FAYETTEVILLE -- The sheer size of state grants to a small Christian college spurred the investigation that led to the convictions of four former legislators on bribery and corruption charges, U.S. Attorney Duane "Dak" Kees said in an interview Oct. 22.
"There's no proof to this, but if Jon Woods had kept the funds low, like $50,000 a year and where he was getting maybe a $10,000 or $15,000 kickback a year, I don't think we would have ever caught it," Kees said of kickbacks from Ecclesia College in Springdale.
Woods, a former state senator, is serving a sentence of 18 years and four months in federal prison in Fort Worth.
The investigation uncovered a multimillion-dollar bribery scheme involving Medicaid that has nothing to do with Ecclesia College, said the U.S. attorney for the Western District of Arkansas. The investigation into that scandal spread to other states, mainly to Missouri, and is not done yet, he said. He gave no details, other than a rough date, regarding coming developments.
"I can't tell you what it is, but I think that will be the first of the year -- January. Don't hold me to that, but I think that's a safe guesstimate," he said.
The investigation by his office of the grants to Ecclesia is closed.
Ecclesia received $350,000 in grants directed by Woods from 2013 to early 2015. Another $100,000 went to the college from another lawmaker at Woods' request, trial records show. Yet another $50,000 went to the college from co-conspirator and former state Rep. Micah Neal of Springdale on Woods' advice.
Neal pleaded guilty in the case and testified against Woods and co-defendant Randell Shelton at their trial. Shelton was convicted of passing kickbacks along to Woods and Neal through his consulting business with the college. Also, former Ecclesia President Oren Paris III of Springdale pleaded guilty in federal court to a fraud charge.
Neal's assistance was invaluable, Kees said, reaffirming testimony given at trial and in Neal's sentencing hearing.
After Woods received an 18-year sentence and Neal received a year of house arrest, Kees said the disparity between those sentences showed why others who know of corruption need to step forward to investigators.
Did that announcement receive any response?
"We have. I can't go into detail or anything like that, but we did," Kees said.
Neal stepped forward in 2015 before being questioned by investigators after being told that he was a subject of the investigation, according to evidence presented at trial.
"Micah has been 100 percent honest with me. He was 100 percent honest with investigators, and he was 100 percent honest with the jury," said his defense attorney, Shane Wilkinson of Bentonville. "The jury's verdict seems to reflect that they felt the same way."
The other defendants' cases are on appeal.
Legislators decided who received state General Improvement Fund grants that were awarded through regional nonprofit economic development districts set up by the state. Ecclesia College received $592,500 in such legislator-directed grants in 2013 and 2014 from the Northwest Arkansas Economic Development District, state audit figures show.
Those figures include grants directed by lawmakers who had no part in the kickback scheme, according to trial testimony.
The University of Arkansas, Fayetteville received $60,000 and the University of Arkansas for Medical Sciences, which has a campus in Fayetteville, received $200,000 through the same development district during the same time period, audit figures show.
"If Jon Woods gave half a million dollars to the University of Arkansas, people would be thinking he's a true Razorback fan," Kees said. "Or if he had given it to UAMS or UALR [the University of Arkansas at Little Rock] or something, people wouldn't have thought twice about it."
Ecclesia College has about 215 students, according to the latest enrollment figures. Fall enrollment at UA was 27,778.
Investigation into Ecclesia's grants led to discovery of another grant and kickback arrangement with Milton R. "Rusty" Cranford of Bentonville. Cranford was a lobbyist and an executive of the then-largest state Medicaid-reimbursed behavioral health services provider.
The expanded investigation uncovered a bribery and kickback scheme that led to Cranford and, through him, the behavioral health provider Alternative Opportunities Inc. of Springfield, Mo. Alternative Opportunities later changed its name to Preferred Family Healthcare after a 2015 merger.
Three former lobbyists for Alternative Opportunities, including Cranford, and a former executive of the nonprofit have pleaded guilty in federal court in Missouri to conspiracy charges in a multimillion-dollar fraud and bribery scheme. A former board member who was a business partner of Cranford's also pleaded guilty to embezzlement in Missouri.
Three more former employees of the nonprofit face charges in state court in Arkansas for Medicaid fraud. The federal investigation in Arkansas is cooperating with state authorities.
Preferred Family Healthcare lost its state contracts earlier this year, with the state citing the Medicaid fraud. Also, the company has negotiated the sale of its private sector operations in the state.
Woods, Neal, former state representative and Cranford lobbyist Eddie Cooper of Melbourne and former state Sen. Henry "Hank" Wilkins IV of Pine Bluff were charged in the Cranford-related bribery scandal. All but Woods pleaded guilty to conspiracy. Woods was convicted of the scheme with Cranford in the same trial that convicted him on Ecclesia-related charges.
Kees took office as U.S. attorney for the Western District of Arkansas in January. Assistant U.S. Attorney Kenneth Elser had overseen the case before Kees arrived and after the departure of former U.S. Attorney Conner Eldridge in August 2015. Eldridge left to conduct an ultimately unsuccessful bid for U.S. Senate, leaving Elser as acting U.S. attorney until Kees' appointment and confirmation.
Elser presided at the Woods-Shelton trial, assisted by Assistant U.S. Attorneys Aaron Jennen and Kyra Jenner, along with attorney Sean Mulryne of the Justice Department's Public Integrity Section.
Elser "did a phenomenal job in this case. He really invested a couple of years of his life in this case, and it showed," Kees said.
A fifth lawmaker, then-Sen. Jake Files of Fort Smith, also pleaded guilty to misusing state grants. That investigation and case was separate, Kees said.
News accounts of problems with the projects for which Files obtained the grants and complaints from Fort Smith residents started that investigation, and knowledge gained during the Woods investigation of how those state grants worked helped investigators pursue Files' case, Kees said.
Neither Cooper, Wilkins nor Files ever gave state grant money to Ecclesia College, state grant records show.
The investigation began July 24, 2014, according to court documents unsealed in September. Federal investigators followed a tip given by a suspect in an unrelated case, Kees said.
That suspect agreed to talk to federal authorities on a "cut me some slack and I'll tell you what I know" basis, Kees said. The suspect "said 'Oh, by the way, let me tell you about Jon Woods.' And that's how it got started."
Investigators looked at Woods and immediately found the grants to Ecclesia College to be suspicious, he said. That is what persuaded authorities to devote the time and resources needed to investigate.
John Munns, the Internal Revenue Service investigator assigned to this case, "just did an absolute, fantastic job all around of just digging through records." These included the records of the state General Improvement Fund grants themselves regarding Ecclesia and other entities. Those were subpoenaed Oct. 23, 2015, grant records show. There were the bank records of Woods, Neal, the college and others. Then there were emails and phone messages, especially texts, of those involved.
Munns pieced together documents in a timeline presented at trial showing coordination among the suspects before, during and after grant awards and bank transactions, Kees said. Munns worked closely with Jennen, Kees said.
"That to me was probably the most powerful piece of evidence in order to just put it all together and to see how quickly things were transpiring," Kees said of Munns' timeline.
Assistant U.S. attorneys presented the case at trial, and Kees was present during the bulk of it.
"A transaction, a withdrawal or a deposit, tells you something, but it only tells you so much. But, let's say, if you have an email beforehand and a text message immediately after, it puts that transaction into perspective. It is very hard for somebody to come by two or three years later and try to put a spin on it when I have your exact thoughts 30 seconds before and 30 seconds after. And I'm exaggerating a little bit with the 30 seconds, but you get what I mean.
"It took about an hour and a half to go over that timeline" at trial. "It took weeks to put that together."
Chad Atwell of Fayetteville, one of Shelton's defense attorneys, said you can make a mosaic look like anything you want if you get to pick the pieces and place them at will.
"They painted a Jackson Pollock and called it a Rembrandt," he said of the timeline.
"The fight is not over for Randell Shelton," Atwell said.
Kees said he couldn't comment on the investigation into the actions of another agent in this case: FBI Special Agent Robert Cessario. Cessario was placed under investigation by the FBI's Office of the Inspector General after he admitted wiping the hard drive of a computer used to gather evidence in the case against Woods.
Cessario's conduct will be a major issue in the appeal, defense attorneys said in court proceedings.
"How special agent Bob Cessario still has that title is baffling to me," Atwell said. "Former FBI director James Comey once said 'The lesson is the importance of never becoming untethered to oversight and accountability,'" Atwell said. "I think agent Cessario skipped that day."
GETTING ENOUGH ROPE
"You can say what you want to, but the GIF funds were really not overseen by the state," Kees said. "The senators and the representatives had a lot of authority and power over how it was going to be delegated."
Neal was even more explicit in his testimony during the trial.
"It's like a slush fund. It's what it is," Neal testified when asked to explain to the jury what the General Improvement Fund is.
Handing out these grants helped win votes and garner media publicity for lawmakers, he said.
The portion that legislators distributed has been as high as $70 million for a two-year state budget cycle in recent years. Woods, for instance, was vital in securing a $1 million grant for Alternative Opportunities in 2013.
The improvement fund, in effect, was where Woods got enough rope to hang himself, according to Kees.
That power of legislators to direct grants of state money to local projects was unconstitutional, the state Supreme Court ruled on Oct. 5, 2017. State taxpayer money should go to state purposes, the court ruled, and the development district plan was a work-around to evade a similar court ruling on improvement funds in 2006.
In addition, Gov. Asa Hutchinson stopped putting any money for such grants in his budget proposals to the Legislature after Neal's guilty plea.
Unlike Ecclesia, Alternative Opportunities/Preferred Family was so large that it could receive grant after grant from the state without drawing notice from investigators, Kees said. For instance, the $1 million grant Alternative Opportunities received in 2013 was not handed out by Woods, but taken off the top of the General Improvement Fund by a direct appropriation, before lawmakers received their shares to distribute.
To succeed, the kickback scheme needed a grant recipient that met three criteria, Kees said. First, it had to be a nonprofit entity; only those and government bodies -- which are regularly audited -- were eligible for the grants. Second, it needed an executive willing to pay kickbacks. Third, it needed to be large enough, or the grants small enough, to avoid attention.
"Another aspect to this was the lobbyist, Rusty Cranford," Kees said. "When we were talking about how you had to have an entity that was willing to do it, who's best to tell you that than the lobbyist? Rusty Cranford played a huge part in that."
The Ecclesia investigation linked Woods, Neal and Cranford together by finding that the two lawmakers had steered $400,000 to a Cranford-founded company called AmeriWorks. They also discovered that a subsidiary of Alternative Opportunities, Decision Point, not only prepared the grant application but had accepted the grant money "doing business as" AmeriWorks.
Mulryne's contributions to the investigation were invaluable in untangling the details of each of the kickback schemes and the bribery that that initial investigation uncovered, Kees said. There were tens -- maybe hundreds -- of thousands of pages of documents to examine.
"You really have to have an expertise to know what you're looking for. It is the proverbial needle in a haystack. The second thing is you have to have a mastery of the law in this area. It's not a simple assault. 'Did you touch the other person? What was your intent?' So you have to have a mastery of the law and apply it to all those documents, all of those tens of thousands of pieces of evidence.
"Because another thing about corruption cases is there is always a cover-up. You don't get that with assault cases or drug cases. You usually have some pretty smart people who are trying to cover their tracks with all those thousands and thousands of documents. So you really need that expertise and that is what Sean brought to the table."
There is no special task force on this investigation, Kees said. It is all being handled by U.S. attorneys offices with assistance from the Public Integrity section. Obviously, it has grown to include several U.S. attorneys offices, he said. Western Arkansas, Eastern Arkansas, and Western Missouri U.S. attorneys' offices have filed charges in this case.
"So where does it go from here? I don't know, but we are following the money," he said.
Investigation results so far
Those convicted or charged so far in the four-year-old federal investigation that began with a surprise tip from a suspect in an unrelated case:
Former state Sen. John Woods of Springdale — Convicted of corruption in federal court in Fayetteville. Serving an 18-year federal prison sentence. Case is on appeal.
Former state Rep. Micah Neal of Springdale — Pleaded guilty to conspiracy in federal court in Fayetteville. Serving one-year house arrest.
Randell Shelton of Kemp, Texas — Convicted of corruption with Woods. Serving a six-year federal prison sentence.
Oren Paris III of Springdale — Pleaded guilty of conspiracy in federal court in Fayetteville but was granted the right to appeal. Resigned as president and as a board member of Ecclesia College. Serving a three-year federal prison sentence.
Milton R. “Rusty” Cranford — Pleaded guilty to conspiracy in federal court in Springfield, Mo, implicating others. Former lobbyist and executive for Preferred Family Healthcare of Springfield, Mo. Being held without bond and awaiting sentencing.
Former state Rep. Eddie Wayne Cooper of Melbourne— Pleaded guilty to conspiracy in federal court in Springfield. Former business partner of Cranford and lobbyist for one of Cranford’s firm. Former executive and board member of Preferred Family. Sentencing pending.
Donald Andrew Jones — Pleaded guilty to conspiracy in federal court in Springfield. A Philadelphia-based lobbyist who advocated on behalf of Preferred Family. Such lobbying by non-profits who receive federal funds is illegal. Sentencing pending.
Former state Sen. Jake Files of Fort Smith — Pleaded guilty to fraud in federal court in Forth Smith for steering state grants to businesses he owned. Serving an 18-month sentence in federal prison.
Former state Sen. Henry “Hank” Wilkins III of Pine Bluff — Pleaded guilty to conspiracy for accepting bribes from Cranford. Sentencing hearing is set for Dec. 7.
David Carl Hayes — Springfield, Mo. accountant who pleaded guilty to embezzling funds while he was a board member of a Preferred Family-related business. Former partner of Cranford’s. Committed suicide in November.
Jerry Walsh of Magnolia — Pleaded guilty to conspiracy in federal court in El Dorado. Former executive director of the now-bankrupt South Arkansas Youth Services of Magnolia. Paid kickbacks to keep state contracts and was a client of Crawford’s. Sentencing pending.
Former state Sen. Jeremy Hutchinson of Little Rock — Resigned as state senator after being charged with transferring campaign funds to his personal use. Formerly an attorney in Arkansas for Preferred Family.
Robin Raveendran — Charged with of Medicaid fraud in state court in Batesville. Former executive vice president for Preferred Family and, before that, an administrator in the state Department of Human Services. Trial set for Jan. 9.
Helen Balding — Charged with Medicaid fraud in state court in Batesville. Was a billing director for Preferred Family. Trial pending.
Vicki A. Chisam — Charged with Medicaid fraud in state court in Batesville. Former billing clerk for Preferred Family. Trial pending.
Keith Noble — Former executive of Preferred Family’s predecessor organization, Alternative Opportunities. Pleaded guilty to failing to report felony corruption. Sentencing pending
SundayMonday on 11/04/2018
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