Tom Reynolds, CFO for Cherokee Nation Industries, stood before the tribe’s Executive and Finance Committee Thursday afternoon and predicted a $6.3 million write-off for the fiscal year, primarily due to the company’s investment in Global Energy Group.

In August 2005, CNI purchased 51 percent controlling interest in GEG for $2.5 million. According to Doug Evans, CPA for the tribal council and executive director of financial oversight, assets of the publicly held GEG totaled $350,000 at the time of purchase, with the majority held in a patent also in question. In addition, GEG carried a $5.3 million debt to its preferred stockholders.

The money for the investment was carved from a $14 million line of credit from the Bureau of Indian Affairs. The line of credit was originally established to prevent CNI from laying off tribal employees and, according to Evans, was never earmarked for investment or venture capital.

Following an investigation by Evans, a report was submitted to the Securities and Exchange Commission for further review and CNI CEO Jim Majewski and Benny Dixon, financial adviser for the tribe, were placed on administrative leave. In June, seven tribal councilors filed a federal civil suit against Principal Chief Chad Smith, Majewski and Dixon, to reclaim the money used to make the investment, including interest and court costs.

Reynolds assumed his position at CNI in May of this year.

When giving his report concerning the year’s loss, he was, at first, non-specific.

Bill John Baker, District 1 Councilor and co-chairman of the E and F committee, wanted more information.

“Tom, what exactly are these write-offs?” he asked.

Reynolds reported $2.5 million would be for the investment in GEG, with an additional $500,000 and $650,000 for credit extended to the Texas-based company since the original purchase.

In addition, $1 million in write-offs was attributed to the investment in Cherokee Idling Systems Solutions.

“The principals [executives] involved in this company are the same as GEG,” said Reynolds. “We also have an additional $650,000 in potential write-offs of GEG inventory. It has some value and we might be able to sell it.

Finally, $1 million of the projected write-off is due to non-saleable CNI inventory.

Brian Collins, acting CEO of CNI, indicated they were currently trying to sell the GEG interest.

“But, to be honest, I wouldn’t give it [sale of the company] very good odds,” Reynolds said, in answer to a question posed by Councilor Charles Hoskin. “If you look at the company’s [GEG] financials, let’s be honest, it’s close to bankrupt.”

Taylor Keen, newly appointed at-large tribal councilor and Harvard graduate, voiced his concerns in the matter.

“I am appalled at what I’ve seen in this business venture,” he said. “I am quite qualified in mergers and acquisitions, but it doesn’t take a rocket scientist to see what a bad idea this was. How this has managed to transpire for so long is beyond my comprehension.”

Keen asked a final question of Reynolds.

“What happened to the $2.5 million? Where is it?”

Reynolds reported the stock had been purchased from individuals, and would be hard to trace.

Keen asked if the tribe had any recourse in the matter.

“I really don’t see any unless a sale comes along,” said Reynolds. “We have had some interest, but I believe the guy is more of a broker in the deal. He’s one of [Majewski’s] buddies.

While trying to investigate the financial matter, tribal councilors reported being refused information from CNI. Charles Hoskin asked Reynolds if he had been asked to conceal information from the council.

“To my knowledge, no,” said Reynolds. “We’ve been told by our inside counsel to refer you request information through the Freedom of Information Act. I think it’s crazy, but frankly, I’ve only been here a short while and it’s very difficult trying to figure out which body - the council, the CNI board or the in-house lawyers - I’m supposed to answer to.

“I spent 20 years in acquisitions at Hudson Foods, and I think it was ridiculous to make this investment,” said Reynolds. “I wouldn’t have given a dime for GEG, I would’ve put it in the trash can.”

Reynolds reported CNI has currently cut off funding to GEG as well as Idling Solutions.

Adding insult to injury, since the councilors are currently involved in litigation against employees of the tribe - Majewski and Dixon - CNI’s legal insurance company has declined to defend the pair.

“According to the company’s bylaws, we are going to have to pay to defend both of them in the federal suit out of CNI funds.” said Reynolds. “Which, since the company is reporting a loss, will be taken from the BIA line of credit.”

Baker wanted to know what would happen if CNI lost its line of credit.

“We’d be insolvent,” said Reynolds.


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