Fraud in New Mexico

Business as usual, I'm afraid...

--ryan


Smartmoney.com: Special Report: Fraud in New Mexico


By Scott Patterson
December 3, 2004

An investigation by SmartMoney.com has found that officials in the Bush administration had detailed knowledge of fraudulent practices that allowed energy companies to cheat impoverished Native American Indians out of vast sums over dozens of years. These officials were aware that employees of the federal government were helping oil and gas companies underpay to operate on Indian lands in the state of New Mexico — and did nothing to stop it. This is the first in a two-part series.

ON A FRIDAY AFTERNOON IN August, Air Force One ascended above the town of Farmington, N.M. Enthusiastic supporters of the president fanned out of Rickets Park in the center of town waving Bush-Cheney placards. The police cars and motorcycles blocking the streets from traffic during George W. Bush's brief visit switched off their lights and drove away. Normalcy returned to Farmington.

For Ervin Chavez, president of the Shii Shi Keyah Allottee Association (shii shi keyah is Navajo for "this is my land"), normalcy means another day fighting against the federal government and big industry for Native American rights. In his darker moods, he despairs that it's a fight he'll never win.

"You think it would get better someday, and it only gets worse," Chavez says from behind his gold square-framed glasses in a near-empty Farmington restaurant a few hours after the president's plane had taken off.

Just beyond this small city in the northwest corner of New Mexico, normalcy means bitter poverty for the tens of thousands of Native Americans who live in a barren desert region known as the Checkerboard. Many of these Navajos — referred to as "allottees" because they reside on individual Indian allotments separate from the large Navajo Nation to the west — live in abject poverty, can't read or speak English and have no convenient access to telephones, schools or health-care facilities.

In the face of such stark facts are recent allegations that oil and gas companies have cheated these people out of enormous sums over the years, while the federal government has stood idly by. The Department of the Interior is the subject of a $100 billion class-action suit brought by the allegedly injured parties. Cobell v. Norton1, originally filed in 1996 when Bruce Babbitt was Interior Secretary (current secretary Gail Norton is the defendant now), is the largest class-action lawsuit in U.S. history in dollar terms.

Chavez, a Navajo from the Checkerboard, doesn't seem surprised by the charges. A member of a class-action suit that led to several reforms concerning energy companies' use of Indian land in the 1990s, Chavez has battled industry and government for most of his life.

"You can prove the federal government is wrong," he says. "But the federal government will spend whatever it wants to and lie however it wants to, and it will go to whatever extent it can to prove that it's in the right."

Chavez cites the case of Kevin Gambrell, former director of the Farmington Indian Minerals Office (FIMO), an Indian-outreach office overseen by the Interior Department. Last year, Gambrell was fired from his position, ostensibly for destroying documents (the charge has never been proven). Gambrell sued the government under the Whistleblowers Protection Act and won an undisclosed settlement. Gambrell is not allowed to speak with the media under the terms of that settlement.

"They totally set him up," says Chavez. "We trusted Kevin. People went to him and asked what was wrong with their [Individual Indian] accounts, and he would find out...Kevin was victimized for being too nosy."

Patrick Etchart, spokesman for the Minerals Management Service (MMS), the branch of the Interior Department that oversaw FIMO, says he can't discuss Gambrell's case because of the settlement agreement.

The government has never explained why it settled Gambrell's case, but critics such as Chavez and the Project on Government Oversight2, a government watchdog group based in Washington, D.C., say Gambrell was fired because he discovered fraudulent government auditing of oil and gas royalty payments made by companies operating on Indian land, and systematic underpayments of other fees.

An affidavit3 filed Thursday with a federal court shows that Gambrell wasn't alone in discovering such practices in New Mexico.

"I no longer can remain silent"
SmartMoney.com has investigated charges that the federal government has helped oil and gas companies deceive and cheat impoverished Navajo Indians in New Mexico for dozens of years. When evidence of these activities came to light in 2003, the Bush administration attacked the messengers, including Gambrell, and took extraordinary measures to protect the individuals implicated in the scheme.

In August 2003, Alan Balaran, the special master4 overseeing the Cobell v. Norton suit, filed a report with the U.S. district court alleging that the Bureau of Indian Affairs (BIA) was approving lowball deals for pipeline companies using Indian property on the San Juan Basin of New Mexico. These deals were at times 90% less than what private and tribal landowners were receiving for comparable rights-of-way payments, the report charged.

Balaran found that Indian allottees on the Checkerboard generally received $25 to $40 per rod for rights-of-way easements crossing their land. (A rod, a metric for measuring pipeline length, is 16.6 feet.) Tribal and private landowners, however, often received compensation at rates ranging from $140 to $575 per rod, according to the report. A rancher with land in Bloomfield, N.M., told SmartMoney.com that he received more than $1,000 a rod for three major pipelines crossing his property (see the pipeline agreement here5).

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"You can prove the federal government is wrong. But the federal government will spend whatever it wants to and lie however it wants to, and it will go to whatever extent it can to prove that it's in the right."

Ervin Chavez, president of the Shii Shi Keyah Allottee Association
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SmartMoney.com has learned that senior officials in the Interior Department knew at least a year before special master Balaran submitted his report that oil and gas pipeline companies were getting sweetheart deals on Indian land — and turned a blind eye.

According to Thursday's affidavit filed with the court hearing the Cobell lawsuit, the federal employee who unearthed these practices was allegedly ignored by her superiors after she notified them about what she found. Deborah Lewis, an appraiser with the Office of the Special Trustee for Native Americans (OST), discovered these allegedly fraudulent activities during a four-month assignment as acting regional appraiser at the Navajo Regional Office in Gallup, N.M., in 2002. Lewis also found evidence of document destruction by the chief appraiser of that office, Anson Baker. (The OST, organized by Congress in 1994 under the Indian Trust Reform Act to manage Indian trust assets, took over the Office of Appraisal Services from the Bureau of Indian Affairs in June 2002.)

Lewis notified several of her superiors about her findings, and was ignored, according to her statement, a court document filed under penalty of perjury. Now, after two years of silence, Lewis — a Navajo Indian from Torreon, N.M., a small town in the Checkerboard — has decided to tell the court what she found. "I no longer can remain silent as others do at the Interior Department and the Justice Department about the misconduct of Baker," Lewis states in her affidavit.

A spokesman for the Interior Department wasn't immediately available for comment.


"Preposterous Charges of Government Conspiracy"
The Cobell v. Norton lawsuit, in which non-reservation Native American plaintiffs are suing the federal government for more than $100 billion in lost, stolen and uncollected trust funds, is the largest class-action case in U.S. history in dollar terms. Elouise Pepion Cobell, a member of the Blackfeet tribe in Montana, is the lead plaintiff in the suit.

Much of the trust funds' shortfall is related to royalties and fees paid by energy companies operating on Native American land such as the Checkerboard in New Mexico. The Checkerboard, so-called because it was divided into separate blocks of individual Indian property by the General Allotment Act of 1887, sits atop the San Juan Basin, the largest supplier of natural gas to the state of California. Native Americans received $71.5 million in mineral royalties in New Mexico in 2003, according to the MMS, which tracks mineral-extraction companies operating offshore and on state, federal and Indian land. That amount doesn't include fees paid for rights-of-way, the overall figure for which isn't disclosed by the government.

Oil and gas companies such as Apache (APA6), Burlington Resources (BR7), BP (BP8), El Paso Natural Gas, a unit of El Paso (EP9), ChevronTexaco (CVX10) and Transwestern Pipeline Co., a former subsidiary of Enron, have major industrial operations in the San Juan Basin. El Paso is the biggest transmission pipeline company in the U.S.; its El Paso Natural Gas and Mojave Pipeline, which extends from the San Juan, Permian and Anadarko Basins to several markets in the West, is 10,600 miles long. Burlington is the region's top supplier of natural gas, with 7,300 operating wells and 4,300 nonoperating wells, according to its 2003 annual report. Burlington ships most of its natural gas through contracts with pipeline companies such as Transwestern. (SmartMoney.com spoke with a number of energy companies that do business on the San Juan Basin. None of them admitted to improper actions on Indian land.)

The Farmington, N.M., field office of the Bureau of Land Management, which controls permit applications for the San Juan Basin, has approved more rights-of-way historically than any other field office in the U.S., according to a spokesman for the agency.

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"I began to uncover evidence that Interior was putting the interests of private energy companies ahead of the interests of individual Indian beneficiaries...[Blowing the whistle] could cost the very companies with which senior Interior officials maintain close ties millions of dollars."

Alan Balaran, the special master overseeing the Cobell v. Norton lawsuit
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Considering these facts, allegations that energy companies are underpaying to use Indian land is no trivial matter. Millions of dollars in future fees, as well as back interest on unpaid fees, are at stake.

Perhaps that's why, say critics of the administration, its response to the special master's August 2003 report was so strong.

After the report was filed, Interior Department spokesman Dan Dubray told the trade journal Gas Daily that "we believe the report is faulty and biased. The special master has no authority or expertise on appraisal issues."

Soon after learning of Balaran's investigation into the dealings of energy companies on Indian land, lawyers with the Department of Justice's civil division filed a motion to disqualify him. (The DOJ declined to comment as to whether there was a connection between the special master's report and its motion to have him removed.)

Balaran resigned a day before the district court of appeals was scheduled to hear the government's case against him. His presence had become a distraction to resolving the case, he said in his April 5, 2004, resignation letter filed with the court, since the government seemed determined to remove him at all costs. (Interior spokesman Dubray, in a recent interview with SmartMoney.com, falsely asserted that a federal court of appeals had removed Balaran as special master. When challenged, Dubray acknowledged that the court of appeals in fact had yet to decide the motion. Since then, the motion — in which the government was trying to have the special master removed from a position he'd already vacated in order to discredit his reports — has been dropped.)

In his resignation letter, Balaran said his discovery that the government was covering up activities by energy companies was the true reason the administration wanted him removed.

"Interior's disqualification attempts stemmed from events that took place several months earlier, beginning with my March 6, 2003, visit to the Office of Appraisal Services of the Navajo Regional Office in Gallup, New Mexico," Balaran wrote, citing the same office that OST appraiser Lewis had worked at during her four-month assignment in 2002.

"I began to uncover evidence that Interior was putting the interests of private energy companies ahead of the interests of individual Indian beneficiaries," he continued. The government could not afford to allow his findings to be disclosed, Balaran wrote, since they "could cost the very companies with which senior Interior officials maintain close ties, millions of dollars."

The Interior Department said in a statement that Balaran's allegations were "preposterous charges of government conspiracy...based entirely on innuendo, supposition and baseless speculation."

Balaran concluded the letter by calling for an investigation into his findings. To date, there has been no investigation, although the report still stands before the court. The plaintiffs' attorneys plan to ask the court to initiate an investigation. The Lewis affidavit, they believe, could persuade the court to act. Dennis Gingold, lead attorney for the plaintiffs, says the affidavit "confirms Balaran's report is accurate."


An Ethical Quagmire
Top officials at the Interior Department, which helps to regulate the nation's natural resources, parks and Native American population, have longstanding ties to the industries it oversees.

Gail Norton, sworn in as Secretary of the Interior in January 2001, previously worked as a lawyer for Mountain States Legal Foundation, a lobbying group funded primarily by the energy industry and land developers. As a private attorney in Colorado, she frequently represented energy and timber companies in environmental litigation. Norton was also a former lobbyist for NL Industries (NL11), a Dallas-based chemical company. The Denver law firm Norton worked for before becoming secretary, Brownstein Hyatt & Farber, represented, among others, the Shaw Group (SGR12), a Baton Rouge, La., maker of pipeline parts for oil companies and power plants.

Assistant Secretary of the Interior J. Stephen Griles is a veteran lobbyist for the energy industry, and continues to receive $284,000 a year from a lobbying firm he worked for before he joined the Bush administration. His tenure has been marred by allegations of illicit meetings with former energy and mining clients, and has been called an "ethical quagmire" by Interior's inspector general.

Rebecca Watson, Assistant Secretary of the Interior for Land and Minerals Management, served on the national litigation board of Mountain States Legal Foundation from 1999 to 2002. The foundation has a record of fighting Indian religious rights and affirmative-action laws.

Vice President Dick Cheney was formerly the chief executive of Halliburton (HAL13), which has extensive operations on the San Juan Basin through its Halliburton Energy Services Group subsidiary. Cheney has received at least $398,548 in deferred compensation from Halliburton since taking office in January 2001.

During the 2000-04 election cycle, oil and gas companies contributed $62.5 million to the Republican party and $15.8 million to the Democratic party through the third quarter of 2004, according to data compiled by the nonpartisan Center for Responsive Politics.

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"This administration appears to be into information control in presenting a united front and speaking with one voice."

Jeff Ruch, executive director of Public Employees for Environmental Responsibility
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Jeff Ruch, executive director of Public Employees for Environmental Responsibility (PEER), a Washington, D.C., nonpartisan organization that represents whistle-blowers in the federal government, says the administration's pro-energy agenda has resulted in extraordinary pressure being placed on federal employees to toe the party line.

"More so than previous administrations, this current administration appears to be into information control in presenting a united front and speaking with one voice," says Ruch.

The result has been a spike of filings under the Whistleblowers Protection Act, says Ruch, since employees such as FIMO's Gambrell are often marginalized or retaliated against when they disagree with the administration's pro-energy policies. A recent report by PEER found that the number of whistle-blower cases in the federal government has nearly doubled since 2001. Many of those cases have come out of the Interior Department.

The chain of events described in Lewis's affidavit fits in squarely with the theme of an oppressive environment inside the Interior Department. Despite the fact that she repeatedly told her superiors about widespread document destruction, as well as the undervaluation of Indian land, she was systematically ignored, according to her statement. Even after the special master report of August 2003 went public, sending ripples through the Interior Department and garnering attention in the national press, not one of her superiors questioned her about her findings at the Navajo Regional Office.

"To this date — after repeated requests that I made for assistance...I have never been asked a single question or received a single response to my repeated expressions of concern" about Baker's conduct and evidence of widespread abuse of Indian land, Lewis states.

Lewis's experience also squares with the results of a recent survey of Interior Department employees by the Office of the Inspector General (OIG), which investigates and evaluates the operations of the federal government. The OIG described the results of the survey, which was released in July, as "unsettling and profound." One employee reported that "if you tell management what they don't want to hear, you're punished." Another described the Interior Department as having a "culture of fear."

Given these facts, Balaran's report, the government's response to it and the organized efforts to defend Baker, critics allege that the administration is actively protecting the financial interests of a key constituency — the energy industry.

"I don't think it's any surprise that some of the policy players that have high influence in this administration are the energy companies, and [Balaran's report] implicated them," says Keith Harper, an attorney with the Native American Rights Fund (NARF), which represents Cobell. Balaran's report is a threat to the government and to the energy industry, says Harper, because it contains "specific evidence that these companies are ripping off Indians."

"The administration knows that if they got [Chief Appraiser] Baker up in front of a court and started questioning him, they would find that this isn't just Anson Baker, this is systematic," says one source who wishes to remain anonymous. (The plaintiffs' attorneys deposed Baker on March 21, 2004. A second deposition is scheduled, according to sources familiar with the matter. Lewis clearly states in her affidavit that she believes Baker committed perjury in his deposition.)

"You start peeling this back, this is like an onion," says the plaintiffs' attorney Gingold. "You peel each level back, you expose the fraud and corruption."

Critics of the government acknowledge that the mishandling of Indian trust funds has run rampant under Democratic and Republican administrations alike. The first defendant in the Cobell litigation was Bill Clinton's Interior Secretary, Bruce Babbitt, who was held in civil contempt by the court for failing to produce court-ordered records. These critics also say efforts to remedy the situation have been actively stymied by the Bush administration.

Accusations of a unified effort by the Bush administration to obstruct, delay and refute the outcome of the trial come not only from opponents of the government in the Cobell case, but also from the very judge hearing that case, Royce Lamberth.

"Has Secretary Norton decided to declare war on the Indians in this litigation?" Judge Lamberth asked Sandra Spooner, the Department of Justice attorney representing the administration, in a September emergency hearing concerning the government's move to withhold checks from trust beneficiaries. "It comes across as absolute, direct retaliation."

Norton, who has called the Indian Trust case the most vexing of her tenure, has denied charges that she is obstructing the case. Last year, however, Congress, under pressure from the Bush administration, voted to delay for a least one year an order by Judge Lamberth that the government conduct a full accounting of the trust records. Critics say Norton lobbied for that delay, an accusation her department has denied.

That year is almost up, however, and still no resolution has occurred. The plaintiffs' attorneys say they hope revelations of a cover up of illegal activities by officials in the Interior Department contained in Lewis's affidavit might help speed the process along.

In our next installment, we will detail what Lewis found at the Navajo Regional Office and show the specific ways in which the federal government tried to cover it up.


1http://www.indiantrust.com
2http://www.pogo.org/p/environment/el-031101-oil.html
3http://www.indiantrust.com/_pdfs/Notice12.pdf
4http://dictionary.law.com/default2.asp?selected=1986&bold=special||master||
5http://www.smartmoney.com/onthestreet/downloads/rancherrightofway.pdf
6http://www.smartmoney.com/cfscripts/Director.cfm?searchString=APA
7http://www.smartmoney.com/cfscripts/Director.cfm?searchString=BR
8http://www.smartmoney.com/cfscripts/Director.cfm?searchString=BP
9http://www.smartmoney.com/cfscripts/Director.cfm?searchString=EP
10http://www.smartmoney.com/cfscripts/Director.cfm?searchString=CVX
11http://www.smartmoney.com/cfscripts/Director.cfm?searchString=NL
12http://www.smartmoney.com/cfscripts/Director.cfm?searchString=SGR
13http://www.smartmoney.com/cfscripts/Director.cfm?searchString=HAL


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