ANCSA Shareholders Lose Rights and Protections

ANCSA Shareholders Lose Rights and Protections

ANCSA The Alaska Native Claims Settlement Act was enacted December 18, 1971.[1] Of approximately 76,526 Alaska Natives, only 567 Alaska Natives voted on the legislation and 56 of them voted against the Act.[2] Very few Alaska Natives read and understood the provisions in ANCSA. Natives were viewed by Congress as unsophisticated as stockholders. [3]

Section 2(b) of ANCSA said: the settlement should be accomplished in conformance with the real economic and social needs of Natives, without litigation, maximum participation by Natives in decisions affecting their rights and property, without establishing any permanent racially defined institutions, rights, privileges, or obligations, without creating a reservation system or lengthy ward-ship or trusteeship, without adding to the categories of property and institutions enjoying special tax privileges or legislation establishing special relationships between the United States Government and the State of Alaska.

Adoption of ANCSA was costly for Alaska Natives they: gave up their claims to all of Alaska; aboriginal hunting and fishing rights that existed at the time of adoption of ANCSA were terminated their rights to establish Indian Reservations like those in the lower 48 states were terminated; the Indian Allotment Act was terminated and Natives could no longer file for allotments up to 160 acres of land after ANCSA was enacted; and Indian Reservations in Alaska were revoked except for Annette Island Reserve.

Section 2(c) of ANCSA said: No provision of this Act shall replace or diminish any right, privilege, or obligation to Natives as citizens of the United States or of Alaska, or relieve, replace, or diminish any obligation of the United States or of Alaska to protect and promote the rights or welfare of Natives as citizens of the United States or of Alaska.

As U.S. and Alaska citizens ANCSA shareholders fall under Article 1 of the U.S. Constitution which says: Congress shall make no law…prohibiting the free exercise thereof; or abridging the freedom of speech, or the press…Article V says: “A person shall not be deprived of life, liberty, or propertywithout due process of law nor shall private property be taken for public use, without just compensation.” Article XIV says: “No State shall make or enforce any law that abridges the privileges or immunities of citizens of the United States;nor shall any State deprive any person of life, liberty or property, without due process of law; nor shall private property be taken for public use without just compensation.

Article 1, Section 1 of Alaska’s Constitution says: “This Constitution is dedicated to the principles that all persons have a natural right to life, liberty, the pursuit of happiness, and the enjoyment of their own industry; that all persons are equal and entitled to equal rights, opportunities, and protection under the law: and that all persons have corresponding obligations to the people of the State.” Article 1, Section 7 says: “No person shall be deprived of life, liberty, or property without due process of law. The right of all persons to fair and just treatment in the course of legislative and executive investigations shall not be infringed.”

Section 3(g) “Regional Corporation” means an Alaska Native Regional Corporation established under the laws of the State of Alaska in accordance with the provisions of this Act.

Section 4(b) of ANCSA: Extinguished all aboriginal titles, claims of aboriginal title in Alaska based on use and occupancy, including submerged land underneath all water areas, both inland and offshore, and included any aboriginal hunting or fishing rights that may exist are hereby extinguished.

Section 7(h)(1) of ANCSA said: Stock issued pursuant to subsection (g) shall carry a right to vote in elections for the board of directors and on such other questions as may properly be presented to the shareholder, shall permit the holder to receive dividends or other distributions from the Regional Corporation, and shall vest in the holder all rights of a stockholder in a business corporation organized under the laws of the State of Alaska except for 20 years Native stock could not be sold or traded. Section 7 (h)(3) cancelled stock restrictions on January 1, 1991.

Section 7(i) 70% of all revenues received by each Regional Corporation from the timber resources, and subsurface estate patented to it pursuant to this Act shall be divided annually by the Regional Corporation among all 12 Regional Corporations organized pursuant to this section according to the number of Natives enrolled in each region pursuant to section 5. The provisions of this subsection shall not apply to the 13th Regional Corporation if organized by section (c) hereof. CIRI’s share of the 70% was 8.43%.

Section 18(a) revoked the Indian Allotment Act for Alaska Natives and they could no longer apply for Indian Allotments of up to 160 acres.

Section 19(a) revoked Indian reservations in Alaska except for the Annette Island Reserve.

Section 21(c) the basis for computing gain or loss on subsequent sale or other disposition of such land or interest in land for purposes of any Federal, State or local tax imposed on or measured by income shall be the fair value of such land or interest in land at the time of receipt. To show tax losses or gain, lands, and the natural resources had to be appraised at the time of conveyance and the time of sale.

Section 28 of P.L. 94-204---temporarily exempted Native corporations from the provisions of the investment Act of 1940 and the Securities Act of 1933 and the Securities Exchange Act of 1934, as amended, through December 1991. Nothing in this section, however, shall be construed to mean that any such corporation shall or shall not, after such date, be subject to the provisions of such Acts. Any corporation which, but for this provision, would be subject to the provisions of the Securities Exchange Act of 1934 shall transmit to its shareholders each year a report containing substantially all the information required to be included in an annual report to stockholders by a corporation which is subject to the provisions of the SEC.

Department of Commerce and Economic Development, Division of Banking, Securities,

and Corporations, Alaska Native Corporation issues relating to Proxy Solicitations,[4] page 5 says: Temporary restrictions were placed on corporations’ stock in that the stock was inalienable and could not be publicly traded before 1991. Subsequent congressional amendments provided that stock would remain inalienable until July 16, 1993. Corporate shareholders presently can lift this restriction if at least a majority of the shareholders favor alienable stock. Since Native stock was inalienable, congress felt that regulations by SEC were not applicable until corporate stock became alienable. Stock ownership was extremely diffused as ANCSA required that no more than 100 shares of the original stock could be issues to each qualified enrollee.

Shareholders were considered unsophisticated in business acumen and corporate affairs. ANCSA left the task of protecting shareholders from corporate mismanagement and misrepresentation to the State of Alaska and Native Corporations. Neither the corporations nor the State has provided adequate protections from corporate mismanagement and misrepresentations.

Even though congress temporarily exempted Native Corporations from federal securities laws, it recognized the importance of information made available to stockholders by SEC regulated corporations’ annual reports so it required Native Corporations to furnish such reports to each Native stockholder. The annual reports are essentially made up of financial statements audited by an outside certified public accountant and corporate management’s analysis of corporate financial performance activities Other than this disclosure requirement, congress left the task of ensuring that management’s communication to shareholders regarding corporate affairs and related activities were without bias to the State of Alaska.

As noted in former attorney general letter to former securities administrator: [5] This exemption from federal securities law was expressly conditioned upon the adoption of similar state requirements and regulations. Further, the congressional House Report of the Interior and Insular Affairs Committee received assurance from Native corporations and Alaska State officials that additional state legislation would be pursued to provide any appropriate additional protection. The Committee report in 1975 U.S Congressional and Administrative News, pages 2386-87 stated:

Finally, the Committee understands that the general provision of Alaska Law

Provide protection for Native stockholders from any corporate mismanagement

And misrepresentations or omissions to represent in connection with sales of

Securities, and that Alaska courts would look to precedents under federal

Securities laws for appropriate standards of conduct by management and

other persons connected with securities transactions. Native corporations

have assured the Committee that they do not intend to seek any exemption

from state securities laws on the basis of this exemption from federal laws

and intend to pursue the passage of State Legislation to the extent necessary

to provide any appropriate additional protection. Therefore it is not necessary

at this time to impose additional federal requirements.

It is obvious that congress did not intend to limit the amount of protection the State of Alaska was to provide in shielding Native shareholders from corporate mismanagement and misrepresentation. Congress accepted the assurances of Native leaders and the State of Alaska as reflected in its intent language, “the passage of State legislation to the extent necessary to provide appropriate additional protection.”

With all other proxy related regulations left to the State of Alaska, it became imperative

that the State establish disclosure rules that would result in shareholders being well-informed

about corporate matters. Also, rules were required to ensure that an informed vote could be

cast, whether it be for the election of directors or approving a corporate proposal.

Are ANCSA Corporations Subject to State Law?

August 26, 1992 letter to Robert W. Rude from Lawrence F. Carroll stated: “With respect to your final question, these corporations are, in fact, formed under Alaska law and are fully subject to the Alaska Corporations Code. If there is a conflict between the Alaska Corporations Code and ANCSA, the federal law takes precedence.

The U.S. Supreme Court issued an opinion in Alaska v. Native Village of Venetie Tribal Government.[6]The court concluded that Venetie was not “Indian Country.” In their opinion the court noted that Congress conveyed ANCSA land to State chartered and state regulated private business corporations.”

In Hansen v. Kake Corporation the Alaska Supreme Court ruled ANCSA corporations are subject to the same laws as other corporations. [7]

In a September 2, 1998 letter to a CIRI shareholder, the Department of Interior wrote: “The ANCSA corporations are for-profit corporations governed by state law. Thus, the matters you raise are state law issues and you need to contact the appropriate state agencies. Neither this office nor the other Interior offices I contacted have any oversight responsibilities in these matters.”[8]

September 29, 1998 letter to Robert Rude from the Assistant Secretary of the Interior stated: “I have been informed by the Solicitor’s office that the ANCSA amendments of 1987, P.L. 100-241, repealed the audit requirement contained in subsection 7(o) of the original legislation. Prior to the amendments, Regional corporations were required to submit annual reports to the Secretary of the Interior. With repeal of the audit provision, we are unaware of any current authority which would permit Federal audits of the corporations.”

Currently ANCSA shareholders do not have protections and oversight from the Department of Interior, Federal security laws, nor does the State of Alaska enforce Title 10 (Corporate Code) for Native corporations. Shareholders are advised to seek legal counsel but few if any Native shareholders have funds to legally challenge their corporations who come against them with multiple law firms. ANCSA stockholders are without federal and State shareholder protections and there is lack of shareholder participation in the corporations.

As noted by Waggaman: Absent some other forms of protection, the State should pattern its laws after the federal proxy laws. [9]

A rule patterned after Rule 14a-7 is, therefore, warranted. Currently, management in the Native corporations has the advantage in a proxy fight, and every effort should be made to minimize this inherent leverage to allow dissidents a fair opportunity to present their policies and views to the shareholders.

In addition, until the stock restrictions is lifted on Native shareholders’ stock, Banking, Securities and Corporations should seek legislative changes to the Alaska Securities Act to place BSC in a position to assist shareholders to enforce shareholder rights to timely and accurate votes lists.[10]

P.L. 100-241[11]

Section 2(9) said: ANCSA and this Act are Indian Legislation enacted by Congress pursuant to its plenary authority under the Constitution of the United States to regulate Indian affairs. If ANCSA and the ANCSA Amendments were Indian Legislation Native stockholders would still have Constitutional rights, including property rights, and due process of law under the Indian Civil Rights Act of 1968 and the Indian Citizenship Act of 1924.[12]

Section 26(c) (1) said a Native corporation that, but for this section, would be subject to the provisions of the Securities Exchange Act of 1934 shall annually prepare and transmit to its shareholders a report that contains substantially all the information required to be in an annual report to shareholders by a corporation subject to that Act.

Section 37(a) continued stock restrictions until terminated. These amendments were approved without the knowledge or approval of ANCSA shareholders. This provision of the Act was a “taking” of Native property rights, and was a “taking” of rights and privileges given Natives under the Constitutions of the United States and of Alaska. These inequities must be corrected and Natives given the same rights and privileges of other non-Native stockholders.

Congress used the Commerce Clause to take away rights given Alaska Natives under the U.S. Constitution, Alaska Constitution and Indian law. The Commerce Clause provides that Congress shall have the power to regulate commerce with foreign nations, and among several states, and with Indian tribes. The regional corporations are not recognized as Indian tribes they are recognized as Alaskan business corporations.

On December 17, 1987, the Anchorage News quoted Assistant Secretary William Horn as saying: “We have no trust obligations to Native corporations.”[13] Also, Section 2(b) and Section 19(a) of ANCSA eliminated Alaska Natives rights to create reservations and revoked reservations in Alaska except for Annette Island Reserve.

Indian Citizenship Act of 1924 provided rights and privileges to Alaska Natives as citizens of Alaska and the United States.[14]

Indian Civil Rights Act of 1968 imposes on tribes a number of substantive protections of individual rights taken from the U.S. Constitution, including due process protections for property rights. [15]

Stock restrictions include in ANCSA were extended without full disclosure and without a formal majority vote of the shareholders and the full value of CIRI assets was not disclosed to the shareholders at the time of the advisory vote.[16] Shareholders were not informed of all the provisions included in P.L. 100-241 and they were not informed as to how those provisions affected their rights and stockholdings. In addition, shareholders were not informed of the values of CIRI’s natural resources and ANSCA land values.

In late 1990 CIRI sent a Special 1991 Shareholder Advisory Ballot to its shareholders which gave them a choice of two options. The first option was for CIRI to remain as it is – a Native owned and controlled corporation; therefore, no official vote should be taken. The second option was CIRI should be changed so CIRI stock can be sold to anyone; therefore, an official vote should be taken. CIRI’s December 1990 newsletter reported 6209 ballots were mailed and 3261 were returned; over 52% of all shareholders responded. Of those responding 78.5% (2560) agreed that CIRI should remain as it is – a Native owned and controlled corporation and no vote should be taken. The advisory ballot did not fully disclose the provisions in P.L. 100-241 and how those affected shareholder and property rights, and there was no valuation of CIRI’s land and natural resources disclosed to shareholders who were not even given a formal vote on this major property right of shareholders.

In 1997 CIRI presented an advisory ballot with four options. Option 1 was continue stock restrictions; Option 2 was lift stock restrictions; Option 3 was stock buy-back and Option 4 was issue Bonds. The options that received the most votes were Option 1 and Option 3.

CIRI letter dated April 8, 1998 by CIRI’s CEO, informed the shareholders of the informal vote on stock restrictions. Option 1: To continue stock restrictions received 191,194 votes and Option 3: Stock Buy-back received 178,414 votes. CIRI had 627,800 shares at the time of the vote so the vote to continue stock restrictions was approved by a vote approximately 30%. The letter went on to say: Because Option 1 was the highest vote-getter in each the first two rounds of voting, and because it does not require any formal change to CIRI’s articles of incorporation or other similar action to implement, a further round of voting is not going to be necessary. This was a misrepresentation because CIRI Article VI(k) cancelled stock restrictions in 1991.

When restrictions were extended by the ANCSA corporations the shareholders did not get to vote on the amendment of corporate articles. The articles were instead amended by a vote of the board of directors. CIRI’s articles includes under Article III: “The amendments set out above were approved by the Board of CIRI on February 15, 1991. Under provisions of AS 10.06.960(c), shareholder approval of such amendments is not required and was not sought.”

P.L. 102-201 (Dec. 10, 1991) the last paragraph under Title III---Section 301 Extension of Alienability Restrictions on Settlement Common Stock: Section 37(a) of Public Law 92-203, the Alaska Native Claims Settlement Act (43 U.S.C. 1629(a) is amended by striking “December 18, 1991,” and inserting in lieu thereof “July 16, 1993: Provided, however, that this prohibition shall not apply to a Native Corporation whose board of directors approves, no later than March 1, 1992, a resolution (certified by the corporate secretary of such corporation), electing to decline the application of such prohibition.[17]