Some vets’ money managed — and stolen — by scoundrels

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 who have been handed control of disabled veterans’ finances by the U.S. Department of Veterans Affairs, a Houston Chronicle/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 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 have faced criminal charges, according to the VA’s Office of the Inspector General.

The government has never adequately tracked fiduciaries’ thefts from disabled 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 Chronicle analysis of court records and documents obtained though the Freedom of Information Act show the thieves took more $14.7 million since 1998 – nearly twice the amounts reported to Congress.

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

“VA has taken significant efforts to protect veterans and other beneficiaries in its fiduciary program,” Taylor declared.

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 turn a dozen mentally disabled veterans into ATM machines so he and Perry could steal from them, according to records obtained under the Freedom of Information Act.

They siphoned away nearly $900,000 with stunning ease, records show. Over a decade, they made more than 1,000 illegal transactions. Perry falsified records and moved veterans’ money from account to account to cover their tracks, records show.

Meanwhile, the two began gambling at Mississippi casinos, and Tabbutt, who filed bankruptcy petitions five times between 2001 and 2007, borrowed money from Perry hundreds of times. Their stealing did not stop until one veteran died and Perry went to the FBI to confess in 2008.

The other veterans, meanwhile, were never told they’d been ripped off – even after the two thieves went to prison.

Until a Chronicle reporter called him, Henry Ashurst, 83, did not know he had unwittingly financed the lifestyle and gambling habits of Perry and Tabbutt for a decade.

“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.

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

Republican Congressman Phil Roe of Tennessee, a member of the Veterans Affairs Committee, said he has been trying without success to get information from the VA about compensation for the Tennessee victims.

Attorneys who represent program participants said it is very difficult to recover stolen money 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.”

Jim Vale, an attorney for Vietnam Veterans, called the program’s lack of transparency “appalling.”

Thieving fiduciaries operated illegally for an average of 32 months before being caught, the newspaper’s analysis reveals. More than 70 cases remain pending in the federal system, or in state courts, since federal prosecutors frequently decline to handle the cases. Even when they do, it takes, on average, 29 months before charges are filed, the newspaper’s analysis showed.

Slow 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. She finally got sentenced to federal prison in March 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 Alabama.

Even when investigations yield convictions, many criminals received probation in exchange for promises to repay some or all of what they stole. They often fail to pay, and many victims died or disappeared before seeing any compensation.

The Chronicle examination of more than 100 criminal cases from the past decade and other documents going back more than 30 years revealed a disheartening cycle: When problems are identified, fixes are proposed and sometimes even mandated by Congress. But eventually, the same tragic mistakes get repeated.

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 Republican Congressman Jeff Miller of Florida, chairman of the Veterans Affairs Committee, which is drafting reform legislation. “We are talking about the life savings of a veteran.”

Taylor, the VA spokesman, said that under the Obama administration, the VA has beefed up background checks for new appointees, added staff, consolidated scattered fiduciary offices into six regional hubs and appointed the reorganized program’s first national leader, VA lawyer David McLenachen, last August. In direct response to fraud, the agency also issued directives requiring that veterans’ annual bank statements be sent directly to the VA, and now bans excessive compensation to fiduciaries when veterans receive large retroactive benefit checks.

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

Staff turnover is high and training for fiduciaries is virtually nonexistent. Fiduciaries sign agreements, but not formal contracts. On-site inspections are often tardy or skipped, and field examiners are ill-prepared to deal with sophisticated would-be thieves.

The $2 million case

Roy Wilson Swirczynski, a disabled U.S. Army veteran in Houston, filed written complaints to the VA about his fiduciary, attorney Joe Phillips, and requested an investigation years before an unrelated 2007 audit of Phillips’ records found nearly $2 million missing from 28 veterans’ accounts, according to court records and copies of the complaints Swirczynski kept.

Those alleged thefts – discovered when the VA audited Phillips’ work for the first time in 25 years – constitute the largest scam ever uncovered in the VA fiduciary program.

Phillips, a former VA employee, and his wife, Dorothy, have been accused of draining about $2 million from veterans in a pending Houston federal court case. Dorothy Phillips pleaded guilty to conspiracy; Joe Phillips denies wrongdoing and awaits trial. Phillips and his attorney refused comment.

Swirczynski long kept date-stamped copies of his own complaints against Phillips – faded from years of moving from place to place – in a suitcase alongside copies of his mother’s obituary, his U.S. Army service record and a faded snapshot of himself sporting a bushy mustache and an afro in his glory days. In one hand-written complaint, the Beaumont native, who suffers from schizophrenia, asked VA officials to stop a “hold up.” In another, he urges action: “This Joe Phillips fiduciary is not a 5-mile long freight train that takes 500 miles to stop.”

Swirczynski said the VA never responded and he’s never been told if any money was taken from his accounts. He learned of Phillips’ indictment from the Houston Chronicle.

“That’s what really galls me,” said Swirczynski. “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 a computer system cobbled together by agency staff in 1989 and slightly upgraded in 1998. The system cannot interface with the department’s more modern computers.

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

In March 2010, the agency’s inspector general estimated that $161 million in the coffers of mentally disabled veterans was “at risk of misuse because of the volume of seriously delinquent accountings.”

An audit also faulted the computer system for VA’s failure to list fiduciaries removed for bad conduct. Replacement would cost about $2 million.

McLenachen, the VA lawyer, admitted at a February congressional hearing that the computer system and antiquated agency regulations are obstacles. He promised new regulations by 2013 and computer upgrades at an unspecified date.

Current rules require no professional standards or qualifications for fiduciaries, and impose no limits on the number of veterans an individual fiduciary can handle. Some have dozens.

The call of the casino

Hazel Diane Hill, of Coppell, said she controlled 16 veterans’ finances as a fiduciary and was “very trusted” by the VA. Hill was a Department of Labor employee and a gambling addict. In January 2008, after wagering buried her in debt, she told the Chronicle it was too tempting to take “a little bit” at a time from veterans and easy to conceal by shuffling money among accounts.

A remorseful Hill turned herself in because 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 her attorney, Perry Hudson.

One out of four fiduciaries convicted of financial misuse over the past decade were found to have mental illness, gambling problems, substance abuse issues or some combination of them, the Chronicle investigation found.

In Fort Worth, fiduciary Patricia Ibrahim got five years in prison after she moved Larry Rodgers from a nursing home and, without VA permission, put him into a “substandard” group facility 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 many fiduciaries with gambling addictions was Connie Hanson, of Apple Valley, Minn., who went to prison for stealing $1.26 million to feed her habit.

Others prosecuted include lawyers, an educator, an optometrist, a radio personality, a nursing home operator, a corrections officer, an ex-police officer and the former city attorney of Hutchinson, Kan., Charles Hyter, who told the Chronicle that when he embezzled money from veterans in 2001, “there wasn’t much oversight.” Some of his victims were ripped off again by the fiduciary who replaced him.

To keep bad actors out of the program, the department last December mandated “instant background checks” on prospective fiduciaries. Checks were done in the past, but documents show authorities often required only a self-generated criminal history and a good credit report.

Still, Miller, the Florida congressman, dislikes the pattern he sees.

“My suspicion continues to be high that there may be more of this (theft) going on than any of us are aware of,” he said. “Mainly because there is no way to tell.”

Reporters and researchers Lindsay Wise, Joyce Lee, Mayra Cruz and Sarah Hinman contributed to this report.

Attribution:

Some vets’ money managed — and stolen — by scoundrels
Eric Nalder/Lise Olsen
June 18, 2012
Houston Chronicle
http://www.chron.com/news/houston-texas/article/Some-vets-money-managed-and-stolen-by-3639639.php

Additional coverage:

Vets victimized by theft, fraud
Special report
Eric Nalder/Lise Olsen
June 16, 2012
Albany Times Union
http://www.timesunion.com/local/article/Vets-victimized-by-theft-fraud-3639517.php

Gambling addicts, psychiatric cases and convicted criminals are among the thieves who 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 last six years, the VA has removed 467 fiduciaries for misuse of funds, but only a fraction have 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 veterans with brain injuries or memory impairment.

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 — nearly twice the amount reported to Congress.

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

“VA has taken significant efforts to protect veterans and other beneficiaries in its fiduciary program,” said Taylor.

CASE FILE #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 though they were 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 nearly $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.

Meanwhile, 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 lifestyle 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 like 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.

U.S. Rep. Phil Roe, R-Tenn., a member of the Veterans Affairs Committee, said he has been trying to get information from VA on compensation for the Tennessee victims, without success.

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.”

Jim Vale, program director for Vietnam Veterans, said the program’s lack of transparency is “appalling.”

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, since federal prosecutors frequently decline to handle them.
Even when they do, on average it takes 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 U.S. Rep. Jeff Miller, R-Fla., chairman of the Veterans Affairs Committee, which is drafting reform legislation.

“We are talking about the life savings of a veteran,” said Miller, adding that the agency is too often “part of the problem.”

Taylor said 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 new leader for the reorganized program last August, VA lawyer David McLenachen. 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.

Yet audits repeatedly fault agency employees for failing to properly examine financial records and for not coordinating with other agencies like Social Security to exclude known scofflaws from managing veterans’ money.
Staff turnover is high, and training for fiduciaries is virtually nonexistent. Fiduciaries sign agreements, but not formal contracts. On-site inspections are often tardy or skipped, and field examiners are ill-prepared to deal with sophisticated would-be thieves.

CASE FILE NO. 3: The $2 million haul

Roy Wilson Swirczynski, a disabled U.S. Army veteran in Houston, filed three written complaints with the Department of Veterans Affairs about his VA-approved fiduciary, attorney Joe Phillips, and requested an investigation years before the VA discovered nearly $2 million missing from 28 veterans’ accounts.

Phillips and his wife, Dorothy, have been charged in a pending Houston federal court case with stealing the money. The thefts were discovered when the VA audited 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. Phillips and his attorney refused comment for this story.
For years, Swirczynski has kept date-stamped copies of his own complaints against Phillips — faded from years of moving from place to place — in a suitcase alongside his mother’s obituary, his U.S. Army service record and a faded snapshot of himself in his younger days.

In one complaint, Swirczynski, a Beaumont native who suffers from schizophrenia, asked officials to stop a “holdup.” In another, he asked for Phililps’ removal, saying: “This Joe Phillips fiduciary is not a 5-mile long freight train that takes 500 miles to stop.”

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 can get around and function most days despite his illness. “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 displayed in the system as just one year late, records show.
In March 2010, the agency’s inspector general estimated that $161 million in the coffers of mentally disabled veterans was “at risk of misuse because of the volume of seriously delinquent accountings.”

An audit also faulted the computer system for VA’s failure to list fiduciaries already removed for bad conduct. Replacement would cost an estimated $2 million — less than veterans lost in the Phillips case.

McLenachen admitted during a February congressional hearing that the computer system and antiquated agency regulations are both obstacles. He promised new regulations by 2013 and a new computer system at an unspecified date.

Current rules, for example, do not establish professional standards or qualifications for fiduciaries, or limits on the number of veterans an individual fiduciary can handle.

One out of four fiduciaries convicted of financial misuse over the past decade were found to have mental illness, gambling problems, substance abuse issues or some combination of them, Hearst’s investigation shows.

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 as a Department of Labor investigator and a gambling addict. In January 2008, after the wagering had buried her in debt, 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, she told Hearst.

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 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 into a “substandard” group facility 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 $1,260,000 from veterans to feed her habit. She is in prison.

CASE FILE NO. 5: The violent felon

Patrick Wayne Manning Jr., of Oklahoma, had a rap sheet and a murder charge dismissed on a technicality before he was appointed to oversee his uncle’s money, according to court documents. He went to prison for three years for stealing from the uncle, was re-incarcerated for a drug offense, then a week after his release in 2008 went on a three-month robbery spree that netted him a 160-year sentence.

To keep bad actors out of the program, the department only last December mandated “instant background checks” on prospective fiduciaries. Checks were done in the past, but documents show authorities often required only a self-generated criminal history and a good credit report.

Earlier this month, Sen. John Cornyn, of Texas, demanded that the VA report to him about why so many thefts keep occurring.

Miller, the Florida congressman, also dislikes the pattern he sees.

“My suspicion continues to be high that there may be more of this (theft) going on than any of us are aware of,” he said.

“Mainly because there is no way to tell.”

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 Times Union, contributed to this report.