Another Arkansas Kickback Scheme Revealed Related To Preferred Family Healthcare

Jul 19, 2018

Thursday's guilty plea by Jerry Walsh is the latest in a widening corruption probe involving several former Arkansas state legislators.
Credit Michael Hibblen / KUAR News

Yet another guilty plea has been entered in a kickback scheme using tax money related to convicted lobbyist Milton “Rusty” Cranford, a former Preferred Family Healthcare executive.

Duane “Dak” Kees, U.S. Attorney for the Western District of Arkansas, announced Thursday that Jerry Kennedy Walsh of Magnolia, Ark., pleaded guilty today to conspiring to misapply over $380,000 from South Arkansas Youth Services (SAYS)without the authority of the non-profit’s Board of Directors.

According to plea documents, the scheme involved steering the non-profit’s funds to an Arkansas state senator, to the lobbying firm of Cranford, and to a relative of Cranford.

Walsh, 72, who served as the executive director of South Arkansas Youth Services (SAYS) pleaded guilty before U.S. District Judge Susan Hickey to an information charging him with conspiracy to misapply the non-profit’s funds without authority from the Board of Directors.

Walsh admitted that beginning in 2013, while serving as executive director, he diverted SAYS funds to Cranford and an “unnamed Arkansas state senator” in exchange for the senator’s influence in protecting the non-profit’s state contracts with DHS and DYS, noted the statement from Kees‘ office.

The scheme required Walsh to provide a monthly legal retainer to the senator although the senator would not provide legal work. The payment was to use the senator to protect state contracts. According to the plea, the amount paid to the senator was negotiated by convicted lobbyist Rusty Cranford and amounted to over $120,000.

Also, Walsh was to have SAYS engage a more expensive contract with Cranford’s lobbying firms and employ a relative of Cranford who would have a “no-show” job with SAYS. Between the new contract with the Cranford lobbying firm and the payment for the no-show job, the non-profit paid out an additional $262,000. As part of his plea, Walsh admitted that these payments and those to the state senator were not authorized by the SAYS Board of Directors.

“This plea exposes the depths to which ‘pay to play’ politics has corrupted a non-profit organization which was formed with the best of intentions, to help children,” Kees said in the statement. “Unfortunately, there are many victims in a scheme like this. The people of this state were deprived of the uncorrupted functioning of their government agencies, the non-profit was stripped of funds, and now that the non-profit has been shuttered, the community is deprived of a non-profit dedicated to providing services to their most vulnerable children, those who are incarcerated and in state custody. I look forward to a day when all politicians exercising influence do so based upon the best interests of the children in their communities and not on who is paying them for no-show jobs.”

The first shoe to drop in the federal government’s investigation of Missouri health group occurred a year ago when the acting U.S. Attorney for the Western District of Missouri announced that PFH accountant David Carl Hayes had pleaded guilty to two embezzlement schemes totaling more than $3 million. He also failed to pay more than $2 million in taxes over a six-year period, federal prosecutors said.

Under Hayes’ guilty plea, he admitted to embezzling nearly $2 million from Springfield, Mo.-based Alternative Opportunities, which merged with PFH in 2015 to create one of the largest behavioral health organizations in the U.S. Doing business as Dayspring Behavioral Health Services in Arkansas, AO operated dozens of health care clinics across the state in mostly rural areas and key urban markets.

Federal prosecutors said Hayes embezzled from Dayspring from early 2011 to April 2014 by causing Dayspring to issue checks payable to himself and an unknown person not identified in court documents. Hayes, a former AO board member and the nonprofit’s internal auditor and bookkeeper, then deposited the funds into his personal checking account.

Since then, Missouri prosecutors have indicted several Arkansas lawmakers but no other PFH officials have faced prosecution.