FILES: Investigation continues into $80,000 wire transfer he received from nursing home executive.

The Southwest Times Record had a strange story last week that caught my eye, with the latest on the mysterious $80,000 wire transfer that a nursing home executive sent some years back to a company owned by former Sen. Jake Files, now on supervised release after serving 15 months in federal prison on unrelated corruption charges.

A special prosecutor’s investigation into the wire transfer hit a snag when the state police officer assigned to the case erroneously looked into an altogether different dodgy transaction involving Files. As a result, until the snafu was uncovered late last month, no action was taken on investigating the $80,000 wire transfer sent in 2014 from  David Norsworthy — part-owner in more than a dozen nursing homes in the state with Michael Morton — to Files’ Fort Smith company FFH Construction. That investigation is now ongoing.

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Special Prosecutor Jason Barrett was appointed to look in to the matter in June of 2018. According to Joey McCutchen, a Fort Smith attorney who has been following the case and was involved in turning up the original record of the wire transfer, he asked Barrett in late January what the status of that investigation was. To his surprise, he was informed that Barrett had already concluded that there was no action for the prosecutor to take at this time and no charges could be filed, a fact which had not been made public. That conclusion was reached all the way back in September.

However, when McCutchen examined the Sept. 25 letter that Barrett sent to Sebastian County Circuit Judge Steve Tabor — which stated that no further action was warranted — he discovered a problem. Investigators had erroneously looked into an entirely different incident: a loan that a lobbyist made to Files in 2015, which was legal under the laws in place at the time. They failed to investigate the Norsworthy wire transfer at all.

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According to McCutchen, when he pointed out this error, Barrett acknowledged the mishap and told him that the state police officer investigating the matter had gotten “confused.” Barrett then told him that he would conduct a follow-up investigation and  proceed to look in to the Norsworthy transfer.

Reached by phone, Barrett confirmed this account. He said that the state police officer had simply made an error; Barrett took responsibility for failing to recognize the error when he received the investigation files. He said that while he recognized that this particular investigation has attracted some publicity, his September letter to the Judge Tabor informing him of the status of the investigation, without further public announcement, was his standard procedure in such investigations.

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Investigators will now review existing evidence and seek additional information regarding the Norsworthy transfer as necessary. Barrett said that he could not give a timeline on the renewed investigation, but that state police would proceed as quickly as possible on a thorough inquiry.

Barrett otherwise declined to comment on the case because the investigation is ongoing, he said.

Previous reporting by the Times Record uncovered the $80,000 wire transfer from Norsworthy to Files’ company via a First National Bank document that turned up as part of discovery in a local lawsuit against FFH Construction.

The transfer took place on Nov. 24, 2014 according to documents provided to the Times Record. A week earlier, on Nov. 17, 2014, a resolution was filed by Sen. Eddie Joe Williamsone of the nursing home lobby’s most reliable soldiers, to send a proposed constitutional amendment limiting civil damages to voters. That resolution ended up dying in committee. A follow-up attempt to get the measure on the ballot in 2016 by petition was ultimately blocked by the state Supreme Court.

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A year earlier, Files was a co-sponsor of a failed 2013 effort — sponsored by Sen. Jeremy Hutchinson, who pleaded guilty this year on unrelated federal bribery charges — to send a proposed constitutional amendment limiting civil damages to voters. Files again co-sponsored a similar effort in 2017, which passed out of the legislature, attempting to send a so-called “tort reform” amendment to voters in 2018. The measure — which would have imposed caps on the damages that places like nursing homes would have to pay out if a jury found that abuse led to pain, suffering, or death — was strongly supported by the nursing home lobby. It too was ultimately struck from the ballot by the Supreme Court.

Unbowed, the nursing home lobby and other corporate interests have continued a well-funded effort to win their prize, including showering lawmakers and judges with campaign donations.

Norsworthy is a major figure in the intersection of state politics and nursing-home-interest muscle. In addition to co-owning facilities with Morton, the state’s biggest nursing home magnate, Norsworthy has also been a business partner of Morton’s in a health insurance company for Medicare Advantage patients, Arkansas Superior Select. He has been a board member of Arkansas Health Care Association, the lobbying arm of the nursing home industry, and is an officer for an affiliated PAC that directs contributions to legislative candidates. In 2014, when Morton’s term was up for his seat on the state commission that oversees the issuance of permits to nursing homes, Governor Hutchinson tapped Norsworthy to a four-year term to replace him (Morton was under federal investigation at the time).

Was Norsworthy attempting to influence Files when he sent $80,000? No one has been charged with a crime in the matter, which is not connected to Files’ guilty plea on other charges.  But the situation looked smelly enough that in April 2018, Sebastian County Prosecutor Dan Shue wrote a letter to a federal prosecutor asking whether the transfer had been made in “violation of federal law.” (Neither Norsworthy nor Files has publicly explained what the purpose of the wire transfer was; Norsworthy did not respond to my request for comment.)

In June 2018, Shue requested that the state assign a special prosecutor to look in to the wire transfer and other matters connected to possible malfeasance related to Files, to determine whether any state laws were broken. That led to the appointment of Barrett.

Two of the issues referred by Shue to Barrett —  related to allegations of fraud and breach of contract by Files’ FFH construction company for billing of the doomed River Valley Sports Complex — were investigated. Barrett concluded that prosecution was not warranted — in one case because the breach of contract, while a “legal wrongdoing,” did not meet the standards of proof for a violation of criminal law; in the other case, because the allegations were duplicative of the charges that Files had already pleaded to in the federal corruption case. The investigation also turned up a possible allegation of Files forging tax documents, but the relevant witness was not available.

But the third issue — the wire transfer to Norsworthy — was not covered at all in Barrett’s conclusions because the assigned state police officer erroneously investigated a different, completely unrelated, payment that Files had received. Six months after his company received the $80,000 from Norsworthy, Files received a $30,000 loan from lobbyist Bruce Hawkins, as first reported by the Arkansas Blog. Files used the money to cover hot checks. At the time, there was nothing illegal about a lobbyist making a loan to a lawmaker, though it was widely criticized given the appearance of influence peddling (the legislature later passed a law to make such loans illegal).

Since both parties eventually reported the payment as a loan, and such loans were not illegal at the time, Barrett concluded that there was nothing to prosecute on the Hawkins matter.

Oops. The question put to Barrett was not the Hawkins loan, it was the Norsworthy wire transfer. And that was the question that Barrett put to a state police officer in a June 2018 letter requesting assistance on the investigation. Citing “three areas of inquiry that will require investigation,” Barrett asked that the officer to investigate the following:

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The wire transfer to Mr. Files (thru his business of FHH Construction LLC) in the amount of $80,000 from David Norsworthy. The nature of this transfer is unknown and it will be necessary to determine the purpose if any charges will be forthcoming. Similarly, it will also be necessary to look into Mr. Norsworthy himself to determine his status and position at the time of the transfer. It is currently/unclear if this was subject of any part of the federal investigation. I am including an account summary from First National Bank of Forth Smith that shows the transfer occurring on November 24, 2014.

That’s a pretty clear request, but somehow the wires got crossed and the officer looked in to Hawkins instead. A simple human error in a complex case, according to Barrett. Barrett himself missed the discrepancy when he got the report back and wrapped up the investigation in September. No one noticed the problem until McCutchen inquired late last month.

“The bottom line is this thing needs to be thoroughly investigated and people need to be held accountable if there was wrongdoing here,” McCutchen said. “The public deserves and demands to know what’s going on here.”

The wire transfer to Files is not the only time Norsworthy has become financially entangled with a lawmaker friendly to nursing home interests — the Democrat-Gazette reported last year that Norsworthy was previously a business partner in Rep. Jeff Wardlaw‘s medical supply company. Wardlaw, who conveniently for nursing home interests served as the chair of the House Public Health committee, sold his share of the company to Morton last year and is now Morton’s employee.

Morton, readers of the blog will recall, has funneled large amounts of money in recent years to various candidates friendly to his interests, in part via a scheme arranged by Gilbert Baker, the former state legislator and lobbyist. The defrocked judge Mike Maggio pleaded guilty in 2015 to taking a bribe to reduce a verdict by millions of dollars in a negligence case involving one of Morton’s nursing homes, around the same time that Baker had arranged multiple contributions from Morton to Maggio for a planned campaign for Court of Appeals. Baker and Morton deny any wrongdoing and have not been charged.

Baker’s partner, Linda Leigh Flanagin, was with Baker when they approached Morton about Baker’s scheme to set up multiple PACs (thus dodging campaign contribution limits) that could funnel additional Morton dollars to candidates, including Maggio. In a deposition, Flanigan also described meetings she had with Morton to discuss efforts to enact “tort reform” to limit damages for maltreatment by nursing homes.

Hawkins’ name, by the way, came up at the periphery of the Maggio case, and federal investigators spoke with him during the investigation. Hawkins had used the same attorney Baker had, Chris Stewart, to set up a series of political action committees for a similar bundling scheme. Those PACs received some of the money aimed at Maggio. In a deposition, Hawkins testified that he moved to distance himself after he got tied up through news articles in the effort to aid Maggio, in part by a contribution made by Stewart from one PAC without Hawkins’ approval. During the Maggio investigation, Hawkins told the Arkansas Times that he freely spoke to investigators, was not a target of that investigation, and had done nothing wrong.

All of these threads leave the special prosecutor’s inquiry into Files closely adjacent to various lines of federal investigation. The feds have already investigated Files himself, they have investigated Morton and related cronies, and unsealed court filings in yet another case suggest that they had questions about Wardlaw as well. Shue, before requesting a special prosecutor, also alerted the feds about the Norsworthy wire transfer. It’s possible that ongoing federal investigations are going to end up complicating the state special prosector’s efforts to look in to Files and Norsworthy.

As for the $80,000 wire transfer, Files never disclosed receiving it on his statement of financial interest that he filed as a legislator. If the money was a loan or a gift, Files was required to disclose it. Files did report making income from FHH Construction, and it’s theoretically possible that Files worked on a construction project for Norsworthy that was paid for by a secretive $80,000 wire transfer. If that was the case, it would be easy to produce evidence of services rendered.

If it was a gift, that would look pretty damning. But so long as it was not a bribe, it could theoretically be legal. While the law forbids such gifts from a lobbyist to a legislator, Norsworthy is not technically a lobbyist. The Ethics Commission rules state:  

No public servant shall receive a gift for the performance of the duties and responsibilities of his or her office or position. … A public servant is not prohibited from receiving all gifts. For example, a public servant may accept a gift conferred on account of a bona fide personal, professional, or business relationship independent of his or her official status. In determining whether a gift was conferred on account of an independent relationship, the Commission will consider such factors as when the relationship began (i.e., before or after the public servant obtained his or her office or position), the prior history of gift giving between the individuals, whether the gift was given in connection with a holiday or other special occasion, and whether the same gift was given to other public servants.”

Maybe Norsworthy and Files were just buddies.

The reason I saw that Norsworthy is not technically a lobbyist is that he operates in a gray area, what some at the Capitol refer to as a “shaddow lobbyist.” As one lobbyist told me a few years back: “He’s out at the Capitol every day. He goes to all these functions. He’s responsible for where the PAC checks go.” But because he has a minority interest in Morton’s homes, “he gets around the reporting requirement on a loophole, by saying that he’s out there advocating on behalf of himself, so he’s not a lobbyist.”

To repeat: No one has been charged with a crime related to the $80,000.  It’s just that we have one of the most powerful players in the nursing home industry wiring $80,000 to a state senator who was struggling with financial problems and has admitted to being crooked. This all happened in the middle of the push for the top priority of the nursing home lobby — and the senator proved a loyal foot soldier in that effort. Make of that what you will.

It will be interesting to see what the special prosecutor’s investigation turns up, now that they’ve cleared up what the target of that investigation is.