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Shady Financials Help Nursing Homes Put Profits Ahead of Patients

Operating in the shadows

By DARREN BARBEE

STAR-TELEGRAM STAFF WRITER

In 2002, Larry May boarded a flight at Dallas/Fort Worth Airport for a business trip across the chilly blue Atlantic. The curious thing about the Hurst nursing home executive's travel was that it took him to a rendezvous with a rented mailbox in England. He made the 4,500-mile journey to Europe and mailed letters. To Philadelphia.

Stephen Michael Ewing had been an unusual nursing home executive. When dealing with employees, he used an alias. He seldom owned property -- even his Bedford home was in the names of his wife and mother. And he hired bodyguards to accompany him to work at his Euless office. He claimed to have received several threats against his business interests -- even his life. One man promised nuclear Armageddon. For him. The people who worked for him. His wife. His kids.

On a sunny May morning in 2004, federal agents clad in dark fatigues swarmed a six-story office building off Stemmons Freeway in Dallas. Their guns were drawn. Ewing and May had led the investigators to Gary R. Trebert, once a friend and business associate. They said they'd built a national network of nursing homes with him. Agents carted out boxes of documents that they had been told would show the company had cheated the government out of millions of dollars. Trebert's staff was surprisingly calm. They knew the raid was coming.

Ewing told federal investigators that he, May and Trebert ultimately operated more than 50 homes in Texas and four other states, beginning in 1999. They were paid millions of taxpayer dollars to safeguard people, many in the twilight of their lives.

But the real specialty of the businesses, federal investigators have alleged, was gaming the system. The federal affidavit that agents used to raid Trebert's office includes a laundry list of allegations. Tax evasion. Healthcare fraud. Money laundering. Lying to the government.

The alleged schemes cost taxpayers about $27 million, the IRS has claimed. Assistant U.S. Attorney Ron Eddins said an investigation is ongoing. He declined to comment further.

But documents filed by federal investigators, as well as interviews and hundreds of pages of court filings, describe a labyrinth of companies designed to be maddeningly hard to follow and to exploit a system that experts say is ripe for abuse nationwide.

The men are accused -- or accuse one another -- of milking the businesses and diverting millions to their own pockets.

Such mercenary business practices, critics say, contributed to deteriorating conditions at some nursing homes.

Geno Borchardt believes that's exactly what happened at a home controlled by Trebert, where a 79-year-old woman died of what her family and the state attorney general say was a treatable infection.

"They put profit ahead of people, money ahead of medicine," said Borchardt, an attorney representing the family.

None of the three men has been arrested or charged, and only Trebert was named as a target in the federal search warrant affidavit.

Trebert did not respond to requests for an interview, but his current and former lawyers say that he is innocent and that for many of the homes he served only as an attorney for Ewing and May.

"These are naked allegations," said Charles Blau, of Dallas. "They will be contested."

A former Trebert attorney calls Ewing "a good teller of stories" who has misled investigators, who in turn appear to be building an error-ridden case. A lawsuit alleges that Ewing took money -- Trebert's lawyers say millions -- from the companies.

Ewing says he did nothing wrong.

May could not be reached for comment, though what he told investigators is summarized in the federal search warrant affidavit.

"I think he basically did what Trebert told him to do," said Dennis Olson, one of May's attorneys. "He signed whatever Trebert told him to sign."

Ewing, May and Trebert faced little resistance from state and national overseers.

Public records describe a trail of unpaid bills, federal tax liens and bankruptcies, yet the men were able to stay in the nursing home business.

Complex corporate structures are being created for nursing homes across the country, and Texas and many other states can't keep tabs on the owners.

In Texas, nursing homes are required to meet minimum financial conditions to ensure that they can provide adequate care. Just what are those conditions? The state doesn't say.

Jim Hine, former commissioner of the Texas Department of Aging and Disability Services, said it makes no sense to wait for care at a home to deteriorate. Financial monitoring would give earlier warning signals.

He wanted the agency to implement financial standards for operators. A year after his departure, it still has not done so.

"To me, it was like a kid trying to hack into a computer," Hine said. "At some point. they're going to find a way around it, the financial side of it."

Regulators accept what the companies tell them, said Nathan Carter, a Florida attorney who specializes in nursing home cases. "They take it on faith and don't look into the whole corporate maze behind the paperwork."

For years, that was the case with companies tied to Trebert, Ewing and May.

In Iowa and Virginia, some homes tied to Trebert had a record of unsafe conditions or financial problems.

In Oklahoma, state officials alleged homes were operating without licenses.

And in Texas, in 2004 alone, at least half of the homes on the state's list of recommended license denials and revocations, including one in Hurst, had ties to Ewing, May or Trebert. Ultimately, the state let the homes keep operating.

The next year, 13 Ewing-May homes, including some of those on that list, teetered on financial collapse and ultimately had to be bailed out by the state with taxpayer money.

Even then, the state didn't stop them.

Melvin Nunn fell and broke his hip. When the nursing home staff at Spring Season of Hurst initially examined him, they found no fracture -- because, his daughter and court records say, they X-rayed his shoulder and his knee. He later died. A Tarrant County jury awarded his family more than $1 million, but the family walked away empty-handed. The judge threw out the award because no evidence was presented to clarify who owned or controlled the home.

The three men's collaboration was born at the end of the 1990s, a time when the nursing home industry seemed to be crumbling nationwide. By some estimates, a quarter of Texas' facilities filed for bankruptcy in the wake of reduced government funding.

Still, a few of those companies were accused of prospering while claiming insolvency. Assets were transferred. Bankruptcy allowed companies to shirk bills and pay pennies on the dollar for judgments. Then owners started all over.

In that climate, Ewing, May and Trebert began creating companies, according to the search warrant affidavit.

Some companies leased nursing homes, others employed the nurses and assistants, and yet others managed the homes.

Ewing, a former UPS driver and state employee in Illinois, had a long history running homes. By the late 1990s, he was facing several hundred thousand dollars in federal tax liens related, at least in part, to nursing home companies and personal income taxes.

Trebert, an attorney, knew the nursing home industry, mostly from performing legal work for landlords and operators. His prowess was bankruptcy law, but he'd also dabbled in the stock market. I n 1998, federal prosecutors went after him in a penny-stock fraud case. A jury deadlocked on the charges.

May, whose resume included a rare-coin business, had little background in nursing homes. He knew Ewing from coaching his son in Little League. But it was May who signed much of the paperwork for the companies. By Ewing's account, he was largely a figurehead.

On paper, it was May's corporations that controlled homes in the beginning. Several of the homes previously had a reputation for changing names and filing for bankruptcy when bills piled up or legal challenges arose. It was a tradition that appeared to continue.

Those corporations typically leased, but did not own, homes from Hurst to South Texas. With few assets, they were insulated if creditors or judges ever came calling.

As new homes were added, new names were listed as place holders on nursing home licenses. May's mother. Ewing's wife, mother and nephews. All ran homes in name only, according to the search warrant affidavit.

One of the first companies was called Spring Season. The company spawned more than a dozen subsidiaries, including Spring Season of Hurst.

As Ewing tells it, the first couple of years were good.

"We were paying our bills; our facilities were doing well," he said.

Yet right off the bat, Spring Season failed to pay a $590,000 tax bill, a notice of federal tax lien shows. By 2001, when Spring Season tried to buy a faltering nursing home in Dallas, the company's record of failing to pay or disclose state penalties disqualified it, according to a published report at the time.

That didn't slow them down. Like weeds, new companies sprouted.

One Spring Season company faded, replaced with a string of letters: XNH of Dallas.

Other companies came and went. The changes sometimes came when a company was in court. When Melvin Nunn's relatives filed their lawsuit, they alleged that May and Trebert had drained company assets. The company later went into bankruptcy. Centers for Long Term Care became Cascade Basin after being sued.

The labyrinth expanded.

West of Casa Blanca Lake, in the heart of downtown Laredo, there came to be a corporation called Flexford. The company, formed in December 2002, served as the registered agent for a bewildering nexus of nursing home companies from Bedford to Vienna, Austria. On state documents, the address listed for Flexford's offices was Suite 472, 410 E. Hillside Road, in Laredo. The wood-paneled "suite" was modest. It measured about 12 inches by 6 inches. It was a mail drop. And that's apparently all there was in Laredo. Bills sent there were forwarded 450 miles north, to Carrollton.

Texas nursing home officials were unaware of the ambitious plot that Ewing and May would later claim developed right under their noses.

A key element was a plan designed to avoid paying federal payroll taxes, according to allegations in the search warrant affidavit.

Dozens of payroll companies popped up, only to vanish before the taxes were paid, investigators have alleged.

May would later tell investigators that Trebert told him to come up with 300 names.

May used a map of the United Kingdom. He chose Yedingham, founded six centuries before the Declaration of Independence was signed. He picked Kyre Magna, a village southwest of London surrounded by green fields. His eyes stopped at Galtrigill, in the Scottish highlands.

The names became corporations used to pay nursing home employees.

May told investigators that he mailed the companies' tax returns from Europe to put on the final touch: a Royal Mail postmark. That way, the agents at the IRS's Philadelphia service center wouldn't become suspicious of an English company filing its returns from Texas.

Such a scheme would, indeed, cause headaches for regulators. It "creates the illusion that the employees are working for different companies," IRS special agent William Beckham wrote in the search warrant affidavit.

Some nursing home employees were baffled by the changing company names on their paychecks. At the end of the tax year, they received multiple W-2s. At Hurst Plaza Nursing and Rehabilitation, Betty Russell, a former administrator, called the corporate finance officer to ask what it all meant. Russell said she was told it didn't concern her.

Millions of dollars were piling up from the scheme, according to federal investigators. Money was also flowing in from Medicare, Medicaid, insurance companies and patients.

Hundreds of bank accounts were created, said James Davis, an employee who dealt with finances. In October, Davis, who now works for Ewing, stood in Ewing's cluttered Bedford office flipping through 19 pages listing accounts that he said were part of Trebert's plan.

"They devised this little scheme of how to stay off the IRS's radar," Davis said. "Create a Gordian knot in hopes that God himself couldn't undo it."

But a showdown was in the making.

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