Man accused of stealing nearly $17 million from D.C. tax-funded health plan

Businessman Jeffrey E. Thompson illicitly siphoned nearly $17 million from his taxpayer-funded health plan serving low-income District residents, the plan’s city-appointed receiver asserted in a lawsuit filed Thursday.

The court action is the latest development in the collapse of D.C. Chartered Health Plan, which served more than 100,000 people receiving Medicaid and other government assistance before ending its business with the city this month. It is estimated that Chartered owes city health providers more than $60 million, and its current assets are likely to cover only a fraction of that.

The lawsuit was filed by the receiver on behalf of Chartered against Thompson and a holding company he wholly owns. It claims unjust enrichment, conversion, breach of contract and breach of fiduciary duty and that Thompson has not cooperated with the receiver because he has not provided financial records or other documents.

David B. Killalea, a lawyer who has represented Thompson’s interests in the course of the receivership, did not reply to an e-mail seeking comment Thursday.

Thompson has been under scrutiny after he was implicated last year in the financing of a “shadow campaign” supporting Vincent C. Gray’s successful 2010 mayoral run. The subject of an ongoing federal grand jury investigation, Thompson’s campaign finance troubles have been matched by his business woes, as financial pressures forced Chartered into receivership in November.

William P. White, the city’s insurance commissioner, said in a statement that Thursday’s court action is a new phase of the receivership that is “focused on asset recoveries to meet Chartered’s obligations to District medical providers and other creditors.”

The lawsuit, filed in D.C. Superior Court, seeks repayment of the money owed to Chartered, plus interest, penalties and recovery costs.

The bulk of the $17 million represents Chartered money held in collateral by Cardinal Bank to secure a loan that the holding company took out in 2008 to settle a previous lawsuit that claimed Chartered and its affiliates had defrauded the city.

The holding company, D.C. Healthcare Systems Inc., recently defaulted on the loan, leading Cardinal to seize $12 million, court papers say. Because Thompson had agreed to hold Chartered harmless in case of default, the receiver now claims the holding company owes Chartered the money.

The lawsuit also claims that Thompson authorized payments in 2011 totaling $850,000 from Chartered to an affiliated clinic then owned by the holding company. The bulk of that money, transferred out of Chartered without documentation, was then shifted from the clinic to the holding company, according to court documents.

The court action claims that in 2011, Thompson ordered Chartered to pay $300,000 to the holding company, ostensibly for federal income taxes, even though the company reported a loss to regulators that year and therefore had no tax liability.

D.C. Healthcare Systems “has provided certain information, but nothing sufficient to explain or justify the transfers of cash out of Chartered,” the lawsuit claims, adding that the money “deprived Chartered of needed resources and unjustly enriched DCHSI and, in turn, Thompson.”

The lawsuit further claims that the holding company has not paid Chartered a $4 million income tax refund it is owed under an agreement between the companies.

Some parties, led by D.C. Council member David A. Catania (I-At Large), have strongly urged city officials to “pierce the corporate veil” of Chartered Health Plan and go after Thompson’s personal assets to cover Chartered’s bills.

But the holding company’s default on the Cardinal Bank loan, newly disclosed in the lawsuit, heightens the uncertainty about the state of Thompson’s finances and whether litigation will be able to help his former health-care firm pay health providers.

In an April letter, D.C. Attorney General Irvin B. Nathan said his office is “carefully considering all of our options,” including seizing Thompson’s personal assets, and said a forensic accountant is poring over Chartered’s records to identify any potential wrongdoing.

“[W]e will pursue all available, appropriate avenues to protect the District’s interests,” Nathan wrote in the letter to Catania, who on Thursday hailed the decision to take Thompson to court but said he expects Nathan to take further action.

“It’s part of the conversation, but it’s not the totality,” Catania said of the lawsuit. “The damages to the District are well in excess of $17 million. I want the District’s attorney general using every mechanism at his disposal to access those funds.”

Ted Gest, a spokesman for Nathan, said the office stands by the April letter to Catania.

Mike DeBonis covers local politics and government for The Washington Post. He also writes a blog and a political analysis column that runs on Fridays.
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