Assessing Financial Issues in Tribal Trust Fund Litigation

Treaties Established in the 1800s Underlie Present-Day Claims of Mismanagement

The United States has reached settlements with 42 Native American tribes that had claimed that the government had breached its duties and responsibilities to the tribes by failing to provide trust fund accountings and properly manage tribal funds and nonmonetary resources held in trust for the tribes. The total monetary value of the 42 settlements exceeds $1 billion.

The tribes’ claims of financial harm spanned more than 100 years in some instances, deriving from treaties executed between the tribes and the United States in the 1800s and carried over to the present day. The US Department of the Interior manages almost 56 million acres of trust lands for federally recognized tribes and more than 100,000 leases on those lands. The Interior Department also manages about 2,500 tribal trust accounts for more than 250 tribes. The United States initially set up tribal trust fund accounts to collect resource revenues from activities on Indian trust lands, such as farming and grazing leasing, timber harvesting, and mining. The tribes’ present-day claims relate to the collection, accounting, investment, and other management of royalties and other trust revenues. The tribes alleged that the government had violated its fiduciary duties by improperly managing the trusts and failing to “maximize” returns, a term used in Cheyenne-Arapaho Tribes v. United States (1975).

Over the years, the Interior Department’s investments of Indian trust funds have been subject to certain statutory and regulatory requirements. At one time, for example, investment returns on tribal trust funds were subject to an interest-rate floor, and investment instruments were limited to those backed by the full faith of the US government in order to mitigate the risk of loss. Trust fund investments were advantageous for tribes for many years, but as interest rates rose, investment instruments that provided higher rates of return became more attractive. Some of those instruments were approved for use under new investment policies and procedures after the interest-rate floor was eliminated.

Adding further complexity to the tribes’ claims are policy shifts regarding Native American self-determination, including the passage of the Indian Self-Determination and Education Assistance Act (1975), which resulted in tribes issuing certain instructions regarding investment approaches to the trust fund managers. The shifts created additional considerations for the Interior Department about investment preferences, stated investment horizons, and expected cash flow needs.

Analysis Group is consulting to the US Department of Justice (DOJ) on the trust fund investment claims presented in these matters. The firm has supported experts retained by the DOJ – University of Texas Professor Laura Starks and University of Minnesota Professor Gordon Alexander – in assessing specific tribal investment claims. Managing Principal Justin N. McLean leads the Analysis Group case team, assisted by Managing Principal Michael Cliff, Vice President Ajay Jyoti, and Litigation Project Manager Christine Bieri. Their analysis has focused on investment management decisions and risk assessment – in particular, the risk associated with interest-rate fluctuations. “We have been looking at the factors that underlie most investment decisions: prudence, foreseeability, and appropriate benchmarks against which to evaluate financial performance, and how these practices have evolved over time,” says Mr. McLean. The recently announced settlements should resolve 11 of the 70 cases pending. ■