($1 million); ONCA 09-35 ($3 million); ONCA 09-77 ($7.5 million); ONCA 11-61 ($5 million); and ONCA 12-112 ($2.6 million).    

The LLC managed its operations and business transactions, partnerships and ventures using the Congress-approved money, but amid continued money losses and complaints from the Osage public and other elected officials, LLC board of director members changed and Leese eventually resigned as the complaints and questions persisted in asking what happened to the money.

In 2012, current LLC board chairman Jim Parris was appointed and confirmed to the board with newer members to follow. Parris welcomed the investigation as he, himself, also had questions about the business conducted by Leese. The new board also did its own investigation, which he briefly discussed in recent ON Congressional Committee meetings during LLC updates.

In responding to the continued investigation, Parris said: “This investigation builds upon the work already conducted by the current Board of Directors of the LLC to review the business acquisitions that were made. The Board will continue to respond and support any requests from the representatives of (Chief Standing Bear’s office) and the (ON Attorney General’s office) that are presented to us as we attempt to reorganize the LLC and return it to profitability.”

Preliminary investigation findings, questions by Bradford

Questionable business decisions, arrangements, financial statements and contracts are highlighted in an initial investigation of the LLC’s earlier years by Bradford. A copy of the fall 2014 initial findings were obtained by the Osage News.

According to a review of the LLC’s financial documents and operations under Leese, now-defunct subsidiaries American Video & Security (AVS) and Echota Technologies Corporation held negative values as of August 2014. At that time, Echota was valued at negative ($502,855.81) and AVS held an investment value of negative ($1.2 million).

Amid the findings by the LLC board and Bradford, the LLC board shuttered AVS and Echota at 2014’s end year.

In past interviews, Leese told the Osage News the passive investments and business partnerships were sought as a way to build LLC income so it could pursue local business opportunities and provide locals, including more Osages, jobs at a later date.

Bradford issued an investigation update in October 2014 to Standing Bear’s office, which includes the following details:

• After the 2011 majority purchase of AVS by Osage LLC, the seller, Richard Verbsky, alleged he was unable to pay his personal federal income taxes and was assessed penalties and interest for failure-to-file totaling $43,763.95. Osage LLC agreed to pay penalties and interest charges totaling $14,057.31.
• Prior to the March 2011 purchase of AVS, the company’s financial statements “were materially misstated by the prior owner(s).”
• Subsequent to the AVS purchase, Richard and Lori Verbsky purchased a resort lodge in Winter Wis. in mid-2011.
• Prior to Echota’s purchase, the prior management failed to disclose and provide supporting contract documentation and contingent liabilities exceeding $300,000 as the result of a federal audit by the Defense Contract Audit Agency (pending final determination).
• Leese submitted undocumented personal expenses and expense reports unrelated to his LLC CEO position. Bradford was awaiting more LLC documentation at the time of this letter.

Bradford also reported that AVS LLC held a “delinquent” status with the Wisconsin Department of Financial Institutions as of October 2014 and required annual reports were not filed timely. AVS (with Verbsky as the registered agent) also received delinquent statuses in 2007, 2010 and 2012, according to that agency’s database.    

In addition, the current LLC board has met with the Congressional Commerce and Economic Development Committee in October and December 2014 and shared some details of their findings. Parris told the committee that a lack of internal controls, not conducting thorough due diligence checks on business decisions and lack of strong policies and procedures, contributed to several events now in question under Leese’s leadership.

LLC board member David Stewart told the committee the LLC has $1.5 million left and will be using the money for operating costs through 2015 as the board continues work on its short- and long-term plans for the LLC.

Parris said AVS was involved with other companies that he and the board were not comfortable with, noting the LLC was writing checks to these companies and the LLC was not able to view all the financial documents for those checks.

Parris described Verbsky’s hiring by Leese as a “carte blanche” type with Leese allowing Verbsky to do what he wanted. For example, Parris said Leese promised Verbsky his expenses would be covered by the LLC and Verbsky purchased a new pickup truck and started sending the LLC the loan bill, which Parris refuses to pay, calling it “an unbelievable situation.”

Bradford’s investigation also covered other business transactions, including the setup of an Arizona-based LLC to pursue economic development projects in the Phoenix suburb of Peoria. That entity, Osage West LLC, was short-lived as the relationship turned sour between Leese and then-Osage West LLC CEO Mike Oliver and Peoria city officials. It’s unknown why the Osage West LLC venture failed, but Oliver established a separate LLC under Arizona law and moved forward with the retail development plans he and the city were pursuing. Peoria is located in northwest Phoenix in the vicinities of several professional sporting venues, making the area a hotspot for further commercial and retail development.

The investigation continues

In her statement, Proctor said she “brings more than 10 years of experience in federal Indian law and policy. (Proctor) will be joined in this effort by Sara M. Schmook, a lawyer who also holds a license as a Certified Public Accountant, G. Steven Stidham, a former federal prosecutor in Oklahoma and Florida, with extensive trial experience and special expertise in white collar crime and J. David Jorgenson, whose practice focuses on complex business litigation, with emphasis in securities and business fraud and litigation involving professional partnerships and other closely-held business organizations.”

“This investigation, and any ensuing litigation, underscores the Principal Chief’s firm commitment to protecting the assets of the Osage Nation and bringing justice to individuals who seek unjust enrichments at the expense of the Osage people,” Proctor said. “The Nation’s first priority in this event is to get back its money. That process has started and will continue in the most appropriate sequence. The Nation will pursue all avenues to bring this matter to a satisfactory end.”