According to the action, which also names James Majewski, president of CNI, and Benjamin Dixon, a CNI economic development executive, the tribal councilors seek a jury trial in U.S. District Court.
The suit alleges that Smith "knew of and consulted in the transaction as well as the concealment and deception" by Majewski and Dixon involving the purchase of 49,865,309 shares of common stock in Global Energy Group (GEG) from "certain insiders of GEG, violating the antifraud provisions of the Securities Exchange Act of 1934." GEG is a company that sells heat pump and air conditioning equipment.
According to the lawsuit, the councilors said a commitment to purchase GEG stock was made by Majewski on May 18, 2005, but the CNI board had not approved the purchase on that date. The councilors allege that it wasn't until July 13, 2005, that conditional approval was given. The councilors allege that $500,000 had already been paid to GEG, with the consent of Smith and Dixon, and on Aug. 19, 2005, the balance of $2 million dollars was paid to close the deal.
The councilors allege that "deceptive and improper accounting devices and business practices" were used to cause GEG public financial statements to reflect an inaccurate account of the company's actual financial and business condition.
According to the lawsuit, the money used to buy stock in the company were diverted from federally-backed funds. The borrowed money was used to buy shares of GEG directly from existing stockholders at a time when the company had generated $12 million dollars in losses and had no assets.
The councilors allege that the stock purchase had a negative financial impact on CNI, and the defendants caused CNI to overpay to acquire control of GEG because they failed to fully inform the council or CNI board.
"The purchase was misrepresented to the Business Advisory Team and completed without the due diligence necessary to properly evaluate the GEG Company," according to the lawsuit.
David Thornton Sr., tribal councilor who represents Sequoyah County, said Tuesday that he believes the actions of Smith were "criminal," and "now it's up to the courts to decide."
"The suit stands for itself," Thornton said.
Thornton said it was with great reluctance that the lawsuit was filed "after eight months of inquiry and being stonewalled...and that's the way I feel about it."
In a statement, Smith claimed the lawsuit is "politically motivated."
"I don't think that a federal judge is going to take that into consideration," Thornton said of Smith's claim that the lawsuit is political.
"The reality of the situation is that CNI's board of directors makes all decisions about the management and major purchases of CNI," Smith said in a statement. "That board includes three members of the tribal council, including two who have filed this lawsuit.
"If Ms. (Linda Hughes) O'Leary and Mr. (S. Joe) Crittenden had done their duty as board members and raised their concerns as this deal unfolded, CNI would not be in the situation it is in today. Those board members raised no questions, and indeed, Ms. O'Leary scarcely attended CNI board meetings at all. If anyone failed to do their duty to Cherokee citizens, it is the council board members who allowed the GEG purchase to happen and now claim to have had no knowledge of the purchase."
Smith said all the questions raised in the suit are the subject of a review initiated by the CNI Board of Directors months ago, prompted by questions that Smith said he had asked.
"By filing this lawsuit, this minority of the council is trying desperately to make headlines for political grandstanding rather than serving the Cherokee people," Smith said. "Including me in the lawsuit ignores the fact that the board and management of CNI operate independently from the Cherokee Nation.
"The board of directors were approved by the very council members who filed this lawsuit. It is that board who has called for a review of the GEG transaction which has lead to recent media publicity. By definition, CNI's board makes these decisions and bears the responsibility for judging the merits of potential purchases."
Smith said called his inclusion in the lawsuit "a raw, political attack that ignores the reality of how our corporations operate."
"Those rules are designed to keep politics out of our businesses. However, these Council members ignore the legal process and are more interested in using a federal court to cause a political firestorm than trying to resolve any questions about the operation of one of the nation's businesses."
Cherokee Nation Speaker of the Council Meredith Frailey said in a statement that it was surprising that the lawsuit was filed against individuals only.
"Generally, an approach to correct a wrong is to seek resolution from a governing board of a corporation," Frailey said. "Therefore, I am perplexed as to the full intent of the lawsuit."
