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FRIDAY, MAY 2, 2003

What happened on the opening day of Trial 1.5 in the Cobell v. Norton case? Here's a rundown of some of the issues discussed.

Why Trial 1.5
Back in the day, U.S. District Judge Royce Lamberth split the case in two. The first phase would deal with the reform of the Individual Indian Money (IIM) trust and the second would deal with the actual accounting.

But last September, he concluded that so little reform has taken place that a trial on the accounting would be premature. So he's called Trial 1.5 on the government's plan to do an accounting and a plan to meet its fiduciary obligations.

Plaintiffs' attorney Dennis Gingold said yesterday his team is "prepared to go forward literally in weeks after the close of this trial" with the final phase of the case, which involves correcting the account balances. The plaintiffs believe Trial 2 could be over and done with before the end of the year.

Ross Swimmer
Back in February 2002, Secretary of Interior Gale Norton said Ross Swimmer "proposed some changes when he was Assistant Secretary that, had they been adopted, we would not be in the mess we are in today." The comment brought loud boos from the many tribal leaders who packed a House hearing on BITAM.

In his opening remarks, Department of Justice John Stemplewicz said as much, positioning Swimmer as the savior for Indian trust. He recalled Swimmer's late-1980s effort to put tribal trust funds in a private bank and said even the plaintiffs think that's a good idea.

Qualifications Questioned
Right before the trial, the Department of Justice filed an objection to the testimony of Paul Homan, the first special trustee. Government attorney John Stemplewicz conducted what is called a "voir dire" and asked Homan to detail his qualifications as an expert witness.

Stemplewicz argued that Homan was not a statistician, historian, a trustee or an Indian expert. He also said Homan could not take his experience from his years at the Office of the Comptroller of the Currency (OCC), which regulates the nation's banks, including trust departments, and apply it to the Indian trust. (Incidentally, DOI officials last fall dangled an OCC-like proposal before Indian County in an attempt to appease tribal leaders of their thirst for judicially-enforceable trust standards.)

When asked about commercial banking standards, Homan said they were "pretty much common sense." But Stemplewicz argued, both in his opening testimony and in his questioning, that following them would actually hurt Indian beneficiaries.

U.S. District Judge Royce Lamberth overruled the objection and allowed Homan to give his testimony.

Arthur Anderson
Experts for the Department of Justice have relied heavily on Arthur Andersen's mid-1990s tribal reconciliation project to conclude that an historical accounting of the IIM trust is possible.

Homan was special trustee when Andersen's reports were presented to him and to the tribes whose assets were reviewed. He said the effort, which cost about $12 million and took five years, was rife with problems.

"They had to depart in well over 100 ways" from "general accepted accounting practices," he testified.

The reasons for the departures were many, as has been outlined by the General Accounting Office (GAO). Andersen was unable to find source documentation for $2.4 billion worth in transactions. Only 25 percent of the transactions the firm looked at were backed up with records. No leases were verified and the project only went as far back as 1972.

Andersen's accounting practice has since gone out of business after being convicted of one count of obstruction of justice for destroying records for former energy giant Enron.

Accounting v. Auditing
In his testimony, Homan distinguished between general accepted accounting practices (GAAP) and general accepted auditing practices. While both sound alike, they are actually quite different when it comes to an accounting, he said.

An "accounting" requires a 100 percent transaction-by-transaction analysis, he testified. Indian beneficiaries, when they are rarely consulted directly by the government, have always favored this approach.

On the other hand, an "auditing" can employ statistical sampling, he added. Since the government's plan employs sampling, he believes it won't account for "all funds" in the IIM trust, as required by law

Substantially Accurate
If there was one point that was driven home yesterday, it was Homan's criticism of the government's historical accounting plan, which DOJ experts say, when carried out, will result in account balances that are "substantially accurate."

But Homan said "substantially accurate" is not an accounting term. "Substantially accurate can mean anything," he testified.

The GAAP/legal standard is "materially accurate," he said. DOJ experts didn't use that phrase, he added. "They avoided such terms," he said.

If a bank did that, "you would be declared insolvent," Homan said.

A High-Profile Spectator
Environmental activist and former Green Party vice-presidential candidate Winona LaDuke lucked out yesterday. In Washington, D.C., on some business, she was able to attend almost the entire day of testimony.

"I'm one of those unnamed people," she said in reference to her appearance on the government's infamous whereabouts unknown list. (Even Bureau of Indian Affairs employees are on it.) "I have an IIM account, but they don't know where my money is."

No stranger to trust management issues, the director of the Honor the Earth organization called the Cobell case a "significant" one for Indian Country. She's written articles about it and plans to do more.

Over lunch in the courtroom's basement cafeteria, she gathered new story ideas from Cobell and Keith Harper, the Native American Rights Fund (NARF) lawyer assigned to the case. "I really admire Elouise and Keith," she said.

Today on Indianz.Com:
Norton given 'flunking grade' on trust reform (5/2)

Relevant Links:
Indian Trust: Cobell v. Norton - http://www.indiantrust.com
Cobell v. Norton, Department of Justice - http://www.usdoj.gov/civil/cases/cobell/index.htm
Indian Trust, Department of Interior - http://www.doi.gov/indiantrust

Related Stories:
Cobell launches next phase of trust case (5/1)