Who guards the guardians: AG sues nonprofits, wants increased oversight

Copyright © 2017 Albuquerque Journal

State Attorney General Hector Balderas is weighing in for the first time on the “tragedy” involving two Albuquerque-based nonprofits accused of siphoning millions of dollars from the accounts of veterans, elderly and special needs clients.

This week, his office filed civil lawsuits seeking penalties against the two firms, and he said Wednesday that he wants legislative approval for his agency to increase its oversight authority to protect such clients from future harm.

Balderas’ office, in the two lawsuits filed this week, contends the now-defunct Ayudando Guardians and Desert State Life Management violated the reporting requirements of the New Mexico Charitable Solicitations Act for nonprofit organizations.

The action is separate from the continuing investigations into the missing client funds. And any money collected through the AG’s civil action won’t likely go to the dozens of alleged victims harmed by the two firms – victims who collectively have lost more than $8 million.

If there is any restitution for the victims, it will come from the outcome of any federal prosecution, said an AG spokesman.

In his first public statement on the recent controversies that have engulfed New Mexico’s guardian and trust industry, Balderas said through a spokesman, “The various agencies that have direct oversight of these vulnerable populations clearly failed. It is a crisis in our state.”

Unfortunately, the Charitable Solicitations Act would “never have prevented this type of tragedy,” AG’s Office spokesman James Hallinan said Wednesday.

New Mexico “desperately needs meaningful reforms,” he said. “And the Attorney General will advocate for the Legislature to increase oversight authority in the Office of Attorney General and provide adequate funding.”

Allegations surfaced over the summer about alleged theft by top executives of Ayudando Guardians Inc. and Desert State Life Management trust company. Desert State, like Ayudando, is no longer in business.

In late May, state financial regulators announced in a lawsuit their discovery that at least $4 million was missing from Desert State accounts, but no one has been criminally charged in that alleged theft. The U.S. Attorney’s Office has filed for forfeiture of several properties tied to Desert State, but it is unclear which law enforcement agency is investigating.

The U.S. Attorney’s Office in July announced the indictment of the two top executives of Ayudando: the firm’s president, Susan Harris, and chief financial officer, Sharon Moore. That came after a yearlong investigation by the Internal Revenue Service and other federal agencies, which found that the women were living lavish lifestyles with client funds.

The 28 counts, which include conspiracy, mail fraud and money laundering, in the Ayudando case are based chiefly on money missing from the accounts of military veterans and Social Security recipients who received federal benefits. But questions have surfaced about other victims who allegedly lost non-federal funds.

The Journal on Sunday, for example, profiled the case of a 34-year-old former client of Ayudando, whose $110,000-plus inheritance from his father has disappeared. Justin Bowers, who is mentally impaired and under court-approved guardianship, said he was told by chief state District Judge Nan Nash of Albuquerque during a hearing Monday that it may take up to three years for him to recover his lost money.

His new guardian, Cheryl Yerby of Necessity CMC, said she plans to exhaust all avenues to try to recover funds for her former Ayudando clients.

Balderas’ office declined to say whether he is investigating criminal violations of state law involving either Ayudando or Desert State.

Meanwhile, Balderas’ office – as the enforcement agency for the Charitable Solicitations Act – filed the two civil lawsuits in state District Court in Santa Fe. Any penalties collected may go back to the AG’s Office for enforcement, Hallinan said.

One of the suits says that Ayudando, from 2013 to 2016, at least, failed to register and file annual financial reports with the AG’s Office, as required by law. The company is also alleged to have accepted grants and solicited donations since 2013 without complying with the Charitable Solicitations Act.

As reported by the Journal in September, two filings by Ayudando to the AG’s Office revealed “red flags” of irregular accountings, and nearly $80,000 in employee “advances” from client funds in 2011 and 2012. The independent audits and tax records Ayudando filed with the AG showed most of the clients’ money was repaid, but not all. The AG’s Office has said it reviews such filings, but “the content and level of scrutiny” varies.

The AG lawsuit against Desert State alleges that the firm was required to register and report as a charitable organization but never successfully did so.

Each of the violations of the act subjects the firms to payment of restitution and a civil penalty of up to $5,000 per violation.

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