Tribe sues former Osage LLC officials

Mike ErwinJournal-Capital

A lawsuit by the Osage Nation claims two former executives of its limited-liability business entity, Osage LLC, helped swindle the tribe out of over $75,000 — with the amount generally believed to be a million dollars or more.

The petition of a civil action filed May 22 in Osage County District Court alleges securities fraud and negligent misrepresentation. Defendants include Osage LLC’s ex-manager/CEO, Carol Leese, and the company’s chief financial officer, Robert Petre.

Osage LLC was created by the Osage Nation Congress in 2008 as a venture capital entity to manage the Nation’s business activities separately from the tribal government. The stated mission of the company: “To increase the economic well being of members of the Nation by building wealth, earning profits, diversifying the economy, and providing employment opportunities for the people of the Osage Nation.”

Another purpose behind OLLC was to “generate profits to promote the growth and continuity of the company and for distribution to the tribal government.” According to a statement posted on the tribal website: “The LLC has since established passive investments and business partnerships with several companies nationwide.”

The lawsuit appears to take a hard view in regard to some of those investments and business partnerships.

The Shield Law Group, the Osage-owned law firm, was retained by the new Principal Chief, Geoffrey Standing Bear, to investigate Osage LLC’s former management. Last April, as it was setting the stage for legal action, the Shield Group issued a formal demand to New Market Technology Fund, a Delaware-based limited liability company. New Market was asked for information regarding a failed investment of $1 million over the course of several months in 2010 — with no dividends, principal or earnings revenue ever having been returned.

As part of its response, New Market reportedly listed Leese — rather than Osage LLC — as the owner of a 5.09 percent interest in NMTF. That designation was changed upon the request of later OLLC management, according to a Shield Group release. The firm told Standing Bear that very little information could be provided to investigators regarding transactions and activities on the investments OLLC had made over the years.

In April 2010, CEO Lease asked the Osage Congress for an appropriation of $7.5 million “to fund various economic development projects, including an investment in the NewMarket Group Enterprise,” the petition states. Leese and Petre reportedly told the OLLC Board of Directors and/or the Osage Congress that NewMarket was in the business of “providing an integrated delivery of information intelligence solutions.” They also reported that NewMarket’s business expertise provided it with “access to lucrative contracts and other sources of revenue,” the suit claims.

Over the next four months, OLLC invested an amount “equal” to $1 million in NewMarket. During the tribe’s later investigation, a memorandum was discovered in the Osage company’s files which, the petition alleges, sheds light on what became of that investment.

The memo, according to the suit, was written on OLLC letterhead by the chief executive of a Montana-based affiliate of NewMarket called TeraDact Solutions. It states that TeraDact completed a “recapitalization” in July 2010 — just 30 days after the initial OLLC investment with NewMarket.

“The recapitalization involved purchasing the remaining founder’s stock in TeraDact,” the petition states. “On information and belief, some of all of the OLLC funds paid on July 10, 2010, were downstreamed to TeraDact and used to pay founders rather than contributed to the operating capital of TeraDact. In addition, the company is said to have issued stock to certain employees, consultants, directors and certain creditors of the company.”

According to the memo, when the recapitalization was completed, all of the remaining founder’s stock was cancelled and purchased by the Company “at a price determined to be fair by the Board…”. Further along in the memo is an assertion that TeraDact “has been receiving advice from the senior banking member of the Technology Practice at United Bank of Switzerland” who “has been actively engaged in bringing both customer introductions and possible exit strategies to TeraDact.”

In OLLC annual reports submitted to the board in 2010 and 2011, management reported that the Osage company held a $1 million “equity position” in TeraDact. NewMarket and TeraDact financials for the relevant periods tell a different story, however. According to the NewMarket financial statements for the end of 2012 shows its investment in TeraDact represents “about 93 percent”of TeraDact’s total assets.

“The foregoing strongly supports the inference that OLLC’s million-dollar funding of TeraDact via NewMarket-1 went straight into the pockets of TeraDact’s founders rather than into the coffers of TeraDact to fund the company’s research and development operations, or other budget requirements,” the petition said.

Leese announced his resignation in mid-January 2014 — on the third day of the Osage Congress proceedings that resulted in the removal from office of Osage Nation Principal Chief John D. Red Eagle. When the resignation became effective at the end of March, Leese had been with Osage LLC for five years.

In addition to the two former Osage LLC executives, defendants in the lawsuit include an Oklahoma company, Red Eagle Feather Distributing LLC, and two of its principals, Yancey Redcorn and Betsy A. Brown. Also named as defendants are TeraDact/NewMarket executive Christopher K. Schrichte and Howard C. Hill, described as an agent of those two companies.