Claims Receivers and Competitors Feast in Millions, While Federation Non-Profit is “Dissolved”

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By MILTON G. ALLIMADI AUGUST 10, 2016

This article is the first in a series on Federation of Multicultural Programs, Inc. It was reported by Milton Allimadi, Carolyn Jenkins, and Michael Howard. It was written by Allimadi.

Ousted executives of a Brooklyn-based non-profit organization whose clients are learning-disabled, claim their social services organization was unfairly dissolved because some competitors salivated over its multi-million dollar operation and assets including 14 buildings it owns worth about $25 million.

Federation of Multicultural Programs was created more than 50 years ago and provides its services are designed to promote eventual independent-living among its learning-disability clients. Its clients are multi-ethnic; Blacks, Whites, and Latinos.  Federation’s executives have been primarily Latino and Black since its founding.

Federation has 360 full-time employees and about $25 million in annual revenue.

Last month Federation’s operations and assets were distributed to four of its competitors even though an appeal of the dissolution is pending in the appellate division.  The operating receiver, Tom Lydon, appointed by State Supreme Court Judge Richard J. McNally, Jr., in Albany County, is listed on the website of Lifespire, one of Federation’s competitors as its chief operating officer.  Lifespire was also on a list of companies designated by a state agency as beneficiary of Federation’s assets once it was dissolved. (The organization was in the news last year when the mother of a mentally-impaired girl sued it for $25 million after after her daughter was allegedly raped in one of its facilities in Harlem).

Lydon’s fees as a receiver is $100,000. Separately, the court-appointed financial receiver, Joseph Nelson’s fees comes to $75,000 per month and he was approved for a raise to $125,000. Nelson’s billed over $100,000 over a two-month period earlier this year.

“This whole lawsuit and dissolution was about an orgy of billing,” claims one of the ousted executives in an interview. “It’s about taking jobs from our community to other communities.”

The ousted Federation executives say the first lawsuit against their organization by the state in January 2015, alleging it couldn’t pay its bills wasn’t true because it had already initiated cost-cutting measures and later negotiated repayment plans with all its major creditors, including its monthly $95,000 employees’ union membership dues to local 1199SEIU.  Federation’s fired CEO, Danny King, also took a $35,000 pay-cut.

The former executives insist a second lawsuit that led to the organization’s dissolution because its liabilities allegedly exceeded the assets also was based on false allegations: it didn’t factor the value of Federation’s real estate holdings worth millions of dollars.  “This was a power grab,” says King, the ousted CEO.  King says 85% of Federation’s employees were African-Americans and Latinos from underserved neighborhoods in Brooklyn’s East New York and Brownsville sections, and from the Bronx’s Hunts Point section. “They are people who typically have a tough time finding jobs,” he says.

The ousted executives and employees claim the lawsuits were egregious because two state agencies that fund organizations such as Federation didn’t disclose that, and suddenly after the first lawsuit started, the agencies claim they had mistakenly overpaid Federation more than $7 million about 10 years earlier, and demanded immediate recovery.

The agencies, Office of People with Developmental Disabilities (OPWDD) and the Department of Health (DOH), reduced funding to Federation by more than $300,000 per month.

The ex-executives claim the two agencies never provided documentation for the alleged overpayments which the agencies claim had been due to their own “rate miscalculation error”. OPWDD and DOH also didn’t say how the alleged miscalculations were discovered and why they demanded immediate payment.  “This was a scheme to kill Federation for the benefit of others,” says one of the ousted executives.

In March 2015, two months after OPWDD initiated the first lawsuit alleging Federation couldn’t pay its bills and asking Judge McNally to appoint a receiver, it notified Federation that DOH had discovered that nine years earlier it had overpaid Federation by $2,280,847.35. So DOH drastically reduced funding starting in April 2015 until August when the $2.3 million was recouped.

As soon as the $2.3 million had been recovered, OPWDD informed Federation that it had discovered more miscalculation errors. Federation had been overpaid an additional $2,100,000 nine years earlier. Again, no documentation was provided, the ousted executives claim.  DOH reduced funding to Federation until the second alleged overpayment was recouped.

That wasn’t all. An e-mail message reviewed by The Black Star News dated March 31, 2015 from Elizabeth Baker, an OPWDD official, to Richard Montalvan, Federation’s Fiscal Director, states that the total amount owed from the alleged overpayments was actually $7.6 million. “When we woke up the figure just kept growing. Like the numbers came from thin air,” says one of the ousted employees.

The aggressive recoupment severely harmed Federation’s ability to continue adequately delivering services to their 400 at-risk clients, these ousted executives say.

In an order dated June 11, 2015, Judge McNally appointed Nelson, an accountant with Berdon, LLP, a Manhattan-based firm, as financial receiver. The judge approved Nelson’s request for an increase in his $75,000 monthly fee this year. The Black Star News couldn’t obtain documentation on his lawyer James Lagios’ fees dating to June 2015; Lagios’ fees for the period February 1, 2016 to March 31, 2016 came to $105,262.96.

According to McNally’s June 11 order, both parties orally consented to the appointment of a receiver.  However, Paul Bleifer, the lawyer who represented Federation at the time, claimed in court papers he never consented. McNally denied Bleifer’s motion for the judge to reverse the appointment.

Nelson, in addition to his hefty fee, created an additional burden for Federation, the ex-executives say.  According to an affidavit filed by Beatrice Gonzalez, the ex-Human Resources Director: “Once the Receiver was appointed, all bills were transmitted to him for individual approval of payment….The Receiver failed to approve bills; e.g., utilities. Those bills went unpaid.” Yet, according to the Gonzalez affidavit, the receiver reported to Judge McNally that Federation “failed to pay utilities…”

The ousted executives claim they still tried to make things work. They point to a letter dated December 31, 2015 by Federation’s Fiscal Director, Montalvan, asking OPWDD to reduce its recoupment from 15% to 6% so that Federation could “remain a fiscally viable agency…”  The plea also fell on deaf ears, the fired executives say.

In December 2015, OPWDD filed a motion to dissolve Federation claiming its liabilities exceeded its assets and that it couldn’t pay its bills. Assistant Attorney General Laura A. Sprague asked Judge McNally to restrain Federation’s creditors from seeking payment of bills so funds could be prioritized for essential services to clients. “If they were concerned about the welfare of the clients, why the aggressive recoupment from OPWDD and DOH? Why the $75,000 a month to Nelson?” asks one of the ousted executives.

The complaint’s return date of January 19, 2016 also turned out to be the date when the hearing was to begin.  The state put its witnesses on the stand to testify as to why Federation should be dissolved. There were two other hearings: on January 20 and on January 22.

Other Federation executives testified but King, the CEO, says Federation’s lawyer, Bleifer, advised him that his dreadlocked hair “wouldn’t play well upstate”. King claims he sat at the back during proceedings so Judge McNally wouldn’t be able to see him.

Judge McNally ruled from the bench on January 22 at the end of the hearing and granted OPWDD’s petition to dissolve Federation.  The judge referenced receiver Nelson’s report which spoke of “a culture of — mismanagement, poor management or not sophisticated management, term it any way you want, as to how this organization is being run…”  The ousted executives interpret the language as dog-whistling in the absence of empirical evidence in Nelson’s report to support allegations of mismanagement. “Are they saying the millions in recoupment and the receivers’ fees had no impact on the crisis?” asks one of the ex-executives. They claim Nelson visited Federation’s offices only once, between June 2015 and January 2016.

On February 4, 2016 Judge McNally issued the order of dissolution. Top Federation executives fired by Nelson included: King, CEO for 10 years; Gonzalez, who’d clocked 31 years; computer program manager Carmen Gonzales, 30 years at Federation; and Maria Diaz, program director with 30 years experience.

Curiously, the February order of dissolution, including the original filed at the Albany County Clerk’s Office, is missing 10 pages. After the cover page, the next pages in sequence are: 12, 13, 14 and finally 15.  “There are no findings of fact and no conclusions of law,” says Regina Felton, a Brooklyn-based attorney who is handling Federation’s appeal. She believes there was such a rush to dissolve Federation that the judge may have planned to write his findings and conclusions later.

Felton claims there were numerous ex-parte letters sent by Sprague that were signed into orders by McNally during the lower court proceedings and she’s raising the matter on appeal.  She claims some documents related to the case also aren’t filed with the clerk.

Felton filed three motions –all denied– seeking an emergency stay arguing that irreparable harm would be done if the removal of the executives and the board was allowed to stand before the appeal period was over. She also notes that Judge McNally had waived the surety bond that receivers ordinarily carry. She claims the Federation executives’ firings and the removal of its board were “illegal” since a new verified petition was required for such actions. (Felton says Sprague has filed papers opposing her motion to consolidate the appeal and expand the deadline from the previous June 25. She asked for an extension because earlier the state had not attached any exhibits when the parties exchanged papers.)

Separately, Lydon, the Lifespire COO who was appointed operating receiver by a March 2016 court order, didn’t respond to an inquiry from The Black Star News about a possible conflict of interest. OPWDD and Sprague also didn’t respond to an inquiry submitted via e-mail message about the matter.

A letter by Lagios, the lawyer for Nelson, addressed to John Ostrowski at the New York State Office of Medicaid Inspector General, Division of Medicaid Audit, refers to Lydon as an executive with Manhattan Management Solutions (MMS), the company hired as the operating receiver. A review of the records by The Black Star News shows that the address provided as MMS’s in the Lagios letter to the Medicaid Inspector General is exactly the same as Lifespire’s: 1 Whitehall Street, 9th Floor, New York, N.Y., 1004. The letter provides Lifespire, not MMS, e-mail address for Lydon. The Lagios letter claimed Lydon had discovered that $1.6 million in Medicare-sourced funds for Federation’s clients was unaccounted for. The ousted executives say it can’t be true since Federation had passed OPWDD inspection.

In one of her earlier filings prior to the Lagios letter Felton, the lawyer, had noted that the receiver’s fees were coming from Medicaid-sourced funds for Federation’s clients.  Felton claims Lagios called her and said she didn’t have the right to file an appeal on behalf of Federation. “He said, ‘Your client has been dissolved’,” she says.

Lydon didn’t respond to an e-mail message from The Black Star News seeking comment, including on: whether his  monthly fee was $100,000; whether he worked out of MMS’s offices or Federation’s; who at OPWDD vetted and interviewed him; what experience he has as a receiver; whether he had any relationship with Judge McNally prior to the Federation case; whether he had any relationship with Nelson, the financial receiver, prior to the Federation case; and whether he was not involved in a conflict of interest by being a receiver of Federation and auditing it while at the same time being COO of a competitor, Lifespire, which had been listed by OPWDD as a potential beneficiary of Federation’s  assets upon its dissolution.

“Mister Ostrowski retired years ago,” an official at the Inspector General’s Office informed The Black Star News when contacted for comment. Another official, Michael Waring, said it was the attorney general who can determine whether Nelson, Lydon and the lawyer can draw their fees from the Medicaid-sourced funds.

Nelson, the financial receiver, referred questions from The Black Star News to Lagios, his lawyer, who called on his behalf. Lagios didn’t respond to a subsequent e-mail message, including with questions: about Lagios’ fees, including the $105,262.96 for two months; about Nelson’s $75,000 monthly fee, and whether at that rate he’d now earned at least $1,050,000 since June, 2015; whether Nelson worked out of his  firm’s offices or from Federation’s; whether he knew Judge McNally or had involvement with him prior to the Federation case; and whether he knew Tom Lydon, the operating receiver, had any involvement with him prior to the Federation case.

The companies that have shared Federation’s operations and its assets including its buildings are: Institute for Applied Human Dynamics, 32 Warren Avenue, Tarrytown, NY 10591; Services for the Underserved, 305 Seventh Avenue, 10th Floor, NY, NY 10001; Birch Family Services,104 West 29th Street, Third Floor, NY, NY 10001; and Evelyn Doughlin Center for Serving People in Need, Inc., d/b/a The Thrive Network, 241 37th Street, Suite 604, Brooklyn, NY 11232.

Sprague didn’t respond to questions about the case submitted via e-mail message.

Megan O’Connor-Herbert, Deputy Commissioner at OPWDD who testified in favor of appointing a receiver, referred questions about the selection of the receivers and whether she had vetted and interviewed them to a spokesperson.

The OPWDD spokesperson Denise DeCarlo said: “OPWDD cannot comment on a matter in litigation or that is the subject of an ongoing investigation.”

The ousted Federation executives collect unemployment insurance. However, King and Beatrice Gonzalez have been blocked from drawing from their vested pension contributions based on an order by Judge McNally, who approved and signed an ex-parte Affirmation from Sprague. “What does our pension contributions have to do with any of these issues,” King says. “All we want is a level playing field.”

Recently, State Attorney General Eric T. Schneiderman exposed a corrupt relationship between a Supreme Court Judge, Judge Donald F. Cerio, Jr., and a receiver appointed by the judge.

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