Healthcare Conglomerate Associates (HCCA) CEO, CFO and attorney allegedly stole $13 million from Tulare Regional, Southern Inyo hospital districts
TULARE – Three former healthcare executives conspired to steal more than $13 million from two hospital districts in Tulare and Lone Pine, Calif., according to a recent criminal filing by the Tulare County District Attorney’s Office.
On Aug. 11, District Attorney Tim Ward announced criminal charges have been filed against former Healthcare Conglomerate Associates (HCCA) executives CEO Dr. Yorai “Benny” Benzeevi of Visalia, CFO Alan Germany of Arizona, and Tulare Regional Medical Center and HCCA counsel Bruce Greene of Los Angeles.
It is alleged that the defendants used control of the two public hospital districts to enrich themselves through the improper use of taxpayer and private loans, and other public integrity crimes. HCCA was able to get away with it for three years by promising to save the cash-strapped hospitals all while stealing from the other and then pocketing the money. Crimes alleged include misappropriation of government funds, conflicts of interest, money laundering, embezzlement, theft, and failure to disclose funds intended to influence a political campaign. The intricate scheme orchestrated by the three men involved stealing medical equipment, political favors, falsifying documents and even a connection to a former Israeli private intelligence agency.
Criminal charges stem from a three-year investigation by the Tulare County District Attorney’s Office Bureau of Investigations that spanned 70,000 miles to eight California counties, six states (Arizona, Idaho, Maine, Georgia, Colorado, Michigan) and Washington, D.C. while serving 58 search warrants. Ward described the investigation as the largest ever conducted by his office including investigators, support staff and prosecutors dedicating over 13,500 hours collecting and analyzing 30 terabytes of digital evidence, the information equivalent to 45,000 standard CD-ROMs.
“We are grateful for the support and patience of the community, as well as the Tulare County Board of Supervisors during this unprecedented investigation. The Board’s commitment ensured that we were able to utilize our resources fully. We estimate the entirety of the investigation amounts to slightly over $1.5 million in staff hours and overtime, travel, and associated costs,” Ward said.
The criminal complaint contains 40 felony and 6 misdemeanor charges of varying scope between defendants. Some of the alleged crimes are believed to have occurred in Inyo County. Those matters will be prosecuted in Tulare County with the consent of Inyo County District Attorney Tom Hardy.
“On behalf of the citizens of Inyo County, I appreciate the huge commitment of resources on the part of Tulare County and its district attorney,” said Inyo County District Attorney Tom Hardy. “Mr. Ward and his team notified me of their work very early in the investigation, especially as it related to the Southern Inyo Health Care District, and they have been diligent in keeping me informed as to the overall case and the alleged Inyo connections. Given the wide-ranging scope of the allegations and alleged interconnections between activities in Inyo and Tulare County, it is appropriate to combine all the charges in the Tulare County case. I am committed to providing Tulare County with whatever assistance we can.”
While several of the charged crimes carry a potential prison sentence, due to California emergency COVID-19 orders, the charges in this case are not exempt from the court imposed $0 bail schedule.
The office of the district attorney is in the process of contacting attorneys for the defendants to expedite the remand of their respective clients.
If convicted, each defendant potentially faces a significant state prison commitment. The specific amount of prison time as to each defendant varies due to the nature of the charges and California sentencing rules; however, on the most serious charge (money laundering) Benzeevi is potentially facing 13 years while Greene and Germany are each facing up to 9 years. Greene and Germany have potential maximum sentences of well over a decade should they be found guilty of all of the charges and allegations, and Benzeevi is facing in excess of four decades.
Conflicts of interest
Most of the charges are related to the inherent conflict of interest of Benzeevi, the district’s acting CEO under the contract, taking out loans and applying for loans with taxpayer money without approval from TLHCD’s board of directors.
Beginning in July 2015, HCCA began issuing promissory notes, legal jargon for an IOU, for bills the management company owed to vendors, a practice that continued through July 31, 2017. The 10 notes totaled $10.4 million but were only signed by Benzeevi and were “not voted upon by the board nor made publicly available, and were thus concealed from public scrutiny,” according to the DA. The board did not become aware of the notes until Sept. 27, 2017, when Benzeevi falsely filed a deed of trust on the Evolutions Fitness and Wellness Center listing payments the district owed HCCA for dates matching those of the promissory notes. In other words, Benzeevi executed a contract as the CEO of Tulare Regional with the company that he owns.
On Sept. 28, 2016, a citizens group opposing HCCA and then board members served then hospital board president Dr. Parmod Kumar, a staunch supporter of HCCA, with a notice of intent to circulate a recall petition. In March 2017, the recall of Kumar was scheduled for a special ballot on July 11, 2017. In order to ensure his boss was not recalled, Benzeevi’s bank records show that he hired a consulting firm known as Psy-Group, a former Israeli private intelligence agency specializing in social media manipulation campaigns. The group provided services that included creating web sites, social media pages and pamphlets to spread misinformation about Senovia Gutierrez, who was running to replace Kumar in the recall election.
Benzeevi not only failed to declare the $230,000 campaign contribution, but he also attempted to hide the transactions. According to the DA, bank records show that Benzeevi made three separate payments to a Washington, D.C. contact who took a 3% handling fee before forwarding the funds to a bank in Zurich, Switzerland controlled by Psy-Group’s parent company IOCO Limited.
Kumar was recalled by 80% of voters and Gutierrez was overwhelmingly selected as his replacement with three-quarters of the vote. Knowing that he would soon lose his majority support on the board, as HCCA opponents Kevin Northcraft and Mike Jamaica were elected eight months earlier, Benzeevi, Germany and Greene convinced board members Kumar, Linda Wilbourne and Richard Torres to authorize HCCA to seek a loan of up to $22 million on a 3-2 vote, before Gutierrez was sworn in. The resolution stated the loan would be used for operating expenses, repayment of debt, construction on the tower and “other Hospital purposes” following the rejection of Measure I. When Northcraft and Jamaica asked Benzeevi directly if the money would be used to pay down debt owed to HCCA, Benzeevi was evasive and stated he would explore all options “in the best interest of the hospital.”
As well, Greene, HCCA and the Tulare Regional board’s counsel, refused to recognize Gutierrez as a “certified” member of the TLHCD board, in order to preserve its current management status with the hospital district. During two special board meetings (held on July 25 and Aug. 9) the three newest board members (Northcraft, Jamaica and Gutierrez) voted to rescind HCCA’s authority to seek loans on behalf of the district or spend district money on private lawsuits, such as the one against Dr. Betre, change HCCA’s financial reporting to the board from quarterly to monthly and voted to terminate its contract with Greene’s law firm Baker Hostetler.
HCCA contended that Gutierrez was never certified even though her election to replace the recalled Kumar had been certified by the Tulare County Registrar of Voters. Kumar had asked for a recount despite being recalled with 80% of the vote and despite Gutierrez winning with 76% of vote over Jess Salcido. The recount was completed on Aug. 1, 22 days before the Aug. 23 meeting where HCCA would still not recognize Gutierrez as a board member. HCCA went so far as to cancel the meeting in a post on its web site, stating there was a lack of quorum because Wilbourne had resigned, Torres could not attend and Gutierrez was not an official board member.
At no point did Benzeevi, Germany or Green ever file statements of economic interests or announce publicly their potential to benefit financially from all of these decisions. When state auditor’s requested the forms for these three individuals, the district could not provide and stated HCCA could have taken the forms with it when the district terminated its contract. The auditors’ attempts to contact HCCA were unsuccessful.
By effectively cancelling the meeting on Aug. 23, it gave HCCA time to finalize a purchase/leaseback agreement with Celtic Leasing in which Benzeevi and Greene allegedly embezzled $3 million from the district. The day that Linda Wilbourne’s resignation from the board took effect, Greene sent her an email with a certificate for the Celtic Leasing agreement to be signed and sent back. After Wilbourne’s resignation later took effect at noon, Greene asked Wilbourne via text to change the effective date and time to 8 a.m. the following day, meaning that she would have still been a sitting board members for that night’s meeting but had not made plans to attend the meeting, canceling the meeting for a lack of quorum.
At the same time, Benzeevi ordered staff at Evolutions to lock the board members out of the meeting room and to call the police regarding a disturbance. When several members of the public showed up, police were again called for a reported disturbance, but the police department did not report one in either case.
Despite the board rescinding HCCA’s authority to sign new loans at the special board meetings, Benzeevi signed the purchase/leaseback agreement with Celtic Leasing, essentially selling Tulare Regional equipment for $3 million and agreed to lease the equipment back at a rate of over $80,000 per month for 36 months, but HCCA never made a single payment. Half a million went to Greene’s law firm, Baker Hostetler, and the remaining $2.4 million went to Benzeevi for debts he claimed he was owed by the district, which at that time was functionally insolvent.
Benzeevi deposited the money into a holding account called Tulare Asset Management, an LLC Benzeevi started on Nov. 9, 2016. Benzeevi is the only signor on the account and the address was listed as Benzeevi’s home address in Visalia. According to the DA’s office, more than $8 million passed through this account including employment lease payments Benzeevi claimed he was never paid. Controller Delbert Bryant told DA investigators that the money transferred into this account was counted as Tulare Regional money even though the hospital district’s staff did not have the ability to access it.
The DA also alleges Benzeevi and Germany embezzled about $3.8 million in U.S. Treasury funds meant for the district as part of a federal program to alleviate the bond burden on taxpayers following the housing crash of 2008. The program, known as Build America Bonds, was created under the American Recovery and Reinvestment Act of 2009 to provide much-needed funding for state and local governments to subsidize borrowing and buy down interest rates for needed capital projects when city finances were dwindling, according to the U.S. Treasury. The program provided a direct payment of 35% of the district’s interest payment. By not transferring the federal payments to the district on July 14, 2015; March 15, 2016; July 18, 2016; Feb. 17, 2017; and Aug. 14, 2017; taxpayers in the district paid hundreds of thousands of dollars more to repay their bonds.
“Defendants … used their position of trust to carry on their illegal activity in secrecy and to avoid public scrutiny,” the DA writes in the complaint.
Benzeevi and Germany followed up the district’s first profitable year in at least three years by convincing the Tulare Regional board to remove the Medical Executive Committee (MEC), the 134 managers in charge of the medical staff at the hospital. The replacement MEC was affiliated with Kumar, who was on the district board and was essentially Benzeevi and Germany’s boss. In January 2016, the former MEC filed a civil suit against Tulare Regional arguing the hospital board violated its own bylaws—and state laws—requiring medical staff to operate as an independent entity of the district to ensure patient care quality, also known as the corporate practice of medicine. As part of the lawsuit, Dr. Abraham Betre filed a declaration exposing the conflict of interest in the board’s action to disassociate with the MEC.
On March 29, 2016, the board authorized a civil suit against Betre for defamation. Judge David Mathias dismissed the lawsuit and awarded Betre attorney fees. Benzeevi, Kumar and Dr. Rebecca Zulim filed an appeal of the dismissal and Benzeevi paid for the $78,000 appellate bond using district funds without board approval. The lawsuit was eventually settled and the MEC was restored in July 2018.
In January 2017, Benzeevi sent an email to Kumar saying Tulare Regional owed HCCA more than $6 million in employee lease payments dating back to the beginning of the contract, which stated the district would pay a 30% premium to HCCA for providing hospital staff based on their salary minus benefits, insurance, commissions, bonuses, taxes, withholding and expenses, otherwise known as net pay. Later that month, the district’s Controller Delbert Bryant testified in Tulare County Superior Court that Benzeevi instructed him to calculate the premium on gross pay instead of net pay.
In February 2016, HCCA signed a Management Services Agreement with the Southern Inyo Hospital District (SIHD) in Lone Pine, Calif. after the small hospital which had recently closed due to equipment shortages and financial shortfalls. A newly-elected board agreed to a 5-year contract with HCCA and, similar to Tulare, were looking for an injection of quick cash to stabilize its ailing finances. HCCA agreed to provide $2.5 to $3.5 million in loans to SIHD, as well as pay for the district’s Chapter 9 bankruptcy. SIHD’s agreement did have more favorable terms than Tulare’s contract as it did not include ownership of the hospital’s employees, an option to buy the district’s assets or restrictions on when board members could enter medical facilities. It did, however, include similar language that SIHD board members could not disclose any negative information or disparaging statements regarding HCCA. Shortly after the contract took effect, Benzeevi, who was both CEO of the Tulare hospital district and district manager of the Inyo hospital district “was instrumental in hiring Kumar as the Inyo medical director and participated in the creation of Dr. Kumar’s employment contract.” Kumar was a member of the board which approved HCCA’s contract in Tulare and was effectively Benzeevi’s boss at the time of Kumar’s hiring.
That same month, Benzeevi and Germany “fraudulently” sent $16,000 of Tulare Regional’s hospital beds, IV pumps and refrigerators to Southern Inyo for use without the board’s knowledge.
On March 25, 2016, Benzeevi and Greene were signors on an agreement to extend a $250,000 line of credit from Tulare to Southern Inyo “without the permission of the Tulare Local Healthcare District’s Board, and without disclosing to them, or the public,” the complaint reads. During a Jan. 25, 2017 board meeting, Benzeevi and Germany disclosed the line of credit existed and that it had been increased to $500,000 in July 2016 with a promissory note specifying HCCA will receive a $3.1 million fee for guaranteeing the loan.
The DA alleges Benzeevi, Germany and Greene “made, participated in making, or attempted to use he/she official position to influence, a governmental decision in which he/she knew, or had reason to know, he/she had a financial interest.”
On Jan. 2, 2016, HCCA began charging consulting fees to Southern Inyo for Germany’s time as the hospital district’s board was unaware that his role as chief restricting officer to guide the district through bankruptcy was not part of the management agreement with HCCA. By the end of 2016, Benzeevi and Germany transferred $700,000 of property tax revenues from Southern Inyo to Tulare Regional as a reimbursement for the unauthorized consulting fees and to balance the books as part of a money laundering scheme, according to the DA’s filings. Germany also had Tulare Regional staff generate false billing invoices to Southern Inyo for time that Tulare Regional had already paid for.
In June 2017, Greene filed paperwork with the California Secretary of State’s office for a new company, Vi Healthcare Finance, which was registered at Benzeevi’s Visalia address, for the purpose of lending money to Southern Inyo. HCCA, which had already loaned $1 million to Lone Pine hospital opened a $2 million line of credit which incorporated the district’s unsecured debt and hiked the interest rate to 20%. Benzeevi and Germany used this predatory lending practice to leverage Southern Inyo’s board into accepting the terms or lose further lending opportunities with HCCA.
History of malfeasance
The charges stem from just three and a half years when Benzeevi’s company, Health Care Conglomerate Associates (HCCA), was managing the finances and operations of the Tulare Local Health Care District (TLHCD), the tax district that funds Tulare’s hospital, Tulare Regional Medical Center, its clinics, labs, pharmacy and the Evolutions plaza.
Benzeevi was connected to the Tulare hospital district before he took charge of it. He was already operating Medflow, a company contracted to manage the hospital’s emergency department, when he quickly formed HCCA on Dec. 6, 2013, along with Greene, just as the TLHCD was seeking to bring in an outside company to manage operations. The hospital board voted unanimously to choose HCCA on Dec. 4 2013 even though they “might not have been the most qualified management partner,” according to a Oct. 9, 2018 report issued by the California State Auditor. The district had hired a consulting firm which scored HCCA as “unknown” for all of the criteria categories in the firm’s evaluation summary while five other firms were offering known commodities and solid proposals. The decision was based on an ailing district’s desire for quick cash, which all but one of the six companies who submitted proposals were willing to offer a “moderate” influx of capital. The board minutes did not reflect a willingness by HCCA to provide capital and the vice chair at the time told the State Auditor that HCCA “gave the best presentation and was the most honest even though the consulting firm’s written analysis indicated that HCCA was not the most qualified,” the State Auditor’s report continued. The consulting firm resigned from further work in advising the district, stating that the subcommittee had chosen to disregard its advice in carrying out the selection process of a management company.
HCCA began managing daily operations of TRMC in January 2014 but its formal management services agreement (MSA) is dated May 29, 2014. Under the contract, which had a term of 15 years, HCCA had complete control over operations and finance, even though the district was listed as responsible for paying vendors and collecting from patients, owned all of the employees and leased them to the district at 130% their base compensation, and was absolved of any loss due to insolvency, malfeasance or nonfeasance. HCCA also received a fee of $225,000 per month, which increased at the beginning of each year by five percent or the consumer price index inflation factor, whichever was greater. As of Jan. 1, 2017, the monthly fee was $260,465.12, according to the formula in the agreements. The agreement also did not specify costs associated with a chief financial officer, which ended up costing the district another $681,000 per year, more than double the national average for hospital CFOs. By June 2017, the CFO had been reimbursed for a quarter of a million in travel expenses alone.
TLHCD board members were not allowed to speak out against HCCA or its managers, could not come on district property without prior HCCA approval and were not allowed to access any data systems unless specifically authorized by HCCA.
“State law specifies that a hospital board is responsible for operating its health care facilities in a way that best serves the public health interests of its community,” the State Auditor wrote. “However, the restrictive provisions in the contract prevented the previous board from fulfilling this responsibility.”
Rise and fall
Despite the objections of its consulting firm and questions from the media, HCCA initially helped TRMC make a dramatic turnaround financially. When HCCA took over the hospital it was losing $1 million per month, only had 25 days cash on hand with a bond rating of “negative” and an audit label of “going concern,” a near death experience by most financial estimations. Not an expert in changing the fortunes of entire hospitals, Benzeevi brought in renowned financial expert Anthony “Tony” Jones to serve as his chief restructuring officer.
By April, TRMC was able to report an $81,000 net gain, its first profit in 24 months. In August, Fitch Ratings Agency, a global financial rating group, upgraded TRMC from “negative watch” to “stable.” In December 2015, the independent audit of TRMC for the fiscal year ending June 30, 2014, removed the “going concern” label and described the financial situation as “significantly more positive.” In just two years, TRMC had managed a 180 degree change from losing $680,000 per month on average in 2013 to netting nearly $600,000 per month on average in 2015. The optimistic financial outlook earned HCCA’s executive team an invitation to the Healthcare Financial Management Association’s national conference in Chicago, Ill. in March 2015. At the end of fiscal year 2014-15, TRMC’s revenues were exceeding expenses by $10 million.
But shortly after Jones left in November 2014, the district’s finances began to take an odd turn. Beginning in 2015-16, operating expenses began to grow faster than revenue. HCCA’s management fee had grown from $2.7 million per year to $3.1 million by January 2017. At the end of fiscal year 2016-17, the hospital was losing more money, about $4.6 million, more than the year prior to HCCA’s contract. By Aug. 9, 2017, the hospital’s Fitch rating had fallen to a B. A month later it was a CC and just two months later fell to a D.
“We are pleased that the investigation has resulted in charges against HCCA and Bruce Greene. We know justice will be served for the district’s residents and have every confidence in the district attorney,” said president of the district’s board, Kevin Northcraft. “For as much damage as was done to the community, it is important that this case has its day in court.”
As the DA’s criminal complaint works its way through the judicial process, the district will continue focusing its efforts on meeting the needs of the community by fulfilling its mission to provide safe, efficient, technologically advanced healthcare with respect for the diversity of the region it serves.