Feds Probing Alleged Scam Involving $50 Million in Military Equipment
Mar. 19, 1994
SISSETON, S.D. (AP) _ Federal authorities are investigating allegations that more than $50 million worth of surplus military equipment loaned to American Indian tribes was stolen and resold for huge profits.
Agents have seized more than $10 million worth of boats, trucks and earth- moving equipment. No charges have been filed, but U.S. Attorney Karen Schreier said last week that the investigation was just beginning.
According to court documents filed by federal investigators and to officials familiar with the case, the deals worked like this:
Officials from the Sisseton-Wahpeton Sioux Tribe and the Seminole Tribe of Florida hired businessmen to obtain surplus military equipment in the tribes' name. The material included construction equipment, helicopters and even a machine designed to lay land mines.
Under federal law, the Bureau of Indian Affairs can loan surplus military equipment to tribes for work such as road construction, Schreier said. If the tribe wants to keep the machinery after 18 months, the BIA can donate it to the tribe.
''The purpose is to make sure it's being used by a government entity and it's not being sold,'' Schreier said.
But most of the equipment never made it to the tribes; instead, the middlemen sold it for huge profits or used it in their own businesses, federal investigators say. The BIA apparently never checked to see what happened to the machinery.
''Our people are living in poverty, and here we had people out there making millions,'' said Lorraine Rousseau, a former chairwoman of the 5,200-member Sisseton-Wahpeton tribe who was ousted from office in August, a month after she asked Schreier to investigate.
One target of the probe is former tribal chairman Russell Hawkins, who lost to Rousseau by 12 votes in January 1993. Hawkins is a part-owner of Dakota Machinery Exchange Inc. of Sioux Falls, which resold some of the equipment obtained for the tribes, according to the court documents.
Most of the equipment sales under investigation occurred while Hawkins was chairman. Hawkins also hired the businessmen at the heart of the probe.
Hawkins declined comment when contacted by The Associated Press.
One of the businessmen he hired, Roger Raether, earned more than $100,000 in sales commissions from the tribe during May and June 1992, according to an FBI affidavit filed to support a search warrant for Raether's home.
Raether, who worked as an agent for both tribes, also sold government equipment to an industrial cleaning firm while getting monthly checks as a consultant to that company, the affidavit says.
The company, Valley Systems Inc. of Canton, Ohio, denies wrongdoing.
''To my knowledge, everything was done with the approval of the tribe,'' said Richard Chapis, a lawyer for the company's former chairman, Eugene Valentine. ''These were arm's length transactions that Gene Valentine and VSI thought were authorized.''
Another target of the probe is Sioux Falls businessman Donald Jerke, a part-owner of Dakota Machinery. Jerke did not return telephone messages seeking comment.
Last year, Jerke allegedly tried to peddle a rusty 300-ton crane that the Seminole Tribe had obtained from a California naval yard. The affidavit said FBI agents listened to telephone calls between Jerke and potential buyers in which Jerke said the Seminoles had never seen the crane.
How could the BIA, which must approve property transfers, miss $50 million worth of equipment?
''Once it's turned over to the tribe, we are not accountable to that property,'' said Jerry Jaeger, director of the BIA's regional office in Aberdeen.
But Schreier said that's not true. Tribes can become the owners of surplus equipment only after using it 18 months for a legitimate government purpose, she said. Otherwise, the property still belongs to the government.
''Unless they go through the donation process, all the BIA is doing is loaning the property to the tribe,'' Schreier said. ''If the property got to someone other than the tribe, that would be a violation of the law.''
Rousseau said she blew the whistle on the deals because she wanted to help improve conditions for her tribe.
''There has to be a message sent out that you just can't do this,'' Rousseau said. ''Whoever was stealing was stealing from our future, from our grandkids.''