Chief, First Nation say Denesoline boss ‘misappropriated’ millions

The Łútsël K’é Dene First Nation and its chief say the boss of the First Nation’s economic development wing has “misappropriated” up to $14 million.

In documents filed with the NWT Supreme Court this week, the First Nation and Chief James Marlowe say Denesoline Corporation chief executive Ron Barlas spent years committing “blatant self-dealing.”

In an email to Cabin Radio, Barlas denied wrongdoing. “We will vigorously defend these allegations in court,” he wrote.

The sums of money and misconduct alleged are on an extraordinary scale for a community of around 350 people.

Łútsël K’é, on the East Arm of Great Slave Lake some 150 km east of Yellowknife, is accessible only by boat or air. It is one of the closest communities to the NWT’s three active diamond mines, meaning its members often benefit from work associated with those mines.

On its website, Denesoline bills itself as “the NWT’s most successful Indigenous-owned company” and highlights that “unlike most First Nation-owned companies,” it is run by an independent chief executive and directors, not by the First Nation’s chief and council.

​”This allows us to focus more on the business,” the website states, “delivering unparalleled value, for example saving the mines $10 million in three years on the ice road.”

But Barlas is accused in court of diverting a huge amount of mining-related revenue away from Denesoline and into companies only he and his family control.

He is also accused of manipulating how some corporations related to the community are run, with the alleged goal of protecting his position and preventing independent oversight of what was happening.

Those assertions have not yet been considered by the court.

No statement of defence from Barlas appeared in court records as of Tuesday afternoon.

By email to Cabin Radio, Barlas stated: “All of Denesoline Corporation’s business dealings have been transparent and have been ratified by the members of TSA Corporation,” referring to a corporation set up to give First Nation members oversight of business activities. TSA was designed to act as a form of governing body for Denesoline.

“All TSA members have to be LKDFN members,” Barlas wrote. “TSA has to meet its own conditions of membership, which were updated by unanimous assent five years ago to eliminate nepotism, corruption, and conflicts of interest.”

By contrast, the First Nation and Chief Marlowe allege that Barlas rigged the running of TSA by “unilaterally appointing and removing directors,” failing to hold annual meetings, and making it difficult for members to nominate new directors.

The First Nation and Marlowe are asking the court to order the removal of Barlas from Denesoline, award damages, and – in the more immediate future – issue injunctions that would stop Barlas having further authority over Denesoline, TSA or related corporations.

“Interim relief is urgently required to prevent Barlas from continuing to divert funds [and] to restore proper governance over and transparency into the LKDFN Companies,” an originating notice filed on behalf of Marlowe and the First Nation declares.

In an affidavit, Marlowe is quoted as saying the allegations – many of which draw on testimony and information provided by a former employee – “will shock our community.”

Companies ‘were alter egos’

Barlas was hired as Denesoline’s chief executive in 2014.

In the years that followed, the First Nation’s originating notice alleges that through “duplicity, threats and legal maneuvering,” he “illegally seized sole control” of several companies associated with the First Nation and took “approximately 50% of the monies intended for the benefit of the Łútsël K’é Dene First Nation for himself and his wife, the respondent Zeba Barlas.”

Marlowe and the First Nation argue that Barlas set up a company, Northern Consulting Group, then used it to form a joint venture with Denesoline into which money would flow from work related to mining.

Northern Consulting Group would perform “marketing and sales of services” to clients like the mines, documents filed with the court allege, in return for “49% of all gross revenue” generated from impact benefit agreements with the Ekati, Diavik and Gahcho Kué mines.

Northern Consulting Group “did not perform any actual work for the benefit of the Denesoline in exchange for these revenues,” the documents allege, adding that this “amounted to blatant self-dealing and a fraud on Denesoline.”

Marlowe and the First Nation assert that “the values of the revenues and assets misappropriated … are currently estimated to fall in the range of $10-14 million.”

They allege that three different companies – Northern Consulting Group, Equipment North and Dene Aurora Environmental Technologies – are “alter egos of Barlas and his wife, perform no independent work, and have been used to divert and hold funds and assets which are the rightful property” of First Nation companies like Denesoline.

The First Nation and Marlowe also allege that Barlas used money from one corporation to buy a house for his family in Yellowknife; bought an aeroponic farm for $160,000 using one of his own businesses then sold it on to Denesoline, which he ran, for $300,000; and offered $1,000 to every member household at a 2017 annual meeting of TSA Corporation – but only if members approved bylaw amendments that made it “difficult if not impossible” for residents to nominate their own directors, further limiting oversight.

Eventually, annual meetings were simply not held, the court filings allege, limiting the ability of First Nation members to scrutinize operations.

None of those claims have been examined in court.

Barlas told Cabin Radio by email: “We have executed all the agreements lawfully; all of our agreements have been duly ratified and we will vigorously defend these allegations in court.”

He said he had the support of Darryl Marlowe, who was the community’s chief until last year.

Barlas forwarded an email that he said had come from Darryl Marlowe, which appeared to state Barlas had “done more for the community of Łútsël K’é than anyone over the past 10 years” and declared: “This is a fake lawsuit.”

Darryl Marlowe could not be immediately reached by Cabin Radio on Tuesday evening to independently verify the contents of the email or comment further.

Anonymous emailer

Meanwhile, James Marlowe and the First Nation allege Barlas used a law firm to “send threatening letters to individual members of the community (typically threatening defamation proceedings) who asked too many questions” about what was happening at Denesoline.

Chief Marlowe says in an affidavit he was threatened with litigation in 2021, before he had been elected to lead the community.

“For some time, I have felt like members cannot say anything or ask questions about what is going on in the corporation,” Adeline Jonasson, a First Nation member born and raised in Łútsël K’é who has spent time as the community’s chief and sub-chief, asserts in an affidavit of her own.

In his affidavit, Marlowe says he gradually became suspicious of the amount of money flowing into the community.

“I could not be sure about the total value of the benefits that Denesoline had provided to the community,” his affidavit states, but he “felt that the math did not appear to add up when compared to the significant amounts that Diavik Diamond Mine said it was spending on contracts with Denesoline partners and joint ventures.”

Marlowe and Jonasson say they each received an email from an anonymous sender on December 28, 2022, urging them to investigate Denesoline’s finances and the conduct of Barlas. Marlowe and the First Nation say that investigation is ongoing.

The alleged financial irregularities appear never to have been highlighted by auditors. Court filings assert that audit firm KPMG consistently reported no concerns.

Diavik boss expresses concern

Marlowe and the First Nation say the situation is urgent because millions of dollars are due to be paid to Denesoline in the coming days.

In an affidavit, Diavik president and chief operating officer Angela Bigg said her mine is set to pay “Denesoline-related entities” $13.5 million in the near future, with a further $6 million about to be invoiced.

“These allegations are very concerning to DDMI,” Bigg’s affidavit reads, using an initialism for Diavik Diamond Mines Inc.

“Based on the information provided … DDMI is deeply concerned that if it were to advance payment on these invoices, the funds received by Denesoline may not be used for their intended purpose.”

Marlowe and the First Nation argue an injunction is required to put multiple corporations in the hands of a court-appointed receiver-manager instead of Barlas, as well as a freezing order to stop any assets being transferred while the case gets under way.

That application is expected to be heard by the NWT Supreme Court on Friday this week.

‘Denesoline is a champion for justice’

The case against Barlas appears to have been filed on the same day that Denesoline Corporation was named a recipient of a Canadian Business Excellence Award.

The non-profit Excellence Canada says its awards recognize “businesses from all industries that demonstrate a strategic approach to successfully improving performance and achieving goals.”

Companies pay $395 plus tax to “apply for recognition” from Excellence Canada.

Barlas wrote on Monday to Prime Minister Justin Trudeau to share news of Denesoline’s award win, copying the email to Cabin Radio and others. He told Cabin Radio the award represented “an indication of how upstanding and outstanding we have been.”

In his email to Trudeau, Barlas said Denesoline was “recognized as a model in serving the interests of an impoverished and disadvantaged remote Arctic Indigenous community.”

“Denesoline is a champion for justice for our community,” his email continued, “and we take all steps available to ensure that our beneficiaries are treated fairly under all of our business dealings.”