The state Financial Institutions Division contends that millions of dollars appear to have been stolen from trust accounts managed by a New Mexico nonprofit trust company, leaving numerous trust beneficiaries and other clients “seriously harmed” and in need of services.
More than 70 clients may have been affected, many with medical issues who are unable to care for their own needs. Some face possible eviction or gaps in services because they relied on the trust company to send in their rent checks and pay their medical bills, according to the division.
The ongoing state audit of assets managed by Desert State Life Management Inc. of Albuquerque points to the nonprofit company’s CEO Paul Donisthorpe as having improperly transferred money from client accounts into three business and personal accounts under his whole or partial control, according to a petition filed by the financial agency in Albuquerque state District Court.
The state Financial Institutions Division is seeking a permanent injunction and the appointment of a receiver for the company. The agency asked for an expedited court hearing on the request in part to “prevent actions such as the eviction of individuals from their residences and/or provide funds for critical medical care.”
Alex Sanchez, deputy superintendent of the state Regulation and Licensing Division, said Friday that the number of clients impacted “is in the 70s and that could go up.”
Sanchez told the Journal the division discovered the alleged improprieties through a routine financial examination ordered in December. Various state, federal and local agencies are working to contact beneficiaries and their families or caretakers to offer assistance, Sanchez said.
“We want to keep the people who are relying on these checks paying their bills going so there’s not a gap in services. There are certain clients who literally would not know how to pay their rent so somebody has to do that for them,” Sanchez said. “At this time, it’s evident we believe the company can’t do that any longer and we are asking the court to give FID the ability to handle those funds so we can ensure these people don’t go without.”
Sanchez told the Journal that Desert State typically obtains the authority to manage the assets of its beneficiaries either through a court order or upon the request of a beneficiary’s family or representative. The state has the authority under state law to perform financial examinations yearly of certified trust companies.
Donisthorpe, a former New Mexico State Fair deputy manager and member of the state Commission on Higher Education, may have suffered brain damage that impairs his memory since being contacted by state Financial Institutions Division auditors in February, according to court documents.
Efforts to reach Donisthorpe at his home in Angel Fire weren’t successful. No one answered when the Journal telephoned the Desert State Life Management office in Albuquerque on Friday. The phone’s voice mail was full.
Allegations of theft
The state filed its petition Wednesday asking Judge Nan Nash to appoint a receiver to oversee investment and other accounts of the company, noting “there have been allegations of criminal theft.”
“I believe that irreparable harm has occurred and will continue to occur because of the unsafe and injurious business practices of DSLM (Desert State Life Management) under current ownership and management,” stated a motion filed on behalf of Christopher Moya, acting director of the Financial Institutions Division.
“As a result of the actions of at least one officer of DSLM, which including the apparent theft of millions of dollars of funds from investment accounts for trusts under the trusteeship of DSLM, numerous trust beneficiaries and clients of DSLM have been seriously harmed.”
Moya stated that many of the trust beneficiaries “are individuals with significant medical concerns and/or lack of capacity to care for their own needs who relied upon the fund in their respective trusts’ accounts to pay for medical services, housing and daily living expenses and therefore these individuals face a level of harm far surpassing what might be assumed from only a loss of money.”
Desert State is a nonprofit trust company that has provided trustee services and representative payee services to more than 100 clients since 2006, according to the state’s petition. New Mexico corporation records show the company formed in 1987 with Donisthorpe as the CEO.
Moya stated in the petition that his agency, through an examination of company records, determined several months ago that Desert State was conducting business in “an unsafe and unsound manner.” By law, Desert State had 60 days to rectify the matter but did not, Moya stated.
By last week, the agency’s examination had identified a “multitude of incidents where trust investment accounts had been harmed or depleted by the actions of at least one officer,” court records state.
$4.1 million gone
Desert State bank account records and internal company records examined by the state showed the total client assets being managed by Desert State at the end of calendar year 2016 was $5.86 million, with about $800,000 of that identified as being legitimate disbursements and expenses for that year.
That should have left a total of about $5.06 million in client assets, excluding real estate and insurance policies.
But brokerage statements for the client investment account showed only $926,000 remaining in those accounts. “This means losses to those accounts that cannot be legitimately accounted for totals $4.1 million in calendar year 2016 alone,” according to an affidavit submitted by Moya.
Currently, there appears to be “insufficient funds” to make the required disbursements on clients’ accounts, the affidavit stated.
“The ongoing analysis conducted by the FID of the banking and client account records of DSLM has led the FID to believe that over the time period of 2006 until present, more than $4 million in trust investment account funds managed by DSLM have been transferred out of the investment account for those trusts and out of the accounts of DSLM and into accounts controlled in whole or in part by Paul Donisthorpe, including accounts for Spectrum Capital Markets, LLC., Paul A. Donisthorpe, LLC, Corazon Cattle and or Corazon-Pitchford, LLC,” the state contends.
Brain damage claim
The court filing gave a chronology of how the audit progressed.
Donisthorpe sent an email Feb. 10 thanking a state financial examiner for an update on when the examination would occur.
But none of the records requested by the state was subsequently provided, and there was no explanation as to why.
On Feb. 24, Donisthorpe’s wife, criminal trial attorney Liane Kerr, told the chief examiner for the agency that her husband had “fallen down, possibly had a stroke and possible brain damage and was, at that time, in the hospital.” He is 61 years old.
Kerr couldn’t be reached for comment on Friday.
Current employees didn’t know much about the operations of the company, and apparently there was only one “functioning” member of the board of directors for Desert State – board member Helen Bennett.
On March 27, Bennett contacted the FID and said that Donisthrope’s wife told her that he “had recently attempted to commit suicide,” Moya’s affidavit stated.
Donisthorpe overdosed on prescription medication but survived and now may have brain damage that impairs his memory, Bennett told investigators.
Bennett also told the state examiners that Paul Donisthorpe was the only person at the company who was able to access the funds in the trust investment accounts and draw down funds from those accounts.
“Ms. Bennett stated that attempts had been made to question Paul A. Donisthorpe about the missing … client money and that Mr. Donisthorpe had stated something to the effect that he could not remember, but that if the money was missing then he must have taken it,” Moya’s affidavit stated.
Bennett, who couldn’t be reached for comment, has been assisting state officials with their inquiry, court records show.
Donisthorpe in 1991 served two years in prison for vehicular homicide. Police said he was drunk when he killed an Albuquerque teacher in 1990.
In 2003, he was appointed by Gov. Bill Richardson to the New Mexico Commission on Higher Education but resigned three days later after the revelations about his conviction became public.