Jerry Walsh, executive director of now-shuttered South Arkansas Youth Services agency in Magnolia, pleaded guilty in federal court Thursday to funneling more than $380,000 of the agency's money to convicted lobbyist Rusty Cranford, a Cranford relative and an unnamed Arkansas state senator.
The goal of the conspiracy was to preserve state contracts held by South Arkansas Youth Services and influence state officials from taking action against Walsh's agency in exchange for enriching Cranford, his family member and the state senator, according to the plea bargain.
"This plea exposes the depths to which 'pay to play' politics has corrupted a nonprofit organization which was formed with the best of intentions, to help children," U.S. Attorney Duane "DAK" Kees said in a Thursday news release.
Walsh, 72, pleaded guilty to one count of conspiracy. Sentencing will come later. He is free on a $5,000 bond.
His is the most recent plea in a yearslong FBI investigation that has centered on Medicaid funding, embezzlement and illegal lobbying involving nonprofit agencies in Missouri and Arkansas. The investigation has netted admissions of guilt or jury verdicts against four former Arkansas legislators, Cranford and others.
Jerry Walsh guilty plea documentsView All
South Arkansas Youth Services, which contracted with the state to help troubled youth, received most of its $75.6 million in funding between fiscal years 2011 and 2015 from state government, according to Walsh's plea, filed in U.S. District Court in El Dorado.
"Arkansas Senator C," so designated in Walsh's plea deal, is the latest legislator implicated.
Walsh's guilty plea describes Senator C in 2013 as a senior member of the 35-person chamber who served on the influential Arkansas Legislative Council. The council is empowered to act on legislative matters, including contracts, when the full General Assembly is not in session.
The unnamed senator also was a paid attorney for South Arkansas Youth Services (SAYS).
The senator had the "power to prevent bills from coming to the floor for a vote, had the power to affect which appropriations bills were funded, and had the authority to vote on state contracts due to his position on the Legislative Council," Walsh's plea bargain notes.
Those descriptions and information from a recent interview of Walsh best matches former state Sen. Michael Lamoureux, R-Russellville, who was Senate president pro tem in 2013, and current state Sen. Jeremy Hutchinson, R-Benton.
Both Lamoureux and Hutchinson performed legal work for the Magnolia nonprofit, Walsh told The Arkansas Times in a May interview.
Contacted Thursday, Hutchinson's lawyer Tim Dudley said, "I do not believe it is Jeremy Hutchinson."
Lamoureux did not return several calls and emails Thursday.
No charges have been filed against Senator C.
Walsh said in the Arkansas Times interview that the two lawyers' work was above-board and that they made clear they couldn't direct legislative bills favorable to the agency.
But according to Thursday's plea, Walsh admitted paying Senator C more than $120,000 for legal work the lawmaker was not expected to provide.
"Instead, the purpose of the payment was to obtain the senator's assistance in preserving the contracts" of the Magnolia nonprofit with the state's Department of Human Services and the department's Division of Youth Services.
Walsh made the payments without the knowledge of his board of directors, he admitted in the court records filed Thursday.
Walsh paid the now-convicted lobbyist, Cranford, more than $130,000 for "influencing Arkansas officials to preserve contracts between SAYS and the State of Arkansas."
The south Arkansas nonprofit was recognized as a 501(c)(3) by the Internal Revenue Service, so it was barred by law from pouring any "substantial part" of its activities or resources into lobbying or attempting to influence legislation, the plea said.
Walsh also admitted paying an unnamed Cranford family member more than $132,000.
South Arkansas Youth Services was created more than 40 years ago to help troubled and law-breaking youth.
Formed in 1977, the agency held state contracts to operate five youth lockups: the Dermott Juvenile Correctional Facility, as well as juvenile treatment centers in Dermott, Lewisville and Mansfield. Mansfield was home to two treatment centers, one for males and one for females.
By March 2013, Walsh had grown concerned that Human Services Department and Youth Services Division officials would award youth service contracts to out-of-state providers and create new rules to negatively affect South Arkansas Youth Services, according to the plea.
Amy Webb, Department of Human Services' chief communications officer, said by email Thursday that she did not know specifically what Walsh's concerns referenced.
"With any contract there could be multiple times when we take contractual actions," Webb said.
Cranford told Walsh that to address the concerns, he "needed to hire" Arkansas Senator C and one of Cranford's relatives, the plea says. Cranford also told Walsh to pay higher lobbying fees.
Walsh met the senator at the state Capitol in May 2013 and agreed to pay a retainer and legal fees set by Cranford, the plea says.
Walsh understood the lawmaker would act in his interest, specifically working to preserve state contracts and steer state officials from taking "negative action" against the nonprofit, the plea says.
Walsh directed $123,750 in nonprofit money to the senator between July 1, 2013 and Nov. 11, 2014, concealing the payments from the board of directors, the plea says.
Walsh signed a services contract with Cranford's relative -- referred to only as "Person #4" -- setting an annual salary of $60,000, on July 1, 2013, the plea says.
In late 2014, Walsh hired the relative full-time as a "child care advocate." The relative failed a background check, but Walsh kept him on staff nonetheless, the plea says.
Ultimately, the Cranford family member "never" showed up to work, the plea says, and was warned for excessive absences.
One of two lobbying firms associated with Cranford already had signed a "consulting" contract with South Arkansas Youth Services. In July 2013, in line with the agreement to increase Cranford's fees, Walsh signed a contract with a second Cranford-associated lobbying firm, more than doubling the lobbyist's monthly payment, the plea says.
In November 2016, the Human Services Department awarded a contract to an out-of-state provider to run seven youth lockups, including the five run by South Arkansas Youth Services. But the Legislative Council, as a reviewing authority on state contracts, rejected the department's action.
With the agency and lawmakers at a stalemate, Gov. Asa Hutchinson announced that the Human Services Department would take control of the facilities in January 2017. He criticized lawmakers for overextending their authority as a body that can review executive branch contracts.
South Arkansas Youth Services also had state contracts for community-based services and to operate a group home for the Division of Children and Family Services. Both of those contracts ended later, Webb said.
The Magnolia nonprofit filed for bankruptcy in January 2018.
The string of guilty pleas in connection with Medicaid billing and state contracts began with former Rep. Micah Neal, R-Springdale, in January 2017. He admitted taking kickbacks for authorizing state General Improvement Fund grants to private Ecclesia College and to Decision Point substance abuse treatment center in Bentonville where Cranford was executive director.
Other legislators convicted in connection with millions in Medicaid fraud or General Improvement Fund grants and related crimes are: former state Sen. Jon Woods, R-Springdale; former state Rep. Eddie Cooper, D-Melbourne; and former Rep. Henry "Hank" Wilkins, D-Pine Bluff. All await sentencing and face active prison time.
A guilty plea by Wilkins referenced a "Senator A," whose senate service and other information in the plea bargain matched only one lawmaker -- current state Sen. Jeremy Hutchinson, nephew of Gov. Asa Hutchinson. No charges have been filed against Jeremy Hutchinson.
Cranford, a longtime Capitol lobbyist, has pleaded guilty in connection with Medicaid funding conspiracies involving Springfield, Mo.-based Preferred Family Healthcare. Cranford has not been sentenced.
While Walsh awaits sentencing, he cannot travel beyond Arkansas or Shreveport, La., and must undergo mental health treatment or counseling, according to the conditions of his release.
Information for this article was contributed by Dave Hughes of the Arkansas Democrat-Gazette.
A Section on 07/20/2018
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