by LORI THOMPSON

Bering Straits Native Corporation exemplifies how steep the learning curve was for Natives thrust into the business world.

The corporation went bankrupt. Its bank went broke. Taxpayers picked up the $3 million debt. And bank president Frank Murkowski moved on to become a U.S. senator.

That middle chapter in Bering Straits Native Corp.'s history was a turbulent one, separating its early era of big spending and crippling financial losses from the recent period of caution and recovery.

Bering Straits, which encompasses Eskimo villages around Nome, lost more money in its beginning years than any other regional Native corporation. Its troubles stemmed largely from inexperience among corporate leaders, who were manipulated by other business people, according to corporation executives and shareholders.

"If I was living in a big city and had $100,000, I wouldn't look for a subsistence hunter to go invest it for me," said Toby Anungazuk, a subsistence hunter and Bering Straits shareholder in Wales, about 100 miles northwest of Nome.

In the last decade, this corporation in northwest Alaska has steadied itself, making modest profits and conservative investments. It still lags behind most other regional corporations, but is growing and working to increase shareholder dividends beyond their annual $50.

Julian Iya, left, Elton Seppilu and Jamie Seppilu divide hundreds of murre eggs that they gathered from the cliffs near Savoonga on St. Lawrence Island. After the Native settlement passed, the people of St. Lawrence Island opted out of the regional corporation so they could keep more of their land.

PHOTO BY BRIAN WALLACE After Bering Straits was launched in the 1970s, it went on a spending spree, investing in businesses that included a construction company, a hotel and a tire company. Many of those businesses were losing money even as Bering Straits bought them.

"I think when you hand millions of dollars to people who had not had experience in analyzing businesses and whether they're good purchases or not, they're going to make mistakes," said Dick Davis, a former Bering Straits CEO who was hired later.

The early years were strewn with financial disasters. The corporation's construction company underbid a dock project by millions of dollars and had to pay for it out of its own pocket. The corporation also ran out of money for a hotel it started to build in Fairbanks.

One of Bering Straits' biggest problems was that its money became mixed with land-settlement funds it was required by law to pass on to village corporations in its region. Unbeknownst to the village corporations, their money was used to help cover losses by Bering Straits' businesses.

By the late 1970s, village corporations were demanding their land-settlement money from Bering Straits. In 1980, Nome's village corporation, Sitnasuak Native Corp., claimed Bering Straits' bank was at fault in allowing its money to be spent inappropriately and it sued the bank.

The Alaska National Bank of the North held money from the Native land claims settlement in trust for the regional and village corporations in the Bering Straits area. The trust funds were supposed to be managed with caution. Former Bering Straits board members said the inexperienced board relied on bank officials' expertise in overseeing the land-settlement money.

"There was a learning curve for board members jumping into business and I don't think they understood what they were getting into. I know they didn't. They didn't understand all the rules," said Unalakleet's Paul Johnson, a former board member of Bering Straits.

Sitnasuak claimed the bank broke its trust agreement with the corporations by allowing Bering Straits to squander village's claims-settlement money on bad investments.

The Superior Court in Anchorage agreed with Sitnasuak and awarded it $14 million.

The judge ruled the bank "totally failed" to carry out its legal obligation to protect the corporation's money in the mid-1970s. Frank Murkowski, now a U.S. senator for Alaska, was president of the bank during that time.

"The bank knew the money was being misappropriated and did nothing to protect the beneficiary," Judge Mark Rowland wrote.

Murkowski recently denied responsibility, saying he didn't run the trust department that handled Bering Straits' money and besides, the regional corporation decided how to use its own money.

"We didn't invest their money," he said. "They invested their money."

Charlie Cole, previously the bank's attorney, said Murkowski initially recommended Bering Straits put its money in stocks rather than in businesses.

"If (Bering Straits) had taken that advice and accepted the banks' proposal, they'd be fabulously wealthy today," Cole said.

Robbie Fagerstrom, chairman of Sitnasuak, and others in the region still fault the bank and Murkowski. Fagerstrom said the village corporation did not pursue Murkowski, however, because it won its court case, the bank went insolvent and Murkowski had moved on to become a senator.

"It's very important when you've made a lot of mistakes not to make them again. I keep reminding (the board) to be careful," says Bering Straits CEO Jack Carpenter.

PHOTO BY BRIAN WALLACE "We thought he might be important in helping the region in the future," Fagerstrom said.

Shortly before the bank went insolvent, Sitnasuak worked out a settlement agreement so that it would be repaid $3 million, Sitnasuak's chairman said.

Meanwhile the case seriously hurt the region and village corporations, which were without the money they needed to launch businesses in their own communities, Fagerstrom said.

Bering Straits later repaid village corporations $14 million, according to corporation officials. Fourteen village corporations received 900,000 acres of Bering Straits' subsurface land, 300,000 acres of which the regional corporation bought back.

The severe financial losses led to the regional corporation filing for bankruptcy in 1986, so it could reorganize. The chairman's salary and directors' fees were cut, and the company turned into a skeleton operation.

The staff size plunged from 15 to 20 people down to five, said Vern Olson, now Bering Straits' senior vice president.

"We had to do everything," Olson said. "I did payroll even."

The regional corporation was saved by a twist on U.S. tax laws. Previously all U.S. corporations could earn money by selling their net operating losses, called NOLs, to companies that wanted a tax break. The practice was stopped in 1986 because so much money was being lost to the federal treasury.

Bering Straits, however, was among those that lobbied hard to get an exemption so Alaska Native corporations could sell their losses.

"Our corporation wrote the book on NOLs," said former board member Johnson. "We just did it for survival, money survival, because that's all we had when I got on the board - a lot of losses."

Congress approved the exemption, and millions of dollars were injected into struggling Native corporations, although the practice was later halted.

After years of staggering losses, Bering Straits' profits suddenly shot up to more than $37 million in 1989, with the sale of its operating losses.

The last 10 years have been ones of recovery for Bering Straits. Investment caution has replaced the initial spending impulses.

"It's very important when you've made a lot of mistakes not to make them again," said Jack Carpenter, the corporation's president and CEO. "I keep reminding (the board) to be careful."

The historic Gold Rush city of Nome serves as the hub for Bering Straits Native Corporation.

PHOTO BY BRIAN WALLACE The corporation now rents out business space, apartments and cars in Nome. Bering Straits is also building a 23-room Victorian-style motel, called the Aurora Inn, in downtown Nome.

Bering Straits also bought a construction company and recently won a $1 million contract to clean up a former military site near Nome, according to Carpenter and vice president Wally Powers.

Villagers said they see few fruits from the regional corporation. However, Carpenter said Bering Straits has made a point of staying out of the smaller villages so it doesn't compete with village corporations.

The region faces a tough challenge - trying to develop businesses where the tundra is vast and the marketable resources are few.

"We don't have any trees up here. We don't have any oil and gas," senior vice president Olson said.

Although gold once brought miners to Nome in hordes, Bering Straits has not yet had any luck locating major metal deposits, and exploration has slowed as metals prices have dropped.

Despite the lack of natural resources, the corporation has turned profits between $1.5 million and $2 million annually in the last four years. Bering Straits also created a permanent fund, which will initially add at least another $50 each year to shareholders' dividends, according to a " conservative" estimate by Carpenter.

The corporation has about 20 full-time employees, and will have another 30 to 40 temporary jobs with its contract to clean up the military site, Carpenter said. About half of the full-time employees are shareholders.

Bering Straits has worked to mend its relationships with the village corporations, although some villagers said trust has not been fully restored.

Toby Anungazuk, the shareholder from Wales, said Bering Straits is handling itself better these days.

"I think they're learning," Anungazuk said. "But I still wouldn't let them invest my money."