Who's guarding the guardians? Court oversight didn’t stop trust account looting - Albuquerque Journal

Who’s guarding the guardians? Court oversight didn’t stop trust account looting

Copyright © 2017 Albuquerque Journal

Attorneys on June 21 rushed to remove Desert State Life Management trust company as conservator for a 65-year-old developmentally disabled woman living in Albuquerque.

But, a new lawsuit alleges, the looting of a $600,000 trust fund she and three other disabled women relied upon to live had already happened.

What makes the case of J.W., as she is referred to in the lawsuit, different from other tragic client stories that have come to light is that Desert State Life Management, in addition to being J.W.’s trustee, also was appointed by a state district judge to act as conservator to help manage her finances.

That court appointment in 2014 added – or should have added – another layer of oversight.

Desert State already was subject to review by the state Financial Institutions Division as a nonprofit trustee company certified to invest and manage client funds.

In its additional role as court-appointed conservator with broader powers, Desert State also was required by law to submit an annual report and financial accounting to the judge.

Publicly available docket sheets on J.W.’s conservator case show Desert State filed annual reports in 2015 and 2016 with state District Judge Valerie Huling of Albuquerque.

But an attorney for J.W. says neither report showed how much remained in J.W.’s Desert State trust account, although each of the annual reports included notes stating that accountings were attached.

“But they weren’t attached,” said Kelly Stout Sanchez, an attorney for J.W., on Friday. “There was no accounting.”

Stout Sanchez said she isn’t blaming the judge or court administration and doesn’t know where the accountings went, if they were filed at all.

Guardianship/conservatorship case files are kept secret from the public by law, but J.W.’s new attorneys were able to obtain them.

“At this point we have what’s in the court file. Unfortunately, the conservator reports did not clear anything up. It just gave us more questions and concerns about what’s going on,” Stout Sanchez said.

A Bernalillo County District court spokeswoman said Friday she couldn’t comment about the annual reports, citing the confidentiality law. The Code of Judicial Conduct in New Mexico bars judges from commenting about pending cases.

Since the financial loss, J.W. and “those responsible for her care, have been unable to pay the bills at her assisted care facility and all other bills for her daily necessary living expenses,” states a lawsuit filed against Desert State by Stout Sanchez and her law partner Michael Hart on June 28.

“Specifically, Defendants (Desert State and others) billed for services and work as though the services were professional and in the best interests of J.W. when in fact professional services were not performed competently or not performed at all, and upon information and belief, misspent and embezzled J.W.’s funds.”

Huling appointed Desert State as conservator without requiring the company post a bond. A check of other such cases shows judges typically don’t require such bonds to ensure performance of conservators.

Huling appointed attorney Charles Reynolds as J.W.’s new conservator on June 27. Because of her disabilities, J.W. also has a court-appointed guardian.

Her lawsuit is among the latest developments in the legal saga of Desert State. State regulators say a recent financial examination showed more than $4 million missing from client trust funds. The nonprofit trust company was subject to annual examinations by the state Financial Institutions Division, but Desert State hadn’t been examined since 2008.

State and federal court records allege Desert State CEO Paul Donisthorpe began moving client trust funds into his own personal bank accounts and companies beginning in 2013.

FID is currently seeking court approval to assume receivership of the company and wind down operations.

J.W. and her sister were among four disabled women who were beneficiaries of a special needs trust set up by a Sandia Laboratory engineer who died in 2008.

Wilkerson M. Howard, a U.S. Army veteran of World War II, adopted the sisters when they were girls and set aside funds for their long-term care and for the other two beneficiaries.

The trust fund amounted to about $600,000 when Desert State assumed trusteeship in 2013, according to J.W’s lawsuit. Now the FID has advised “there’s almost no assets left with Desert State,” attorney Stout Sanchez said last week.

The lawsuit names Donisthorpe, his recently divorced wife, Liane Kerr, Desert State director Helen Bennett and Donisthorpe’s four other business ventures as defendants.

Bennett, who served as a volunteer board member, has been assisting authorities in their investigation, and contends in court records that she had no access to or control over trust funds.

At the time of the FID examination that began in March, only Donisthorpe and Bennett remained on the board of the nonprofit trust company.

Previously, under different management, Desert State specialized in providing guardianship and conservatorship services for special needs clients like J.W.

Donisthorpe, who reportedly suffered brain damage in February after a suicide attempt, is no longer operating the company, located in Downtown Albuquerque.

A state FID attorney said last week it is unclear where Donisthorpe is living. Meanwhile, the U.S. Attorney’s Office, contending in a court document that Donisthorpe defrauded trust clients through a criminal scheme, is seeking forfeiture of three of Donisthorpe’s properties, in Albuquerque and Angel Fire.

Attorney Stout Sanchez said on Friday that J.W.’s lawsuit is an attempt to recover as “much money as possible from what was in the trust.”

And what will happen to J.W. and the other beneficiaries?

“That,” she said, “is the concern.”

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