FLAGSTAFF, Ariz. - The Hopi Tribe is suing Wachovia Bank Companies and two of its financial advisors for nearly $190 million in losses and penalties for what the tribe claims is investment fraud.
The tribe claims that Wachovia Bank financial advisors, David Boling and James Roy, invested the tribe's money in high-risk investments contrary to the tribe's policies and procedures, concealed significant losses from those investments, lied about how the money was invested when reporting to the tribe and overcharged the tribe for fees. Wells Fargo acquired Wachovia in 2008.
"The Tribal Council and I have an obligation to protect the Tribe's funds and we take that responsibility very seriously," Tribal Chairman LeRoy Shingoitewa said. "The severe nature of the misconduct that has now been uncovered requires us to act on this matter and that is exactly what we are doing."
In 2005, the Hopi Tribal Council passed a resolution that defined the types of investments that could be made and what percentage of money could be invested. The policies were put into place to make sure that low-risk investments would provide income to the Hopi Tribe for improvements on tribal land and to help the Hopi people.
Instead the tribe claims that Wachovia transferred money from one bank to another bank without proper authorization and without council approval and that the transactions conflicted with the resolution the tribe had passed.
Tribal lawyer Norberto Cisneros said the financial advisors violated all the Hopi Tribe's policies and procedures as if the tribe didn't have any policies in place.
"At one point 99 percent of the investments did not comply with the policies," he said.
Cisneros said that $60 million of the Hopi Tribe's money was involved.
"It wasn't that the tribe went and opened the account and signed the account card," Cisneros said. "It happened more superstitiously than that, more suspiciously than just opening up a typical account."
The tribe also claims that at the same time the Hopi Tribe lost money, those same investments earned Wachovia Bank millions of dollars of profit. One of the investments was structured in a way that locked in losses for the tribe no matter how the financial markets behaved.
"That was really a part of the violation that occurred," Cisneros said. "They weren't complying with those policies and the result of risky investments benefits the broker and the investment advisor much more than they will the tribe."
Cisneros said the advisors at Wachovia also targeted the Zuni Tribe.
The tribe said that when Wachovia was caught investing in high-risk investments the bank would then send false information to the tribe about the value of those assets.
"They would say, you are making tons of money on it, you shouldn't be complaining," Cisneros said. "In reality, the tribe was losing money."
According to the Hopi Tribe, Wachovia's quarterly performance reviews only highlighted investments that were doing well while not disclosing to the tribe investments that weren't doing well. The tribe claims Wachovia gave them false information about how much an investment was worth and that presentations to the tribe gave them false information about the risk of the investments. They also contend that monthly statements were inaccurate.
"It was a scheme of concealment that would have taken, in fact it took a very sophisticated individual to uncover all the bad acts that were occurring," Cisneros said. "They opened so many different accounts and were trading so much money daily, just moving money around, it became impossible to account for it all."
Cisneros said it has taken thousands of hours to understand the transactions that occured.
"It has taken nine to 12 months of really unraveling everything that occurred, looking at the information provided versus what was really occurring," Cisneros said.
Shingoitewa said Wachovia's investment advisors lost millions of the Hopi Tribe's dollars and must be held accountable for their actions.
Cisneros said Hopi officials don't believe the Hopi Tribal treasurer or anyone on the tribal council was involved.
He said that while the monies are still with the same company, the investment advisors are no longer on the accounts. The Hopis passed a resolution to move the funds to a different bank and different advisor.