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Missouri Health Care Charity Pays Over $8 Million to Resolve Federal Embezzlement, Bribery Investigation

Preferred Family Healthcare, a Springfield, Missouri-based non-profit, will pay more than $8 million in forfeiture and restitution to the federal government and the state of Arkansas under the terms of a non-prosecution agreement announced yesterday, which acknowledges the criminal conduct of its former officers and employees.

“Preferred Family Healthcare must relinquish the illegal profits it garnered from a wide-ranging fraud and bribery scheme,” said U.S. Attorney Teresa Moore for the Eastern District of Missouri. “Several former officers and employees are being prosecuted in separate criminal cases for their individual criminal conduct. This non-prosecution agreement holds the charity itself responsible for their actions as agents of the charity. Public tax dollars were stolen and misused in the course of this public corruption scheme, and through this agreement and these separate prosecutions, those dollars are being restored to the public coffers.”

“Employees of Preferred Family Healthcare used charitable organizations to illegally line their own pockets through fraud and bribery,” said Special Agent in Charge Tyler Hatcher of IRS-Criminal Investigation (IRS-CI). “IRS-Criminal Investigation and our law enforcement partners will continue to work diligently to uncover large frauds designed to divert funds that were meant to help those in need of medical services. Preferred Family Healthcare has acknowledged that its former employees engaged in criminal activity, and they are taking steps to make amends by forfeiting a sum of money to the federal government and paying restitution to the state of Arkansas.”

“The public should not suffer or be responsible for individuals who abuse their leadership positions out of greed for personal financial gain,” said Special Agent in Charge Charles Dayoub of the FBI’s Kansas City Field Office. “It is never acceptable to embezzle and misappropriate funds, especially those that directly impact our health care system. As today’s announcement underscores, although the individuals directly involved are no longer with Preferred Family Healthcare, this organization is accepting responsibility for its employees’ actions.”  

“The misuse and misappropriation of millions of federally sourced funds, designated for employment training and behavioral healthcare services to the public, by former executives of Preferred Family Healthcare (PFH) is a gross abuse of the positions of trust they once held within the organization,” said Special Agent-in-Charge Steven Grell of the U.S. Department of Labor, Office of Inspector General. “These former executives failed the public and did a disservice to PFH employees by prioritizing their own personal benefit and financial gain over the public they served. Today’s agreement demonstrates PFH’s willingness to take corrective actions regarding the criminal actions of former executives of the organization.”

Preferred Family Healthcare provides services to individuals in Missouri, Arkansas, Kansas, Oklahoma, and Illinois, including mental and behavioral health treatment and counseling, substance abuse treatment and counseling, employment assistance, aid to individuals with developmental disabilities, and medical services. Most of the charity’s funding comes from federally appropriated funds – the largest portion being Medicaid reimbursement.

As a condition of this non-prosecution agreement, representatives of Preferred Family Healthcare admitted that former officers and employees of the charity engaged in a conspiracy to, amongst other criminal activity, embezzle funds from the charity and to bribe several elected state officials in the Arkansas House of Representatives and the Arkansas Senate. As a direct result of these actions, Preferred Family Healthcare realized a financial benefit. Although Preferred Family Healthcare’s board of directors through lack of proper oversight, allowed its officers and employees to violate federal law.

Under the terms of the non-prosecution agreement, Preferred Family Healthcare will forfeit more than $6.9 million to the federal government and pay more than $1.1 million in restitution to the state of Arkansas related to the misuse of funds from the state’s general improvement fund.

Several former executives from the charity, former members of the Arkansas state legislature, and others have pleaded guilty in federal court as part of the multi-jurisdiction, federal investigation, including the following:

  • Former Chief Executive Officer, Marilyn Luann Nolan of Springfield, Missouri, pleaded guilty in November 2018 to her role in a conspiracy to embezzle and misapply the funds of a charitable organization that received federal funds. A sentencing hearing has not been scheduled.
  • Former Director of Operations and Executive Vice President Robin Raveendran, of Little Rock, Arkansas, pleaded guilty in June 2019 to conspiracy to commit bribery concerning programs receiving federal funds. A sentencing hearing has not been scheduled.
  • Former executive and head of clinical operations Keith Fraser Noble, of Rogersville, Missouri, pleaded guilty in September 2019 to concealment of a known felony. A sentencing hearing has not been scheduled.
  • Former employee and head of operations and lobbying in Arkansas, Milton Russell Cranford, aka Rusty, of Rogers, Arkansas, was sentenced to seven years in federal prison without parole after pleading guilty to one count of federal program bribery.
  • Political Consultant Donald Andrew Jones, aka D.A. Jones, of Willingboro, New Jersey, pleaded guilty in December 2017 to his role in a conspiracy from April 2011 to January 2017 to steal from an organization that receives federal funds.
  • Former Arkansas State Senator Jeremy Hutchinson, of Little Rock, Arkansas, pleaded guilty in June 2019 to conspiracy to commit federal program bribery. A sentencing hearing has not been scheduled.
  • Former Arkansas State Representative Eddie Wayne Cooper, of Melbourne, Arkansas, pleaded guilty in February 2018 to conspiracy to embezzle more than $4 million from Preferred Family Healthcare. A sentencing hearing has not been scheduled.
  • Former Arkansas State Senator and State Representative Henry (Hank) Wilkins IV pleaded guilty to conspiracy to commit federal program bribery and devising a scheme and artifice to defraud and deprive the citizens of the State of Arkansas of their right to honest services. A sentencing hearing has not been scheduled.

As part of the federal investigation, the former chief operating officer and chief financial officer of the charity were indicted by a federal grand jury on March 29, 2019. They pleaded not guilty, and are awaiting trial, which is scheduled to begin on Oct. 3.

The separate criminal cases are being prosecuted by Senior Litigation Counsel Marco A. Palmieri and Trial Attorney Jacob Steiner of the Criminal Division’s Public Integrity Section, Supervisory Assistant U.S. Attorney Randall Eggert and Assistant U.S. Attorney Shannon T. Kempf of the Western District of Missouri, Assistant U.S. Attorney Steven M. Mohlhenrich of the Western District of Arkansas, and Special Assistant U.S. Attorney Stephanie Mazzanti of the Eastern District of Arkansas.

IRS-Criminal Investigation, FBI, and the Offices of the Inspectors General from the Departments of Justice, Labor, and the Federal Deposit Insurance Corporation (FDIC) investigated the cases.

This is a combined investigation with the Criminal Division’s Public Integrity Section, the Western District of Missouri, the Western District of Arkansas, and the Eastern District of Arkansas.

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CONSUMER ALERT: Watch out for charity scams seeking to profit from the crisis in Ukraine

Attorney General Bob Ferguson is warning Washingtonians to be on the lookout for scammers targeting donations to aid Ukraine and Ukrainian refugees amid Russia’s ongoing invasion. Ferguson is asking Washingtonians to report suspicious solicitations to his office.

“During this tragic humanitarian crisis, many of us are looking for ways to help,” Ferguson said. “Unfortunately, scammers may prey on Washingtonians’ good will. My office is on the lookout for charity scams. If you see any suspicious or fraudulent solicitations, file a complaint with my office.”

You can protect yourself from scams by doing the following:

  1. Research the charity before giving. Ensure the charity is registered with the Washington Secretary of State at www.sos.wa.gov/charities. If the charity is registered, you can review a summary of its financial records and tax status. You can also check the charity’s rating on Charity Navigator at www.charitynavigator.org or Guidestar Nonprofit Directory at www.guidestar.org.
  2. Don’t give in to high-pressure tactics. If is someone is demanding immediate payment or sensitive personal information, it’s likely a scam.
  3. Report any suspicious activity to the Attorney General’s Office. If you suspect a charitable solicitation might be a scam, report it to the Attorney General’s Office. To file a complaint about a charity or commercial fundraiser, visit the Attorney General’s website at www.atg.wa.gov/file-complaint. If you receive a suspicious robocall asking for a donation, file a robocall complaint at https://www.atg.wa.gov/robocall-and-telemarketing-scams.
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Attorney General Bonta Announces Stipulated Judgment Against ZeroDivide for Misspending Donations

California Attorney General Rob Bonta today announced a stipulated judgment against ZeroDivide and its directors and officers to resolve allegations that the nonprofit violated California’s charitable trust laws. ZeroDivide allegedly misspent approximately $606,000 in restricted donations meant to fund two of its charitable programs, instead using these donations to cover salaries and benefits for employees who did not work on those programs, and to fund other programs. Today’s settlement requires ZeroDivide to be dissolved and prohibits two of its officers from leading charitable organizations in California, or holding or soliciting charitable donations from Californians for three years. ZeroDivide and its directors and officers must also pay over $460,000 in damages, penalties, and other fees.

“As ZeroDivide’s financial situation became increasingly precarious, its officers misappropriated money designated for specific programs to pay for unauthorized operational costs,” said Attorney General Bonta. “Today’s settlement should serve as a warning for charities who consider misspending donations. Donor intent must be honored. My office is watching, and we will hold you accountable.”

ZeroDivide is a San Francisco-based nonprofit focused on bringing technology to low-income communities that ceased operations in 2016 due to its financial insolvency. ZeroDivide operated two primary programs: Digital Bridge and the Renaissance Journalism Center. Through the Digital Bridge program, ZeroDivide provided technical assistance and “capacity building” to other nonprofits and public entities, such as libraries, as they adopted new technologies and upgraded their technology infrastructure. ZeroDivide’s Renaissance Journalism Center advanced equity in the reporting of news stories by journalists. 

In court filings, Attorney General Bonta alleges that between 2014 and 2016, the California Endowment, California Wellness Foundation, Ford Foundation, Vesper Society, Whitman Institute, and Wyncote Foundation provided restricted donations to fund these two programs. At the same time, ZeroDivide’s unrestricted revenue was shrinking, and it began to struggle to pay operational costs. Unbeknownst to donors, ZeroDivide began to dip into restricted funds to pay for a range of expenses, such as the salaries and benefits for staff and other programs that donors expressly did not want to fund. ZeroDivide’s board of directors was aware of this misconduct and failed to stop it from happening.  

In total, ZeroDivide allegedly misspent approximately $606,000 in restricted donations. ZeroDivide also maintained inaccurate financial statements related to the receipt and spending of program funds; failed to file required annual reports with the Attorney General’s Registry of Charitable Trusts, and failed to maintain adequate financial records, among other violations.

As part of the stipulated judgment, ZeroDivide and its directors and officers will be required to pay $326,008 in damages and $138,525 in penalties, late filing fees, and attorney’s fees. The nonprofit’s directors must also dissolve ZeroDivide and distribute the damages amount and any remaining assets to Community Initiatives, the fiscal sponsor for the Renaissance Journalism Center. Finally, two of ZeroDivide’s officers will be permanently enjoined from any future violations of California’s charitable trust laws and will be prohibited, for three years, from leading a charitable organization in California, working in a paid or volunteer capacity for a for-profit entity in the business of charitable fundraising in California, and from soliciting, holding, or managing funds or assets for a charitable purpose in California or from Californians.

In California, the Attorney General has primary responsibility for supervising charities, charitable trustees, professional fundraisers, and others who solicit or hold charitable donations. The California Department of Justice investigates the loss and misuse of charitable assets, fraudulent and misleading solicitation practices, improper reporting practices and other breaches of fiduciary duty. Charities are required to register and file annual financial reports with the Attorney General’s Registry of Charitable Trusts.

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NASCO letter to IRS regarding 501(c)(3) status for an LLC

On February 4, 2022, the NASCO Board submitted comments to the IRS in response to the Notice 2021-56 invitation to comment on standards that an LLC must meet to obtain 501(c)(3) status.  Through these comments, the NASCO Board supported the standards that the IRS and Treasury Department currently apply and requested that the IRS and Treasury Department consider the importance of state charity oversight and the variation of state law applicable to oversight of LLCs and formation of charitable LLCs.  The Board also recommended that tax-exempt standards for charitable LLCs require similar notifications to state charity officials as those under state nonprofit corporation law.  And finally, the Board offered to help connect the IRS and Treasury Department with any individual state charity official office for any state-specific questions.

Please find the link to the NASCO letter here.

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Georgia secretary of state warns of Ukraine charities scam

Georgia Secretary of State Brad Raffensperger is warning Peach State residents to be aware of scam charities seeking to profit from the crisis in Ukraine.

Raffensperger encourages Georgians to be watchful that their donations go to legitimate organizations and support the intended recipients.

“As Secretary of State, it is my duty to warn the people of Georgia about the scams and frauds looking to take advantage of their good will and generosity,” said Raffensperger. “I encourage my fellow Georgians to support the people of Ukraine in their fight for freedom. But they should make sure their support is going to real charities who will actually send their dollars to the right cause.”

Raffensperger offers the following tips you should consider before making a charitable contribution:

▪Research Online – If there is a charitable organization or cause to which you would like to donate, research online beforehand to ensure the charity is right for you. The Better Business Bureau, Charity Navigator, Guidestar, and other websites provide evaluations of different charitable organizations.

▪Check For Charity Filings – Before making any donation, be sure to confirm the organization you are supporting is a legitimate 501(c)(3) charity. Ask for the organization’s Employer Identification Number (EIN) and search it on the IRS website, or look for the organization’s 990 tax filings.

▪Effectiveness Matters – Take the time to look at an organization’s financial situation. Tools available online, such as those mentioned above, will provide you with information necessary to ascertain how much of your contribution will actually go to those in need versus administrative or other costs. Ask what percentage of your donation will go to relief efforts.

▪Do not share personal financial information over the phone – Do not share your credit card, debit card, or bank account information over the phone. Donate by check or credit card, rather than cash. And send the contribution directly to the organization rather than through a third party. If you donate more than $250, the organization should send you a letter confirming the size of your donation.

▪Tax Deductible Donations – If making a tax-deductible donation is important to you, search the database of tax-exempt organizations available on the IRS website. Before making your donation, ensure the charity you have identified is in fact tax deductible. Then, once you have made the donation, be sure to get a receipt for your contribution.