Disabled Vets Increasingly Cheated by Fund Managers

June 18th, 2012 - by admin

Eric Nalder & Lise Olsen / The San Francisco Chronicle – 2012-06-18 01:50:14


SAN FRANCISCO (June 17, 2012) — They survived the Nazis, the Viet Cong and the Taliban. But hundreds of mentally disabled veterans suffered new wounds when the country they served put their checkbooks in the hands of scoundrels.

Gambling addicts, psychiatric cases and convicted criminals are among the thieves that have been handed control of disabled veterans’ finances by the U.S. Department of Veterans Affairs, a Hearst Newspapers investigation has found.

For decades, theft and fraud have plagued the fiduciary program, in which the VA appoints a family member or a stranger to manage money for veterans the government considers incapacitated. The magnitude and pace of those thefts has increased, despite VA promises of reform. Three of the largest scams — ranging from about $900,000 to $2 million — each persisted for 10 years or more before being discovered.

In the past six years, the VA has removed 467 fiduciaries for misuse of funds, but only a fraction of them has faced criminal charges, a Hearst analysis of data from the VA’s Office of the Inspector General shows.

The government has never adequately tracked fiduciaries’ thefts from brain-damaged or memory-impaired veterans. The inspector general’s office says it conducted 315 fiduciary fraud investigations from October 1998 to March 2010, resulting in 132 arrests for thefts amounting to $7.4 million.

But a Hearst analysis of court records and documents obtained by freedom of information requests shows that the thieves’ take since 1998 is more than $14.7 million – almost twice the amount reported to Congress.

VA spokesman Josh Taylor says the program is being reorganized and improvements are being ordered every year.

CASE FILE No. 1: The Inside Job
Robert Morong Tabbutt was a VA field examiner, desperately in debt, who supervised fiduciary Jack Perry in Memphis. He used his authority to set up a dozen mentally disabled veterans as ATM machines so he and Perry could steal from them, according to records obtained by Hearst under the Freedom of Information Act.

They siphoned away almost $900,000 with stunning ease, the records show. Over a decade, more than 1,000 illegal transactions were so obvious that anyone doing a simple audit of bank records would have discovered them. Perry falsified records and moved veterans’ money from account to account to cover their tracks.

At the same time, the two began to gamble at Mississippi casinos, and Tabbutt, who filed bankruptcy petitions five times between 2001 and 2007, borrowed money from Perry hundreds of times. The stealing did not stop until Perry went to the FBI and confessed in 2008.

Veterans and their families, meanwhile, were not told they’d been ripped off, even after the thieves were finally sent to prison.

Until a Hearst reporter called him for this story, Henry Ashurst, 83, did not know that for a decade, he had unwittingly financed the lives and gambling habits of Perry and Tabbutt.

“I thought he was on the level,” Ashurst, an Army veteran, said of Perry.

“Things went wrong, and that should not have happened,” said VA spokesman Taylor, adding that he could not discuss specific details of any cases.

A 2004 law requires victims such as Ashurst to be reimbursed if the VA is partially at fault for their losses. Taylor told Hearst that since 2008 only 15 beneficiaries have been reimbursed a total of $652,685 under that law because of VA negligence.

Attorneys who represent program participants said it is very difficult to get stolen money back from the VA.

“It has to be pried out of them,” said former combat medic Richard Weidman, executive director for policy and government affairs at Vietnam Veterans of America. He summed up the fiduciary program in four words: “The corporate culture stinks.”

Weidman describes the fiduciary program as one of the department’s biggest problems, because its clientele “are among our most vulnerable.”

Thieving fiduciaries operate illegally for an average of 32 months before being caught, Hearst’s analysis reveals. More than 70 cases are pending in the clogged federal system, or in state courts, because federal prosecutors frequently decline to handle the cases.

Even when they do, it takes on average 29 months before charges are filed, according to Hearst’s analysis.

CASE FILE No. 2: The Slow-motion Prosecution
Joy Farmer eluded VA auditors for five years while juggling the books at a Tuskegee, Ala., law office before being caught in May 2004. Federal prosecutors didn’t indict her for another six years. Finally, she was sentenced to federal prison in September 2011 for embezzling more than $620,000 from 25 vulnerable clients.

“It just kind of got pushed from attorney to attorney,” said Clark Morris, an assistant U.S. attorney in Montgomery, Ala.

Even when investigations yield convictions, many of the criminals receive probation in exchange for promises to repay some or all of what they stole. But they often fail to pay, and many victims die before receiving any restitution.

After 10 years of war in Iraq and Afghanistan, and as veterans age, the number of mentally disabled veterans is growing rapidly. As of May, more than 127,000 veterans have fiduciaries who oversee more than $3.3 billion in assets.

Fiduciary failures rank “pretty high up there” among the current VA problems, said Rep. Jeff Miller, R-Fla., chairman of the Veterans Affairs Committee, which is drafting reform legislation.

Taylor said that under the Obama administration, the VA has beefed up background checks of new appointees, added staff, consolidated scattered fiduciary offices into six regional hubs, and appointed the reorganized program’s new leader, VA lawyer David McLenachen, in August.

In direct response to fraud, the agency has also issued directives requiring that veterans’ annual bank statements be sent directly to the VA, and now prohibits excessive compensation to fiduciaries when veterans receive large retroactive benefit checks.

Still, audits repeatedly fault agency employees for failing to properly examine financial records and for not coordinating with other agencies such as Social Security to exclude known scofflaws from managing veterans’ money.

CASE FILE NO. 3: The $2 Million Haul
Roy Wilson Swirczynski, a disabled U.S. Army veteran in Houston, filed three written complaints to the Department of Veterans Affairs about his VA-approved fiduciary, attorney Joe Phillips, and requested an investigation years before the VA discovered almost $2 million missing from 28 veterans’ accounts.

Phillips and his wife, Dorothy Phillips, have been charged with stealing the money in a pending Houston federal court case. The thefts were discovered when the VA audited Joe Phillips’ fiduciary work in 2007 – for the first time in 25 years. It is the largest theft total ever uncovered in the fiduciary program.

Dorothy Phillips pleaded guilty to conspiracy; Joe Phillips denies wrongdoing and is awaiting trial. He and his attorney refused to comment for this report.

For years, Swirczynski has kept date-stamped copies of his own complaints against Phillips in a suitcase alongside his mother’s obituary, his U.S. Army service record and a faded snapshot of himself in his younger days.

Swirczynski said the VA never formally responded and he learned of Phillips’ indictment from the Houston Chronicle. The VA won’t say whether any of his money was stolen.

“That’s what really galls me,” said Swirczynski, who suffers from schizophrenia. “They need to be exposed. They always have the excuse that they’re overworked and don’t have enough people and all that crap.”

The VA loses track of money and fiduciaries in part because of an ancient, Wang-based computer system, cobbled together by agency staff in 1989 and slightly upgraded in 1998. The system cannot interface with the department’s other, more modern computers.

Slated for replacement many times, the computer system can track a fiduciary for only two months. Mandatory accounting reports that are two or three years late are shown in the system to be just one year late, records show.

CASE FILE NO. 4: The Call of the Casino
Hazel Dianne Hill of Coppell, Texas, said she controlled 16 veterans’ finances and was “very trusted” by the VA.

She was a Department of Labor investigator and a gambling addict. In January 2008, after the wagering had buried her in debt, she told Hearst it was too tempting to take “a little bit” at a time from veterans and easy to conceal it by shuffling money from account to account.

A remorseful Hill turned herself in when she “got tired of crying” in July 2009, she said, but not before embezzling $62,000 from three veterans.

Given the VA’s lax oversight, “frankly, she could have taken money until the day she died,” said Hill’s attorney Perry Hudson.

In Fort Worth, fiduciary Patricia Ibrahim got five years in prison after she withdrew veteran Larry Rodgers from a nursing home and put him without permission in a substandard group home so she could “use his money to go gambling,” said prosecutor Lori Burks. “It is despicable.” Rodgers died before Ibrahim was prosecuted.

The most financially destructive of the many fiduciaries with gambling addictions was Connie Hanson of Apple Valley, Minn., who stole almost $1.3 million from veterans to feed her habit. She is in prison.

To view an interactive map with details and locations of more incidents nationwide, go here.

Reporter Lindsay Wise, researcher Joyce Lee and intern Mayra Cruz, all of the Houston Chronicle, and Sarah Hinman Ryan, director of news research at the Albany (N.Y.) Times Union, contributed to this report. Eric Nalder and Lise Olsen are investigative reporters for Hearst Newspapers. E-mail: ericnalder@hearst.com

(c) 2012 Hearst Communications

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