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Victims of Desert State still waiting for restitution

Donna Burk, with her mother, Marjorie, said her mother lost $32,000 in an embezzlement scheme at Desert State Life Management trust company

Donna Burk, with her mother, Marjorie, said her mother lost $32,000 in an embezzlement scheme at Desert State Life Management trust company. Her mother died June 5.

Copyright © 2018 Albuquerque Journal

A woman known in court records as “J.W.” died destitute this year.

But she had once been a co-beneficiary of a $600,000 trust at the now-defunct and disgraced Desert State Life Management company of Albuquerque.

Her money, along with savings and trust accounts of more than 70 other vulnerable people who were clients of Desert State, were part of the estimated $4.8 million embezzled by company CEO Paul Donisthorpe, who pleaded guilty last November to federal money laundering and mail fraud charges in the scheme.

J.W.’s death several months ago left her daughters scrambling to find the money to bury their developmentally disabled mother.

They eventually found a “patchwork of people” to pay for funeral expenses, said Charles Reynolds, who had been her conservator.

“But it was very frustrating and sad to think there were no funds for an immediate burial,” Reynolds said. “It highlights how pathetic the situation was.”

More than a year after state regulators uncovered the crime, the dozens of victims who relied on Desert State to keep their savings safe are still waiting for financial relief. A proposed class action lawsuit for those defrauded was filed in June, but one of Desert State’s insurance companies has gone to court to keep from paying claims. Desert State was placed into state receivership last year.

New legislation gives regulators more power

Meanwhile, federal authorities have been trying to locate all of Donisthorpe’s assets that could be sold or liquidated to make restitution to victims.

Donisthorpe, 62, faces eight to 12 years in prison. As part of his plea, he agreed to pay more than $4.8 million in restitution. But there’s been no reimbursement yet and it’s not clear when that might happen.

Christopher Moya

Christopher Moya

“I have a lot of hope,” said Christopher Moya, acting director of the state Financial Services Division. “We knew it wasn’t going to be a quick turnaround, just because the legal process slows everything down.”

Donisthorpe is on supervised release awaiting sentencing, which has been set twice and canceled with no explanation in court records. His attorney didn’t return a Journal request for comment last week.

As a condition of release, Donisthorpe was required to “provide all requested financial information to U.S. Pretrial/Probation Services.”

“Until this is done,” Moya said, “I will still have sleepless nights.”

Class action lawsuit

At least one other Desert State client, who lost a $32,000 trust in the scheme, has died in the past year.

Donna Burk said her 97-year-old mother, Marjorie, died June 5 in Texas. Burk said she never informed her mother about the embezzlement because of how much it would have upset her.

“I carried the weight of it,”said Burk, who was profiled by the Journal last year.

Her mother’s decline in the five weeks before her death took a toll, as Burk struggled financially and missed work.

She cared for her mother at her home, but, “I really needed round-the-clock help and I couldn’t afford it.”

“It was horrible the money ($32,000) wasn’t there so I could have hired a full-time caregiver. I should have been able to have my time with her, to be a daughter and sit and hold her hand.” Instead, Burk said she had to perform nursing duties, such as lifting her mother, and is now suffering physically.

A proposed class action lawsuit was filed June 20 in state District Court in Albuquerque that could cover all 77 or so victims of the fraud. Moya said if a class is certified, that would eliminate the need for victims to hire their own lawyers to pursue claims against Desert State.

The lawsuit was filed on behalf of Andrew Graham, whose special needs account at Desert State was bilked of at least $100,000.

The firm dates back to the 1980s. Donisthorpe’s scheme to steal client funds operated from at least 2009 to 2016.

In the final two years, the Graham lawsuit says, Donisthorpe stepped up the illicit transfers from client investment accounts. By September 2014, he had deactivated the firm’s computerized accounting system, keeping only paper records of client accounts.

He moved client assets into his associated affiliate companies and personal investments, which included a Texas cattle operation. That property could be sold as early as this month by the federal government, which is handling the forfeiture of Donisthorpe’s assets to repay victims.

Moya said that about 90 percent of client funds were drained by the time state regulators began examining Desert State’s books in early 2017 and found major discrepancies.

Donisthorpe spent client money on personal items, including business ventures, his home mortgage, the mortgage for his vacation home in Angel Fire, vehicles, credit card bills and IRS debts, court records allege.

Scott Fuqua, a lawyer who previously worked in the New Mexico Attorney General’s office, represents a Texas businessman who says he, too, was swindled by Donisthorpe.

“The unfortunate thing about fraud cases is that people who steal money don’t put the money in the bank,” Fuqua said. “That’s why they steal it in the first place – to spend.”

Liability insurance

Even as he was bilking clients, Donisthorpe bought professional liability insurance in October 2016 for the firm.

But the insurer, Evanston Insurance Company, seeks to rescind that policy, alleging Donisthorpe made “material misrepresentations” in applying for the insurance.

The company filed a lawsuit July 23, noting that it has received a series of claims by those defrauded. But the lawsuit alleges that statements Donisthorpe made at his plea hearing last November show his responses to questions on the insurance application were false.

“Donisthorpe was clearly aware of his conduct, and therefore, was aware of wrongdoing that might afford grounds for a claim against DSLM that might fall within the insurance provided by the Evanston Policy,” the lawsuit says.

Evanston offered to refund Donisthorpe’s premium payment of $9,328 to help those defrauded, its lawsuit stated. Now Evanston wants a federal judge to decide the issue.

Still pending on the federal forfeiture radar are Donisthorpe’s luxury vacation home in Angel Fire and a 120-acre cattle ranch in Athens, Texas, that Donisthorpe owned with Darrell Pitchford. Pitchford contends he too was a victim and knew nothing about the criminal scheme in New Mexico.

Federal authorities say Donisthorpe used client funds to invest in Corazon-Pitchford Cattle Co. LLC, which featured Santa Gertrudis breeding stock.

The sale of the ranch property could bring as much $500,000, said Fuqua, who represents Pitchford. But the earlier sale of its cattle didn’t net as much as hoped.

“He’s (Pitchford) complained to me several times that the Corazon-Pitchford brand is just poisonous because of what Donisthorpe did,” Fuqua told the Journal. “Word got around this guy was a crook, and it doesn’t have anything to do with the quality of the cattle that Mr. Pitchford has been raising. But you know how a market sale works. Things go for what people are willing to pay. And if everybody wants to pay less because they think Donisthorpe is a crook, that’s what’s going to happen.”

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