A tribe's bad deal with Wall Street.

• Author: Ganesan, Arvind
• Position: Westrock Group's deal with the Lower Brule Sioux Tribe

In the heady days of 2007, when the financial world was drunk on the no-income/no-asset mortgages that would prove so toxic, the leader of a tiny Indian reservation in South Dakota decided to go where the real money was.

Michael Jandreau, chairman of the Lower Brule Sioux Tribe, wanted his tribe to be a player on Wall Street, while Westrock Group, a Wall Street brokerage, thought it could get rich partnering with some of the poorest people in the United States. The result was that the tribe acquired Westrock in 2009, making it the first Wall Street brokerage owned by a Native American tribe in the United States, and heading toward what could have been a foreseeable collapse: a raft of burned investors, $20 million in still-missing taxpayer-guaranteed dollars, and an ongoing lawsuit against the U.S. government.

The Westrock deal was mostly secret, unknown even to many of the tribe's members. It went bankrupt soon after the tribe bought it. Jandreau suddenly died last year after defending himself against allegations of mismanagement and possible corruption, leaving tribal members to deal with the legacy of his polarizing leadership.

A tribal election in September 2014 brought three reform-minded council members into office, which led to two years of political gridlock on the six-member council. Now many of the tribal members involved in Westrock and other forms of financial mismanagement are in charge of the government again, having won a majority on the council, while allegations of impropriety swirl around them and federal investigations are underway.

Lower Brule is filled with uncertainty, tinged with fear and frustration.

The tribe's problems can't be blamed on just a few bad apples; they owe in part to U.S. legal doctrines meant to ensure tribal sovereignty that have instead left Native Americans with precious little recourse if their tribal governments opt for secrecy and shady deals. Lower Brule is an example of how badly things can go if tribal leaders and their business partners try to take advantage of the understandable deference federal law shows to tribal governments.

The story began in 2005, when R. Dennis Ickes, a Utah-based lawyer then sixty-one years old, approached the leadership at Lower Brule with a revolutionary idea: marry the riches of Wall Street trading to the tax benefits enjoyed by Indian tribes under federal law. He claimed this idea could make the tribe (and its council members) fabulously wealthy, but it had never been done before and there were questions about whether it was permissible under federal rules. Nonetheless, Ickes secured Jandreau's support.

Jandreau had first become tribal chairman in the late 1970s and had held the position continuously since 1984. His allies on the six-member tribal council during the Westrock period included two nephews and a cousin, ensuring he had a supermajority for anything he wanted to do. And in this tribal government, the tribal council is both the executive and legislative branch. It controls all tribal assets and programs, including those for housing, employment, financial assistance, and schooling.

To the outside world, Jandreau was a soft-spoken, grandfatherly presence who just wanted to do right by his people. He and his allies developed a modest but successful casino, boasted that the tribe was the biggest popcorn producer in the country, and cultivated the reservations reputation as the quiet, businesslike, and peaceful home to about 1,600 people. That stood in stark contrast to other South Dakota reservations, including Pine Ridge, which was regularly in the news for government dysfunction, crushing poverty, and conflict. On the reservation, Jandreau's tenure was far more controversial; many saw him as an autocrat who favored his allies over others.

Ickes, a distant relative of FDR's legendary Interior Secretary Harold Ickes, already had a long history in Indian Country. In 1973, he co-founded the Justice Department's first Office of Indian Rights and helped negotiate an end to the American Indian...