Tuesday, September 25, 2012

How Do You Borrow Millions When You're Broke?

     Several months before Pat McCullough purchased Hawthorne Medical Center she phoned me.
     "One of my bank loans fell through," she said.  "I want to propose something.  Why don't you carry the loan for me?"
     "Why don't you get another loan?" I asked.
     "I've tried every bank and lending organization I know," she pleaded.  "They're just too unstable."
     "I don't believe you," I told her. "Why don't you borrow against your personal property."
     "I just don't have enough to do it," she said.
     "I don't want to loan you money."
     "You know I'm good for it," she said.  "I'm absolutely sure I'll be able to continue the success you've had at the medical center--with your help, of course."
     Pat said she could still make the down payment, with a loan from her bank in Kentucky, but she wouldn't be able to get loans for any more.
     One of the banks that was (supposedly) willing to lend Pat money was Silver State, and it had indeed gone bankrupt--along with twenty others at the time--in the nation's banking crisis of 2009.   But the "bank official" had met with me and Pat, and Pat's "consultant" in Tampa just a few months earlier.  Now I wonder if that meeting was a scam--fake business cards, lots of bluffing, reassurances that everything was going to be fine.  It's also possible that a bank official participated in a plan to defraud his/her own bank.
     Because I wanted to work full-time on the autism farm project, and because Pat had delayed closing on the sale for more than a year--taking copies of all bookkeeping and patient billing records (after signing a confidentiality agreement)--I did end up carrying the bulk of the loan for the purchase of Hawthorne Medical Center.  Pat made a down payment on the day of the sale, March 16, 2010, and rationalized not writing a check that day, as agreed, for the consultant who had told me about Pat in the first place.  As part of the negotiation, Pat was supposed to pay him--but she never did.  She was also supposed to fund the employee retirement plan for the prior year--she never did that, either.  And she signed a lengthy contract, agreeing to make loan payments to me every month for the next five years--she made three payments over a five-month period, then stopped paying altogether.  She also stopped responding to any calls from me or my attorneys.
     Pat didn't send monthly profit-and-loss statements, as she had contracted to do--until my lawyers demanded them in August and September, 2010.  I looked at them and knew immediately that they were a product of invention, having no relation to real expenses and profits.  Pat barred me from stepping foot on office property six weeks after the closing, and made all the employees sign a document agreeing never to speak of anything having to do with office business outside the office.  For the first month after the change of ownership I worked daily at the clinic, seeing patients, training a physician assistant Pat hired, and expecting to explain clinic protocols to Pat and a few other new people.  But Pat wasn't interested in anything I said, expressing either irritation or boredom in our few conversations--very odd behavior for someone who truly intended to run a medical clinic, and who had no prior experience.
     How, then, did Pat manage to accumulate $12 million in debt over the next year?  If she saw that the clinic was not doing well, wouldn't the first line of action be to ask me for help?  We weren't enemies--in fact, Pat had suggested that we would be "best friends" because we "had so much in common" and there was "a lot we could teach one another"--but that was before the sale.
     After the sale of Hawthorne Medical Center, Pat needed me to be gone.  She couldn't afford to have someone poking around while she carried out her real intentions.  Employees who questioned her were fired.  Those who expressed loyalty to me were treated with scorn.  The bookkeeper who had managed payroll and paid bills for the medical center for years was suddenly cut off  from financial information about the business.  Pat had her "accounting people" in Lexington, Kentucky "take care of the bills"--which meant, mostly, that none of the bills got paid, and evidence of clinic revenues was hidden.
     Payments for medical services that had been provided prior to the sale came in--and disappeared.  Pat hired nursing and billing staff solely for the purpose of reviewing claims and collecting as much as possible on the outstanding accounts she had acquired.   Staff members called me after hours and said, "We're getting paid, because we can see that checks are posted to patient accounts--but we don't know where the money is going."  The moment insurance payments were deposited into the local M & S bank, it was transferred out, according to one front office employee who saw forms for wire transfers pass over the fax machine.
     Pat's representation of profits and losses in August and September 2010 showed impossible losses.  The two financial statements she sent me had to have been falsified.  She sent the financials she needed me to believe, proving  that a) she couldn't make payments on the loan I carried for her, and b) I was somehow responsible for the "failure" of the medical facility.
     Meanwhile, however, she managed to secure more loans from banks--including her local bank in Kentucky.  How could she do this, if her personal and business assets were as low as she reported in her statements to me?   Banks don't give loans to businesses that are failing.  Pat must have represented the financial status of Hawthorne Medical Center differently to banks and other lending institutions, especially at a time when the banking industry was subject to heavy scrutiny.  But then, I'm making the assumption that a bank employee would never collude with a borrower in such a way as to compromise the bank.
     Pat McCullough never moved to Florida, despite owning a new business that had required all the time, stamina and acumen I could muster when I was in charge.  I was experienced, understood the patients, and had excellent staff, yet I couldn't leave for a few days without concerns--this is what it means to run successful business.  There were no outstanding debts when the sale was consolidated--in fact, there were substantial credits, which Pat did not refund to me. 
     Instead of spending time at her new medical center, Pat took frequent vacations (including three weeks in Paris two months after the sale), and commuted to Hawthorne between four-day weekends at her ranch in Kentucky.  The demise of the business had to have been a planned affair (as was the "bankruptcy"), therefore its ownership was temporary.  Pat had a strange business strategy, unless you look behind the scenes.  She accrued debt after debt, which was easy to do with vendors and service-providers who relied on my good name, and the credit rating of the medical center.  She kept my name on many of the accounts--which I discovered months later, when collection agencies started calling me at home.
     So, how does someone who has all the assets of a solvent and thriving medical center--including 8,000 patient charts, two experienced physicians, and four other providers, with the prior owner just down the road as a consultant--and who receives insurance payments daily, as usual, and who sells the existing equipment for cash, then leases "new" equipment (but doesn't pay for it), and who doesn't pay  bills--even shirking payroll for so many weeks she gets reported to the Labor Board--and who declares in a written statement that she has become insolvent in a matter of months--how does such a person manage to borrow and lose (in a bad economy, when banks are going under) (and then be granted bankruptcy relief for) $12 million--or $4 million--or $2 million--(how many millions she borrowed is not quite clear) in just over a year, not including the debt for the purchase of Hawthorne Medical Center?
     It takes some smarts, or guts, or maneuvering, or misrepresentation, or a really cool plan, or charisma, or the opposite of empathy, or--would you call it sleuth-work?--to shyst so many people, and come out clean.  Now, all Pat has to do is wait for a whistleblower fee to fall into her bank account, and she can say, with a snicker, she won.

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