Native corp.’s subsidiaries threatened with 8(a) ban

Already facing scrutiny over its status as a federal contractor, an Alaska Native corporation is now enmeshed in a multimillion-dollar legal fight with an ousted consultant and president. Tens of millions of dollars are at stake amid allegations of fraud and contractual irregularities.

The feud has spawned a trio of lawsuits in Nome and Virginia that include allegations a former lead consultant for Sitnasuak Native Corp. broke the law by milking a federal program that allows Alaska Native corporations to go after government contracts, often without competition. Nome-based Sitnasuak is the largest of 16 Native corporations in the Bering Strait region. It seeks to recover more than $15 million for its approximately 2,780 shareholders.

Established under the Alaska Native Claims Settlement Act in 1971, Sitnasuak and its subsidiaries manage land and apartment buildings, and fuel storage and delivery in Alaska. But a large chunk of the company's revenue comes from subsidiaries involved in what are called 8(a) contracts with the federal government. Critics claim Alaska Native corporations receive unfair advantage through the Small Business Administration's 8(a) program

A complex contract dispute

Sitnasuak's troubles center around James Nunes, a non-Native consultant, and former Sitnasuak board president Robbie Fagerstrom. The corporation tapped Nunes several years ago to go after contracts available under the 8(a) program. Nunes was hired, in part, to build relationships to seek defense contracts and boost sales for two Sitnasuak 8(a) subsidiaries that manufacture military apparel -- SNC Telecommunications LLC and API LLC. As Sitnasuak's board president and chief executive at the time, Fagerstrom worked closely with Nunes to go after the defense contracts.

Sitnasuak argues in court filings that $13 million was wrongfully diverted from a subcontractor to Nunes' consulting firm and that he and Fagerstrom together received more than $2 million in overpaid compensation. Sitnasuak also claims Nunes placed the company's 8(a) government contracts in peril by failing to obtain permission to allow a non-8(a) contractor to manage the daily operations.

In spring 2009, Fagerstrom, who had served the corporation in various leadership positions for 33 years, was forced to resign from Sitnasuak as president and CEO, but remained on the board of directors. The day after he resigned, he got a severance package and began a $158,000-a-year job as SNC Telecommunications' chief executive. The next month, he was voted off of Sitnasuak's board, and the new board of directors fired him from the telecommunication's subsidiary.

Fagerstrom is suing for breach of contract, seeking about $500,000, said Bill Evans, Fagerstrom's lawyer. Sitnasuak claims its telecommunications subsidiary never would have hired Fagerstrom as CEO had it known he had just been forced out of his leadership roles within the corporation, and that Fagerstrom committed fraud by allowing himself to be hired without disclosing his embattled position.

Nunes is also suing Sitnasuak for breach of contract, said David Greenspan, his lawyer. Nunes began consulting with Sitnasuak subsidiaries in 2004 to help them tap the military market via the SBA's 8(a) program. Through his companies Insight Consulting Group and Insight Holdings Group, Nunes was contracted to provide management and sales services for SNC Telecommunications and API, cultivating opportunities to provide apparel for military personnel, including flame-resistant nylon.

It was a lucrative arrangement for Nunes. One contract called for Nunes to earn 40 percent of SNC Telecommunication's profits in the years 2009 and 2010. According to Fagerstrom's attorney, the company was poised to generate $200 million in revenue in 2009, turning a profit of $12 million to $15 million. Fagerstrom and Nunes argue their contracts should stand because they were crafted to cover them in the event either side terminated the relationship.