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Shadow of receivership still dominates trust fund trial

WASHINGTON - The latest unlikely twist in the unfolding labyrinth of the trust funds reform trial is that congressional modifications to the federal trust obligation established in 1887, modifications signaled in funding decisions that failed to adequately fund the trust operations, mean that Congress and not the Interior Department is at fault for the disastrous state of the Individual Indian Monies account records.

So states John H. Langbein, Yale University law professor, first witness for the government in the current IIM accounts trial that began May 1. The U.S. District Court for the District of Columbia trial has passed the halfway point, with little relief in sight for the government. Attorneys for the IIM account holders quickly exploited an apparent contradiction in his position that seems plain to any layman: Congress has spent many hundreds of millions of dollars trying to set the accounts right in recent years, a course of action that hardly argues for a modified trust obligation.

Langbein also asserted that the federal trustee is not saddled with the same obligations as other trustees, again provoking counter-arguments from the plaintiff attorneys. They held that nothing on record exempts the government from traditional trust obligations.

Langbein's remarks were reported by Bill McAllister, the former Washington Post reporter who was among the first mainstream journalists, years ago, to cover the trust management reform process regularly. But in all that trust funds reporting, perhaps nothing has overshadowed McAllister's dispatches from early May, when he was in the courtroom to hear presiding Judge Royce C. Lamberth threaten to place the trust funds in receivership.

The prospect of receivership has loomed over all manner of developments in Indian country since, from the end-of-May meeting of tribal leaders on trust funds and BIA reorganization to court decisions concerning a Rosebud hog farm to the recently announced Navajo insurrection against proposed energy legislation in the Senate. Receivership, by virtue of the incalculable impact it would have on the trust relationship between tribes and the government, has begun to exert a kind of wizard-behind-the-curtain effect in Indian country, though there is nothing of Oz-land fantasy about the stakes. Indeed, some believe Indian country as we know it has reached a crossroads in the receivership debate.

Be all that as it may, Lamberth was responding to Paul Homan, former special trustee for the trust funds, who had taken the stand for the IIM plaintiff class against Interior. In the midst of testimony that seemed to devastate the government's claim that it is fit to continue managing the IIM accounts, Homan had stated that federal mismanagement of the IIM accounts led him to believe receivership is the remedy.

McAllister reported Lamberth's response as follows: "And, I'm going to look at the issue of, rather than a structural injunction, of a receiver, because, if I ultimately do not have the capacity to get the truth from the government, as I have found I don't, and if I don't have the capacity to have a court monitor or a special master, then I'm going to have to look at other methods in which I can deal with the government in this case, and obviously, the appointment of a receiver, as Mr. Homan is recommending, is one of those options I'm going to entertain. And I will tell the government right up front now so they can get whatever witnesses they want to have ready."

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Department of Justice attorneys had previously tried to discredit Homan as a witness, questioning whether his stellar career as a bank regulator, chief executive officer and turnaround specialist for troubled financial institutions, including several stints as a delegated fiduciary of trust departments in major banks, really made him an expert on the trust funds. The question, again seemingly plain to any layman, of why the government would have hired him as the first special trust master if he lacked expertise - this didn't seem to trouble the interrogators. They continued to raise questions about the finest points of Homan's r?sum?.

But they didn't deflect him from his testimony, which described a system-wide lack of consistent internal controls over trust transactions. Homan had earlier established consistent internal controls as absolutely essential to the operations of any private sector bank. Homan called his experience as special trustee "unique."

"The unique part was lack of control, lack of management ? I felt that no plan [for the reform of trust fund management] could be implemented there [at the BIA] with the management they had, and I'm speaking from the top down."

He added that record-keeping concerning the Indian trust accounts was "woefully adequate." When outside certified public accountants examined the trust accounts and reported back on them, they regularly described the accounts as "substantially correct," a meaningless term in accounting according to Homan.

The term that counts in accounting and stands up in court, Homan said, is "materially correct." He repeatedly asserted that accountants working for the government on the trust records deliberately avoid the term "materially correct" to describe them, substituting instead the professional euphemism "substantially correct" so as to avoid violating the standards of the profession.

The government's response to all this was to ask Homan whether he is himself a certified public accountant. Homan acknowledged that he is not a CPA, but noted that he has regularly managed accountants, consulted with them, reviewed their work and signed off on it in the course of examining national and international U.S. banks for the Office of the Comptroller of the Currency, and again in managing banks in his private sector executive positions.

This was not the first time Lamberth had considered putting the trust funds into receivership. The functions of the federal government have never before been placed with a receiver - more or less the equivalent of bankruptcy reorganization - though Washington was not long ago placed under the governance of a control board.

Congress continues to loom large in the case. The Senate Committee on Indian Affairs has threatened to lead a legislative push for a mediated settlement if the litigant parties don't show progress in settling their differences soon. John Echohawk of Native American Rights Fund, which oversees the IIM plaintiffs' class action lawsuit, welcomed the committee's involvement in a May 23 letter, but urged non-intervention for the time being, at least until the current trial closes.