In 1989 Beverly had over-expanded. Medicare funding had been reduced and it was in trouble servicing its loans. It desperately needed to sell homes but there were few buyers. It was based in Arkansas. The firm Stephens Inc. was contracted to find a buyer and Hillary Clinton's lawyers devised and supervised the deal. A not for profit shelf company was used as the vehicle. Iowa and Arkansas money was to be used for the deals. This was supported by Clinton who was governor at this time.
A newspaper investigated and unraveled the tortuous deal. Clinton eventually backed away and survived the scandal. The deal was described as profiteering and unconscionable but apparently not illegal. Many of those involved subsequently went with Clinton to Washington.
The story is a complex one with many loose
threads. I thought it best to simply supply two articles which
explore the matter in some depth.
These two articles describe the complex wheeling and dealing which occurred between Beverly, Hillary Clinton's law firm, politicians and Bill Clinton while he was governor of Arkansas. They raise more questions than they answer.
A Rose Law Firm Deal, Revisited
The Wall Street Journal PAGE A20 - - - 03/15/1994
Jonathan Roos
(Copyright (c) 1994, Dow Jones & Co., Inc.)
The following is reprinted with permission from the Des Moines Register of June 13, 1993. A related editorial appears nearby {see related editorial: "Review & Outlook (Editorial): Who Was Webster Hubbell? -- I" -- WSJ March 15, 1994}.
When Hillary Rodham Clinton complained in a recent speech about profiteering in the health care industry, she could have found a ready example in the role one of her former Arkansas law partners played in an Iowa nursing-homes deal that made millions for the deal makers.
William H. Kennedy III, a partner in the Rose Law Firm of Little Rock and now associate counsel to President Clinton, shepherded the deal for Beverly Enterprises, a giant nursing-home company that paired up with a Texas banker to sell its Iowa and Arkansas nursing homes.
Forty-one Iowa homes were acquired four years ago by a nonprofit corporation, now known as Care Initiatives, that was effectively controlled by the banker, Bruce Whitehead. The deal was financed by $86 million in tax-exempt revenue bonds.
Whitehead and the bond underwriters took up-front profits exceeding $15 million.
Beverly, which needed cash to reduce its crippling debt, made about $10 million.
"Kennedy was involved in the whole thing, period. He was the point man for Beverly," says Frank Pechacek, a Council Bluffs lawyer who investigated the deal for county assessors. The assessors were contesting Care Initiatives' claim to property tax exemptions for its nursing homes in about 30 counties.
Kennedy could not be reached for comment.
Other Rose Law Firm partners who now work in the Clinton administration may have been involved, too. Webster Hubbell, who holds the No. 3 slot in the Justice Department {Mr. Hubbell resigned yesterday}, listed Beverly Enterprises among his 26 Rose Law Firm clients.
Vincent Foster Jr., deputy counsel to the president, represented Stephens Inc., a Little Rock investment-banking firm that owns 10% of Beverly's stock. Beverly hired Stephens to find a buyer for many of its nursing homes. The search led Beverly to Whitehead.
"There was absolutely no way that these people didn't know what was going on," said Roy Drew, a former Stephens broker and an independent investment adviser whose criticism of a similar nursing-home transaction in Arkansas involving Beverly, Whitehead and a nonprofit corporation helped touch off a political furor that scuttled the deal.
No one is saying that nursing-home company executives, lawyers, bankers or others involved in the Iowa homes' sale acted illegally. In fact, great care was taken to dot the i's and cross the t's on the contracts.
But critics of the transaction have complained of profiteering.
Said Drew: " Rose Law Firm made it legal, but it didn't have anything to do with what was right or fair to taxpayers or people in nursing homes. It had only to do with getting Beverly and Stephens Inc. off the hook."
Last month, the Iowa Supreme Court upheld District Judge Gene Needles's denial of Care Initiatives' request for an exemption from paying property taxes on its nursing homes. Total taxes on the homes exceed $800,000 a year.
Needles and the Supreme Court sided with county assessors in concluding that Care Initiatives did not meet the tests of a charitable institution.
Said Needles, "Care Initiatives is a `shell' nonprofit corporation used by Bruce H. Whitehead and the bond underwriters to obtain the financing necessary to enable them to make millions of dollars of excessive profits."
Whitehead and lawyers for Care Initiatives contended that the profits were reasonable, given the size of the deal and the financial risk involved.
Court records and transcripts of testimony by Whitehead and his lawyer show that Kennedy looked after the interests of Beverly Enterprises. He prepared the financial documents and negotiated with Whitehead and other parties to the Iowa and Arkansas nursing-home deals.
Whitehead testified that the nation's largest operator of nursing homes "was having severe financial difficulty. They needed to raise cash desperately because of the financial problems they were having."
In 1988, Beverly sought to sell off its nursing homes in Iowa, South Dakota, Nebraska and Arkansas. But finding a buyer and conventional financing for the sale would be difficult.
Whitehead, the Texas banker, was interested in only the Iowa and Arkansas homes. A proposed sale agreement prepared by Kennedy called for a company controlled by Whitehead to buy Beverly's Iowa and Arkansas homes for about $115 million.
The Iowa portion of the deal was sealed in the summer of 1989. Whitehead's Ventana Investments bought the Iowa nursing homes for $57 million as part of a two-step transaction that left Whitehead a hefty profit. The homes were then sold to nonprofit Care Initiatives (known then as Mercy Health Initiatives) for $63.5 million.
The money was borrowed through the sale of $86 million in tax-exempt revenue bonds that the Iowa Finance Authority, a public agency, agreed to issue.
The Iowa Finance Authority served as a conduit; no state money was loaned. Nursing-home revenue is used to repay investors who purchased the bonds.
The Iowa transaction caused no ripples. At a public hearing, Whitehead assured the Iowa Finance Authority board that the Beverly employees in Iowa would keep their jobs. At a follow-up meeting conducted over the telephone, the board voted unanimously to authorize the bond sale.
"There was the belief that there was a danger that some of those {nursing homes} could have closed," said Ted Chapler, executive director of the Iowa Finance Authority.
The lost jobs would have dealt an economic blow to the rural communities where the nursing homes are located, said Chapler, who was the finance authority's general counsel when the bond sale was approved by the group's board and Gov. Terry Branstad.
Care Initiatives employs 2,800 workers in Iowa. Its nursing homes have 3,200 residents.
The sale of 36 nursing homes in Arkansas was to be financed in the same way, using $81 million in revenue bonds and another nonprofit corporation that had been set up for Whitehead. He stood to gain $4 million from the transaction. But during the fall of 1989 the deal unraveled.
The Arkansas Development Finance Authority, which had become an important economic tool for then-Gov. Bill Clinton, initially supported the proposed bond sale but backed away as criticism of the deal mounted. When Bob Nash, president of the Arkansas agency, recommended rejecting the deal, Whitehead challenged him to a fist fight, according to Little Rock news accounts. Whitehead later testified in the Iowa property-tax case that he lost over $2 million in Arkansas.
Clinton, who had the last word in killing the deal, was brushed by the controversy but suffered no lasting political damage. He was re-elected governor in 1990.
There have been changes in Iowa since the deal. Last year, Care Initiatives severed its ties with Whitehead and his nursing-home management company. Duncan Graham, the firm's president, says Care Initiatives now is managing the nursing homes itself.
He says the move should strengthen the firm's new bid for property-tax exemptions for its Iowa homes. That's expected to touch off another court battle.
Copyright (c) 1999 Dow Jones & Company, Inc. All Rights Reserved.
Another Ark Tale
Micah Morrison - - - 05/02/1994
(Copyright (c) 1994, Dow Jones & Co., Inc.)
Former Arkansas Attorney General Steve Clark faces a new trial later this year in Little Rock on charges that he owes the state more than $18,000. In 1990, Mr. Clark was convicted of "felony theft by deception" for putting nonbusiness entertainment charges on his state credit card; he was driven out of politics and disgraced. Four years after his conviction, the state of Arkansas has decided it wants another piece of him.
Mr. Clark's downfall opens a window on the incestuous political culture out of which President Clinton's current Whitewater troubles emerge. The story begins in late 1989, when Mr. Clark staked out his opposition to then -- Gov. Bill Clinton and the Stephens Inc. financial empire in a dramatic speech to the board of the Arkansas Development Finance Authority (ADFA). The board was meeting to consider a bond issue to finance the sale of Arkansas nursing homes to Texas financier Bruce Whitehead. A similar deal in Iowa, involving Mr. Whitehead and the Rose Law Firm, would soon be raising concerns of profiteering.
Specifically, the ADFA board was considering a $75 million bond issue for the sale of 32 Arkansas nursing homes, owned by the Stephens-controlled Beverly Enterprises health care giant, to Mr. Whitehead. Mr. Clark, readying a bid to challenge Gov. Clinton for the Democrat gubernatorial nomination, told the board he had been offered a $100,000 bribe by a "Beverly-Stephens representative" to withdraw his criticism of the deal. In a blistering speech, Mr. Clark condemned Stephens Inc. for "arrogance of wealth" and Gov. Clinton for "arrogance of power."
"In one speech," wrote Arkansas Gazette columnist John Brummett, "Clark broke every rule of good-ol'-boy, inside-the-family politics, the kind that runs Arkansas." But by breaking the rules, Mr. Clark "may have killed a growingly odorous bond deal which has been kept alive by Gov. Bill Clinton's vacillation and his appointees on the ADFA board."
Burdened with debt and reeling from cuts in Medicaid reimbursement, Beverly was seeking to sell off its nursing homes in a number of states, including Iowa and Arkansas. This was of more than passing interest at Stephens Inc. headquarters in Little Rock. Beverly was in trouble and Stephens, which controlled the company through ownership of a preferred stock issue and dominance of Beverly's board, could sustain heavy losses. Stephens tapped the Rose Law Firm to find a buyer for the nursing homes, turning the matter over to Rose partner Vincent Foster Jr. Mr. Foster passed the deal to William Kennedy III, now White House associate counsel.
Mr. Kennedy found a buyer for the Iowa and Arkansas homes in Mr. Whitehead, a high-rolling Texas financier. Mr. Kennedy and Mr. Whitehead quickly put together a deal for the Iowa homes that later would be sharply criticized. In a two-step transaction, Mr. Whitehead's for-profit Ventana Investments bought 41 nursing homes for $57 million. The homes were then immediately purchased by a Whitehead-controlled nonprofit corporation, Mercy Health Initiatives, for $63 million, with money borrowed from the state under an $86 million bond issue.
The deal netted Mr. Whitehead and the bond underwriters up-front profits of more than $15 million and gave Beverly a cash infusion of about $10 million, according to the Des Moines Register. The Rose firm made "hundreds of thousands of dollars," estimates Little Rock financial adviser Roy Drew. Unfortunately, the deal also saddled Mercy Health with millions in debt -- Mr. Whitehead soon fled the organization -- and raised the cost of patient care by 14%, according to a study by Iowa authorities.
Iowa Judge Gene Needles later ruled that Mercy was a "shell nonprofit corporation" used "to make millions of dollars of excessive profits." He called the deal "unconscionable." An Iowa lawyer hired by the state to investigate the deal, Frank Pachacek, told the Washington Times that it was "the worst case of profiteering" he had seen in 20 years.
Mr. Whitehead and Mr. Kennedy hoped to pull off a virtually identical transaction in Arkansas, where Stephens exerted powerful influence. Stephens executives had good reason for confidence that the publicly funded deal would come together without a ripple. Two ADFA board members were employed by Stephens-controlled organizations. The politically hyper-connected Rose firm, which counted Stephens among its major clients, was shepherding the arrangement. And Gov. Clinton himself retained final authority over all ADFA bond issues.
(It wasn't until years later that the Arkansas public learned that Rose was handling the bond deal, the fiction being advanced at the time that former Rose managing partner Joseph Giroir was representing Beverly. But documents show that Rose was stage-managing a transaction that could have brought them $500,000 in fees. In a May 9, 1989, letter to Mr. Whitehead regarding "the sale of facilities in Iowa and Arkansas," William Kennedy III wrote that he was "awaiting instructions from the appropriate Beverly personnel.")
The bond issue sailed through an initial ADFA board meeting, then started to come undone when the underwriters withdrew and the Arkansas Democrat newspaper, prompted by longtime Stephens critic Roy Drew, began a tough series investigating the financing of the deal. At a second meeting, under growing public pressure, the ADFA board decided to delay final approval. An angry Bruce Whitehead then challenged the ADFA board president to a fistfight. At the third and final meeting, on Dec. 20, 1989, Steve Clark's bombshell announcement of a bribe attempt and attack on Gov. Clinton and Stephens Inc. killed the deal. It was, wrote columnist Brummett, "either the bravest or stupidest move of his political life."
According to Mr. Brummett, it probably was the bravest -- "though it may be plenty stupid to make the kind of enemies he made" with the speech. Within 24 hours, the alleged briber, Earl Jones, a lobbyist for the nursing-home interests, came forward to deny that the $100,000 figure was a bribe. Mr. Jones told the Gazette that he had indeed called Mr. Clark, asking him to get off his car phone and on to a "secure line." They discussed the bond deal, and toward the end of the conversation Mr. Jones told Mr. Clark that "down the road" he probably could raise $100,000 for Mr. Clark's gubernatorial campaign.
Mr. Brummett noted that around the same time that Mr. Clark heard from Mr. Jones, he also received a phone call from Stephens Inc. chairman and Arkansas kingmaker Witt Stephens, "to suddenly tell him that he was his `boy for gover-nor.'" What a coincidence. "I bet Clark is not Mr. Witt's `boy for governor' anymore," Mr. Brummett wrote.
Soon, Mr. Clark would not be anybody's boy for anything. Officially entering the gubernatorial race a month after the Beverly debacle, Mr. Clark was considered Bill Clinton's most formidable opponent. Within weeks, however, he would be ruined -- a victim it seems of both his political enemies and his own extravagance.
Within days of his announcement of a challenge to Gov. Clinton, Arkansas newspapers ran a story detailing the travel and dining expenses of state officers. Attorney General Clark led the way, with over $60,000 in expenses. Some of Mr. Clark's expenses were legitimate. The attorney general's salary was only $26,000, with a $15,000 public-relations supplement.
But what appeared to be a middleweight political embarrassment turned into a disaster when Mr. Clark's alleged dining partners started phoning the Arkansas Gazette to deny their having dined with him. The first person to contact the Gazette was a major Clinton fund-raiser, Marilynn Porter. The first person called by the Gazette was Judge Richard Arnold, an FOB currently on the short list for the Supreme Court. Both denied having dinner with Mr. Clark. Ms. Porter would later testify that she had been called by Bruce Lindsey, then Mr. Clinton's campaign treasurer and now a senior White House aide, who drew her attention to the article. When she asked what she should do, Mr. Lindsey suggested she contact her lawyer, Rose partner and FOB Webb Hubbell.
Despite apologies and payments to the state of more than $4,000, Mr. Clark was finished, the object of suspicion and ridicule. A few months later, he was indicted on felony theft charges, accused of stealing more than $8,000 in state money by putting personal charges on his state credit card. He was convicted and ordered to pay a $10,000 fine, plus court costs.
Lobbyist Earl Jones, meanwhile, was cleared of the bribery charge, in a trial that focused on Mr. Clark's lack of credibility. Mr. Jones's attorney successfully argued that the lobbyist was operating in a two-track role as agent for the companies involved in the Beverly buyout and campaign fund-raiser.
Mr. Clark left the state, perhaps seeking to fade into obscurity but courting notoriety again when he was photographed jogging with President Clinton on the Mall in Washington in August 1993. According to Arkansas Assistant Attorney General Angela Jegley, the photograph reignited interest in Mr. Clark. Investigations completed after Mr. Clark's criminal trial, Ms. Jegley said, had determined that Mr. Clark "had not paid in full." Ms. Jegley, who held a Clinton-appointed post as a chancery judge prior to joining the attorney general's staff, contacted the ubiquitous Mr. Brummett, who tracked down Mr. Clark, whereupon the state filed civil charges.
Through a spokesman, Mr. Clark pointedly declined to comment on how it was he came to be jogging with his former rival, or why. As attorney general for most of Gov. Clinton's tenure, Mr. Clark was privy to much sensitive information, sources in Little Rock say. The two men certainly had a long and complicated relationship. His spokesman said, declining to elaborate, that Mr. Clark believes the new trial "is politically motivated," and added: "Steve Clark just wants to put Arkansas behind him and get on with his life." Apparently when you've done political business in Bill Clinton's Arkansas, that's not always easy.
Mr. Morrison is an editorial page writer.
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