Court to dictate extent of oil trust audit

How far back the state of Utah must go in accounting for millions spent from an oil trust held for Navajos must be answered by the 10th Circuit Court of Appeals before the case can move forward, a federal judge has ruled.

At issue is whether Utah will be ordered to go back as far as 1955 to account for how funds from a $150 million oil trust fund held by the state on behalf of Navajos in San Juan County was spent. A group of Navajos has filed a federal lawsuit against the state, claiming the state has mismanaged the funds. Although the group does not allege that state officials took funds, they do claim some funds were given over to groups who were criminally charged with embezzlement.

Brian Barnard, attorney for the Navajos, said because the state is the trustee, ultimately it could be on the hook for as much as $35 million if it cannot account for how the money was spent.

Last January, U.S. District Judge Tena Campbell ruled that the state's initial accounting of the trust fund lacked specifics and ordered the state to conduct an audit going back five decades.

The Utah Attorney General's Office has now asked Campbell leave to take her five-decade order to the 10th Circuit Court of Appeals to see if they indeed have to go back that far. The state argues this recent suit is one in a long line of similar suits dating back to the 1970s and that state audits in past cases should be adequate.

Barnard has argued that past suits had ineffective counsel issues and their conclusions should not be trusted.

The trust was created by Congress in 1933 and mandated that 37.5 percent of royalties derived from oil and gas exploration on Navajo reservations be placed in a trust to be managed by the state of Utah. The funds were to be spent for the health, education and general welfare of the Navajos.

However, some questions have been raised about how the funds have been distributed and how the state has kept track of those distributions. In particular, Barnard said the Utah Navajo Trust Fund gave an estimated $35 million to the Utah Navajo Development Council, a nonprofit group based in New Mexico that had created a for-profit company called Utah Navajo Industries, which invested trust funds in small business ventures on reservations. Eventually several UNDC and UNI officials were convicted of embezzlement.

Campbell asked both sides this past week to submit legal briefs on how the questions should be submitted to the Court of Appeals. Barnard said he is confident that the 10th Circuit will uphold Campbell's ruling and said the appellate court could even decline to hear the state's request and remand it back to Campbell. In all, Barnard said this new development could mean at least a one-year delay in the case.

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