Inspector General: St. Croix Red Mud Settlement Overpaid Attorney Millions

An extraordinarily high proportion of a multimillion-dollar settlement with aluminum companies who created the giant mound of caustic red bauxite dust on St. Croix went to the attorneys, losing millions for the V.I. government, Inspector General Steven van Beverhoudt told senators during budget hearings Tuesday.

The audit helped lead to the V.I. government disputing the fees. Van Beverhoudt said the dispute is now in arbitration and may be heard in September.

He placed much of the blame at the feet of the V.I. government, which he said "did not follow all competitive procurement laws when they entered into the costly professional services contract."

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The contractor, which was the Law Offices of John Dema, the firm hired for the litigations, he said was allowed to take control of the litigation process without the necessary controls in place for the Department of Justice to direct and monitor its actions.

Van Beverhoudt said at the end of the day the firm "claimed as fees and expenses a total of $17.9 million of the $27.9 million in settlement funds … with no substantiation of the amounts by DOJ."

The V.I. Inspector General’s Office also contends the contractor "miscalculated, by $5.1 million, the potential contingency fees due from the funds received and inappropriately claimed $4.1 million in expenses," and that the settlement "should have earned about $761,000 in interest," that the government did not get.

Dema has disputed the terms of the IG report. (See Related Links below)

Sen. Positive Nelson asked, "Is there anything in the audit that may constitute criminal behavior?"

Van Beverhoudt said, "We have concerns about the procurement process and the initial wording of the contract, but I think it is just a difference of opinion about the contract terms."

The giant mound of caustic red dust near the St. Croix airport dates back many years. Harvey Aluminum Corp. began developing the first plant on the site in 1962 and several different companies owned the manufacturing plant over the ensuing 40 years, the last being St. Croix Alumina.

Over the decades, the plant produced millions of tons of caustic bauxite tailings as a byproduct of making aluminum. Wind has spread the dust around neighboring properties and erosion has moved some of the tailing into collecting ponds, toward the shoreline and to some extent onto the nearby seabed.

Local and federal enforcement officials worked to assess fault and cleanup responsibility for the noxious metallurgical wastes deposited on the site over several decades, even as several former owners of the plant and the land it sits upon fight protracted court battles over who is holding the bag.

In 2005, former Gov. Charles Turnbull’s administration filed suit against a slew of companies that owned the property at one time or another, including St. Croix Alumina, Alcoa World Alumina, St. Croix Renaissance Group, Lockheed Martin, Century and Vialco.

Planning and Natural Resources Commissioner Alicia Barnes reached agreements with St. Croix Renaissance Group and St. Croix Alumina in 2011, at which point, government attorneys and company officials projected work to begin by the end of 2012. A multimillion-dollar settlement with three of the companies was finalized in 2014.

Van Beverhoudt ran through the highlights of several audits over the last year, including one of property tax auctions that led to the reversal of numerous property sales and criminal charges being filed and of debatable investments by the Government Employee Retirement System.

Van Beverhoudt presented the Office of the Inspector General’s budget request for Fiscal Year 2017 of $2.1 million. This is an increase of $118,450 over the current year. It includes $1.3 million for wages and salaries; $458,000 for benefits; $60,000 for capital outlays, $175,000 for other services; and $45,000 for utilities.

No votes were taken. Present were Nelson, Sens. Marvin Blyden, Clifford Graham, Novelle Francis, Kurt Vialet, Myron Jackson, Sammuel Sanes and Tregenza Roach.

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