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Keep business and family separate. Such is the mantra of entrepreneurs. But what happens when the distinction between family, business and government are not clearly defined? For the Lac du Flambeau Band of Lake Superior Chippewa, a speculative investment in a casino boat in Natchez, Miss. has created an intra-tribal conflict that has already, at least at one point, boiled over into physical conflict. In late March 2008, a group of tribal dissidents calling themselves the Ginew occupied the tribal government building and demanded a forensic audit of the tribe’s finances.

The major issue at stake was the tribe’s decision in January 2007 to issue $50 million in bonds to consolidate around $20 million of existing debt, but also to cover a $27 million loan to Grand Soleil Hotel and Casino, the name of the partnership representing the Natchez development project.

To understand why some tribal members were so outraged over the bond that they took over the tribal building is to delve into the nature of tribal identity. Tribal government is a series of overlaid organizational set-ups. Tribes are federal entities, sovereign nations, municipal governments, and, ultimately, blood relationships all at one time. Ever since the advent of Indian gaming in the 1990s, tribes have also functioned as businesses.

The mosaic of organizational structures has led, in the case of many tribes and certainly with the Lac du Flambeau tribe, to what UW-Wisconsin law professor Richard Monet calls “separation of powers” issues.

You have to go back to 2005, to understand how the tribe arrived at a decision to leverage all of its assets in order to loan a company—of which it holds a 27 percent share— $27 million after it had already invested nearly $9 million in hard cash.

Following a failed $3 million investment in a casino boat in Florida that was destined for Cancun, and a questionable $9 million investment in an Oklahoma security communications firm called XIT which has yet to yield revenue, the tribe’s leadership was looking for a way to make some money back.

Enter Charles Cato, a gaming entrepreneur introduced to the tribe by Dave Nowak, who worked for the finance firm Stifel Nicolaus. Cato approached Tribal President Carl Edwards, then a council member, with an investment project in Mississippi. Cato had purchased land and an option to buy two aging hotel businesses on the eastern bluff of the Mississippi River just south of the Highway 84 bridge in Natchez, Miss.

Cato had been in negotiations with the city of Natchez about the project since 2003. The idea was to create an upscale competitor to the Isle of Capri, an aging riverboat casino that appeals to a downmarket demographic and still serves as Natchez’s primary portal for gaming, but he needed substantial financial backing to get the project off the ground.

The tribe’s chief financial officer at the time, Rick Lindsley, advised the tribal leadership to enter into the venture and the tribe’s leadership agreed. At some point in 2007 an operating agreement was signed by Cato, the LdF tribe, and Big River Enterprises LLC, a Stevens Point development firm run by William Bayba, and the tribe became a stakeholder in Emerald Star Casino project.

The parties went into the project, at least initially, as equal partners. Cato had the idea and the land, the tribe had the cash to put up, and Bayba had the expertise to build the hotel and casino.

A 2007 operating agreement for Emerald Star Casino shows Cato with a 42.25 percent distribution percentage and the tribe and Big River each with 27.5 percent.

At some point during 2007, the relationship between partners Cato, Bayba, and the tribe began to unravel. The details of the disagreement are well documented in records of the law suit that Cato eventually filed against Grand Soleil, the name the project assumed after Cato left, but the gist of the disagreement seems to have been that the partners accused Cato of failing to deliver on his end of the deal’s financing. Cato claims he was pushed out.

“The issue was basically that they wanted to have the project to themselves,” Cato said.

The name change from Emerald Star to Grand Soleil was announced in October 2007, but it took an entire year of legal battles before Cato’s stake in the project was repurchased by Grand Soleil and he was finally out for good. The tribe still holds a 27.5 percent stake but it is not clear whether Big River or other investors assumed Cato’s distribution percentage, because Cato’s settlement includes a confidentiality agreement.

The authorization of the $50 million bond in January 2007 came in the midst of the struggle to come up with the financing the project needed to go forward. What exactly happened between Cato and his partners remains obscure, but one interesting element is that Lindsley ceased his employment as CFO with the tribe the same month the bond was authorized and now he works for Grand Soleil on the ground in Natchez.

The name change in itself is interesting. Grand Soleil or “great sun” was the symbolic title given to the high leader of the Natchez tribe. After a French commandant commandeered the site of the Natchez’s own village just southwest of today’s city for his own town site, chief Grand Soleil led an attack on a French village on Nov. 30, 1729, killing all its inhabitants. A month later, the French attacked Grand Soleil’s camp with force, killing resistors and selling the rest into slavery in New Orleans. Grand Soleil himself was apparently executed.

When the name change was announced, the company’s marketing director Baxter Lee had this to say to the Natchez Democrat, “We wanted to find something that would fit more with the project here in Natchez. The developers wanted to have a strong sense of the type of property and culture they’re trying to create. They didn’t feel Emerald Star fit well. After months and months of research, we whittled it down to this name as the winner. We feel it fits well with Natchez.”

The narrow and optimistic view of history embodied by the name choice may be evocative of a more general inclination on the part of the project’s partners to present a rosy image, but they aren’t alone in wanting the venture to succeed.

Natchez welcomed two new casino development projects in 2007 with open arms. The Grand Soleil project and the Lane Company’s investment in a gaming venture on a city site are expected to produce much-needed jobs and revenue for a city that has been hurting ever since its paper mill closed.

The Natchez Democrat’s editorial board had this to say about the arrival of the boat in February 2008,

“City and business leaders were on hand Monday to welcome the boat ashore, and rightly so. They know what the signs of progress look like and they realize the impact such progress could have on our community.”

The editorial was written at a time when the project was expected to be complete by August of this year. But in May, when Grand Soleil got its gaming license, that timetable had already been pushed back.

Baxter Lee also talks about progress. Lee said the project should be finished in the spring of 2009. He said the construction delays were largely the result of the after-effects of Hurricane Gustav and a steel shortage. Most of the work this year has been focused on preparing the site of the casino.

“I think we’re very comfortable,” Lee said. “Barring anything unforeseen, I don’t anticipate anymore delays.”

The project can be viewed by way of its three main components— the hotels, the site preparation, and the boat. Cato purchased two hotels on the river bluffs, a Ramada Inn and a hundred-year-old resort called The Briars. The boat arrived at the Natchez Port Authority in February and has remained there without improvement.

Lee said the rest of the work on the boat is mainly aesthetic, so the company decided to work on preparing the site for its arrival before they finished installing carpeting and wiring.

In order for the boat to be made accessible to the public, a road must be cut into the bluff connecting the river bank to the top of the bluff. The major obstacle in that effort has been an active freight rail track. Lee said the work on the railroad bridge is nearly complete. But to bring the boat upriver, Grand Soleil still needs to complete a significant amount of site engineering. All of the boat’s utilities will come through a shore station that does not yet exist and the boat itself will rest on a mooring system that has not been started yet.

Lee does not believe that lawsuits with Cato delayed the project.

“If they did it was minimal. I think it’s fairly normal with a project of this size that people come into projects and move out. I don’t see it as any kind of obstacle,” Lee said.

Neither does he see the conflict within the tribe as an obstacle.

“We realize when you have a group the size of the tribe there will be some dissenting opinions,” said Lee. “As long as the leaders, the tribal chairpeople, and the tribal council are in the loop there shouldn’t be a problem. I think this property is going to be something they’ll be proud of when it’s said and done.”

The good news for Grand Soleil is that their hotel is open. The renovated Ramada held a soft opening on Nov. 14 and 60 of its 92 rooms are available to the public. The bad news is that there are two other hotel buildings in the Ramada complex that still need considerable work and the company hasn’t done anything with The Briars property.

Even more troubling is that two weeks ago the LdF tribal council approved an additional $2.5 million loan to Grand Soleil by a poll vote. Of the tribal council members, Joe Wildcat, Donna Lamere and John Brown voted to approve the loan. Robert Christensen, Vivian Wolfe, and Mike Christensen voted no. And perhaps most significantly, Gerry Brown abstained on the grounds that she was “not comfortable.”

Brown has been involved with the project from the beginning and currently, along with Dee Mayo, represents the tribe on the Grand Soleil board. Her discomfort with the additional financing is notable. Four other council members, Julie Valliere, William Beson, Rose Mitchell, and Mayo did not participate in the vote. Edwards broke the tie with his vote and the money was made available to Grand Soleil.

Does the authorization of the additional money mean Grand Soleil has already exhausted the $36 million the tribe has made available to the project with at least half of the infrastructure work for the casino still unfinished?

That question can’t be answered because neither the tribe, Grand Soleil, or Big River are willing to share their numbers. Lee initially told the Daily News that he would produce numbers reflecting total construction costs to date, but he never followed through on the promise. Bayba was unavailable for comment over the course of a week.

But it is the tribe’s silence that is most exasperating. With all of its assets leveraged to fund the bond and it’s own casino revenue paying the interest, the tribe has had to cut its operating budget in half, from around $17 million in 2006-2007 to around $9 million projected for 2008-2009. The annual per capita payment that many members count on for major purchases has been severely cut. Many believe the membership deserves an answer about where its money has gone.

But who should supply the answer? For the purposes of its investment in the Grand Soleil Project, the tribe actually exists in three different forms. First, as the Lac du Flambeau tribe, the entity on whose assets all the deals are based. Second, as the Lake of the Torches Federal Development Corporation, referred to as “ Lake” in official documents. And third as a minority partner in Grand Soleil itself with two sitting board members.

“Lake” is the direct result of LdF’s foray into gaming. When the Lake of the Torches Casino was in its planning stages, banks would not lend to the tribe because its sovereign status can make collecting on a loan problematic. So the tribe created a company that could take on liability and therefore borrow money from banks.

When Edwards said the tribe made $27.5 million available what he means is that the tribe put up the collateral for Lake to give Grand Soleil a capital loan to be paid back with interest by Grand Soleil at maturity. The tribe therefore functions in the deal as a government with state assets, an investment company with a profit agenda, and a minority business partner in a speculative gaming venture.

According to Monet, that’s the reason some tribe members believe they should have access to the tribe’s financial records while others think the tribe should hold its cards close to the chest.

“The problem is structural. There isn’t a clear identification of the powers and functions of government,” said Monet. “A lot of the tribes that have not gotten around to reforming their systems are running into these same problems. One of the most difficult separation of powers issues is the relationship of a government to its people when it acts as a government and when it acts as a business.”

Governments, as a rule, must be transparent and accountable to function well, while businesses need to pursue strategies that are often times predicated on timely-decision making and secrecy. Monet said states have had to confront the same issue in instances related to state-run lotteries and state liquor sales, but the issue has broader consequences for tribal governments.

“For tribes it’s complicated a million-fold because their main source of revenue is the tribal casinos which are businesses,” Monet said.

The problem is compounded by the fact that Lake’s board of directors are the executive committee of the tribal council. When the tribe makes decisions about its participation in Grand Soleil, no one is solely responsible for watching out for the tribal membership.

Tribal President Carl Edwards has tried to usher in an era of healing since he succeeded Victoria Doud. Doud’s administration was unwilling to talk to the media about the tribe’s investment in the Grand Soleil Project. Edwards is willing to talk, but he doesn’t want to talk numbers except to say that the tribe has invested $8.66 million in cash in Grand Soleil and made available a $27 million line of credit to Grand Soleil through the bond. In return, the tribe has a 27.5 percent share of the project.

As far as Edwards is concerned the Natchez project has been victimized by unfortunate delays and unprecedented efforts of sabotage.

“In a perfect world it should have been done already,” Edwards said. “But it’s not a perfect world. The biggest obstacle we’ve run into in this is our own membership.”

Cato shares Edwards’ view that the project is viable.

“It’s a good project. The project will work,” he said.

Cato initially estimated the casino would generate around $15 million in annual revenue, but that was before the global financial crisis. Cato also said the project would be finished if the tribe had let him do his job.

“The project could have been done for less than $60 million,” said Cato. “If they had concentrated on the funding instead of worrying about me, they’d be up and running.”

On Thursday, Edwards sent a letter to the tribe’s membership that addressed a variety of issues, from budget cuts to updates on the XIT and Natchez projects.

The Natchez update included the following explanation, “We recently signed loan documents for Grand Soleil, which the hotel (corporation) will be responsible for. Because we are 27.5 percent owners, we were required to sign. The project is responsible for the loan obligations. Because of our conservative projections, and the economy, the company will be consolidating its debt within the next 30 days, which had been reported to all Council members prior to the elections.”

Edwards’ assertion that “the project” is responsible for the tribe’s loan obligations is impossible to verify. The tribe has already contributed, in one way or another, almost $40 million in cash in return for what amounts to less than a third share in the profits. How much has Big River offered? Cato said that while he was a part of the project, Bayba’s company had only contributed $1.3 million in cash for his stake in the project.

It’s impossible to know whether the tribe or Grand Soleil will be stuck holding the bag if the project fails without seeing the operating agreements and the details of Cato’s buyout terms, but whatever the tribe’s financial liability in the project, its financial future rests on a bet that the Natchez project will turn a huge profit.

Given the state of the economy, it’s a bet that couldn’t come at a worse time.

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