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Post date: March 18 2015

A.G. Schneiderman Announces Indictment Of Nonprofit Narco Freedom And Its Top Executives For Participating In An Organized Crime Ring

Narco Freedom Executives Allegedly Exploited Patients To Steal At Least $27 Million From Medicaid And Fund Their Own Extravagant Lifestyles

Schneiderman: We Will Not Stop In Our Efforts To Prosecute Those Who Abuse That Trust And Rip Off Taxpayers

NEW YORK – Attorney General Eric T. Schneiderman today announced the arrest and indictment of the top four executives of the charity Narco Freedom Inc., including its present and former chief executive officers, its controller, and a son of the former chief executive for allegedly participating in a criminal enterprise. Narco Freedom, a Bronx-based nonprofit that provides substance abuse treatment and other services to thousands of New York City residents at ten locations, was also indicted.

“Criminal enterprises that use nonprofits to steals millions in public funds poison New York’s charitable sector, which is one of the greatest in the nation,” said Attorney General Schneiderman. “We entrust the leaders of nonprofits to perform their duties with their organization’s mission at heart. My office will not stop in our efforts to prosecute those who abuse that trust and rip off taxpayers.”

Today’s indictment supersedes and expands upon an indictment secured by the Attorney General’s Office last October charging former chief executive Alan Brand and his son Jason Brand with looting the charity. Today, Alan and Jason Brand were indicted for making Narco Freedom a vehicle to defraud Medicaid and syphon off Narco Freedom’s revenue for the enrichment of their criminal organization. Also indicted for participating in this crime ring were Narco Freedom’s current chief executive Gerald Bethea and its controller Richard Gross. In a separate indictment, Jonathan Brand, another son of Alan Brand, and John Cornachio, the brother of a business partner of Alan Brand, were also charged.

Narco Freedom is registered as a tax-exempt, not-for-profit corporation with its headquarters in the Bronx. Narco Freedom’s present Board of Directors includes clinicians within the field, members of the community, a member of the Nassau County Board of Elections, and at least one member of the faculty at Columbia University. Narco Freedom is also an enrolled Medicaid provider that receives nearly $40 million annually in taxpayer-funded Medicaid reimbursement. In addition to substance abuse treatment facilities, the organization provides medical, mental health and other support programs to thousands of people across New York City, including housing. State law requires that substance abuse treatment programs, such as Narco Freedom, provide its patients with individualized treatment plans, tailored to the clinical needs of each patient and to offer the least restrictive treatment plan possible, and that the patients be free of coercion.

The indictments unsealed today allege that, by submitting claims for excessive services, operating an unregulated residential treatment program and violating patients’ right, Narc0 Freedom stole at least $27 million from the Medicaid program:

  • Providing Excessive Services:Narco Freedom provides outpatient substance abuse treatment programs as well as opioid treatment programs (OTP). Patients within these programs under state law are entitled to clinically appropriate treatment in the least restrictive environment possible. Instead, during their respective periods as chief executive, Alan Brand and Gerald Bethea allegedly controlled and managed those programs to maximize Narco Freedom’s Medicaid reimbursement, without regard to the clinical needs of its patients. For instance, medical rules and regulations permit OTP patients to attend treatment and pick up their medication at regular intervals and to obtain take home medication, assisting them to lead productive lives. Narco Freedom, however, has required that its patients attend treatment five days a week to pick up their medication, billing Medicaid for each of these visits. Treatment decisions were predicated on the amount of reimbursement from Medicaid and the amount of services that could be billed.
  • Operating An Unregulated Residential Treatment Program:Narco Freedom also provides transitional housing, called Freedom Houses, to over 1,500 indigent –and often homeless – New Yorkers. In a practice started by Alan Brand and continued by Gerald Bethea, Narco Freedom has linked eligibility to reside in its Freedom Houses to participation in its treatment programs, as a coercive inducement for needy New Yorkers to attend its program. In effect, Narco Freedom has allegedly been operating unregulated residential treatment programs, in violation of various Medicaid rules.
  • Violating Patient Rights:Narco Freedom has allegedly violated patient rights by employing exploitative and coercive practices in order to ensure that patients residing in Freedom Houses – who might otherwise be homeless— remain in treatment. For example, if a patient fails to attend treatment as dictated, they are removed – essentially evicted – from their home, without legal process. While court cases have cited Narco Freedom for this practice, it has nevertheless continued. In addition, the Freedom Houses are poorly maintained, making for difficult living conditions. Bed bug infestations are common as are drug dealing and violence.

Having illegally obtained criminal proceeds from Medicaid, members of the Brand Criminal Enterprise then allegedly enriched themselves by syphoning monies from the charity they were duty bound to serve. In fact, prosecutors estimate that the Brand Criminal Enterprise annually syphoned 10 percent of Narco Freedom’s annual Medicaid billings for themselves through a number of scams. These included:

  • Shell Companies:Jason Brand allegedly owned and operated a management company, B&C Management, which billed Narco Freedom hundreds of thousands of dollars for services it never provided. B&C Management, prosecutors allege, was a shell company. Alan Brand and Jason Brand additionally owned a number of vendors who exclusively provided services to Narco Freedom. The existence of these related entities was not disclosed, as required, to a number of State agencies, including the Attorney General’s Charities Bureau, which regulates charities in New York State.
  • No-Show Jobs:Jonathan Brand and John Cornachio were allegedly paid hundreds of thousands of dollars for not showing up to work. In addition to their no-show jobs, they drove luxury vehicles, such as a Porsche 911 Carrera and a Range Rover, paid for and maintained by Narco Freedom, although they did no work for the charity.
  • Kickbacks:Alan Brand allegedly demanded and received $13,000 monthly in personal kickbacks for his own use for basing some Narco Freedom’s facilities in buildings of a particular real estate developer. This money, which was provided as a discount on Narco Freedom’s rent payments, rightfully belonged to the charity – not Alan Brand – to be used to fund its programs and advance its mission.
  • Insurance Fraud:Alan Brand and Jason Brand allegedly defrauded Arch Insurance Company (Arch) by filing a false insurance claim in connection with the restoration of 217 Court Street in Brooklyn, New York, the location of a former Narco Freedom treatment facility. According to prosecutors, that location suffered substantial damage following a storm in 2009. During settlement negotiations with Arch, Jason Brand allegedly falsely represented to Arch that restoration work would be completed by union employees. In fact, day laborers mostly completed the work. In addition, Narco Freedom and Jason Brand failed to disclose that the company it hired to complete the restoration, DASO Development Corp, was wholly owned by Jason Brand. These intentional misrepresentations and material omissions resulted in a significant loss to Arch, which would have proceeded differently and settled Narco Freedom’s insurance claim for substantially less money.

Under State law, corporate members, board members, and directors of nonprofits owe their organizations the fiduciary duties of loyalty, care and obedience, which mandate that they place their organization’s interests above their own, abide by all rules and regulations applicable to that organization, and operate the organization in furtherance of its core mission. Prosecutors allege that all of the defendants arrested today, but particularly Alan Brand and Gerald Bethea, violated all three of these duties by belonging to and participating in the operation of this criminal enterprise.

Today’s indictments charge the defendants with a host of crimes.

Alan Brand, 65, of Melville, N.Y.– Enterprise Corruption; Grand Larceny in the First Degree (3 counts); Grand Larceny in the Second Degree (5 counts); Insurance Fraud in the First Degree, Conspiracy in the Fourth Degree, Commercial Bribe Receiving in the First Degree, Money Laundering in the Second Degree, Offering False Instrument for Filing in the First Degree (5 counts); Social Services Law §366-f (Kickbacks); and Election Law §14-120(1)(Campaign Contribution To Be Under True Name Of Contributor) (6 counts);

Gerald Bethea, 56, of Inwood, N.Y.– Enterprise Corruption; Grand Larceny in the First Degree (3 counts); and Social Services Law §366-f (Kickbacks);

Richard Gross, 61, of Yonkers, N.Y.– Enterprise Corruption; Grand Larceny in the Second Degree (3 counts); and Offering False Instrument for Filing in the First Degree (10 counts);

Jason Brand, 36, of Melville, N.Y.– Enterprise Corruption; Grand Larceny in the Second Degree (2 counts); Insurance Fraud in the First Degree; and Conspiracy in the Fourth Degree;

Narco Freedom – Enterprise Corruption; Grand Larceny in the First Degree (3 counts); Insurance Fraud in the First Degree; Grand Larceny in the Second Degree; Conspiracy in the Fourth Degree; Offering False Instrument for Filing in the First Degree (10 counts); and Social Services Law §366-d (Kickbacks);

Daso Development— Enterprise Corruption; Insurance Fraud in the First Degree, Grand Larceny in the Second Degree; and Conspiracy in the Fourth Degree;

Jonathon Brand, 33, of Huntington, N.Y.– Grand Larceny in the Second Degree; and

John Cornachio, 60, of Huntington, N.Y.– Grand Larceny in the Second Degree.

Enterprise Corruption, Grand Larceny in the First Degree and Insurance Fraud in the First Degree are each class B felonies and carry a maximum term of incarceration of 25 years. Grand Larceny in the Second Degree and Money Laundering in the Second Degree are class C felonies and carry a maximum term of incarceration of 15 years in state prison. The remaining crimes in the indictments are E felonies or misdemeanors and carry lesser terms of incarceration.

In addition to the today’s indictments, the Attorney General amended its earlier forfeiture action, seeking to increase the amount of assets subject to a freezing order and to add defendants and claims. The Attorney General’s prior request to freeze of up to $4 million in assets was granted. Yesterday, the Attorney General was granted court permission to freeze an additional $29 million in assets. The Attorney General further expanded its previously obtained temporary restraining order to preclude all of the defendants indicted today from transferring assets.

Throughout this investigation, the Attorney General’s office has worked closely with those state agencies that regulate Narco Freedom’s substance abuse treatment programs. The goal of this coordinated effort has been to ensure the continuity of care for all patients that use Narco Freedom’s services. In particular, the Attorney General would like to thank the Office of Alcoholism and Substance Abuse Services, the Office of the Medicaid Inspector General, the New York State Department of Health, and the New York City Human Resources Administration.

The criminal case is being prosecuted by Assistant Attorneys General Kristen Conklin, Megan Friedland, and Jihee Suh. The civil case, including this week’s amended forfeiture action, is being handled by Assistant Attorneys General Carolyn T. Ellis, Alee N. Scott and David Abrams. The investigation was led by Supervising Investigator Michael Casado, Senior Investigator Albert Maiorano and Investigators Dominic DiGennaro, Steven Broomer, Dave Ryan, Julie Clancy, Valerie Patrick, Sixto Santiago and Angel LaPorte. Forensic analysis was provided by Principal Auditor Investigator Manny Archer, and by Special Audit Investigators Patricia Iemma, Giovanni Liotine and Nick Thottam. Christopher M. Shaw is MFCU New York City Regional Director, Thomas O’Hanlon is MFCU Chief of Criminal Investigations – Downstate, Kenneth Morgan is MFCU Deputy Chief Investigator, and Thomasina Smith is MFCU Chief Auditor. MFCU is led by Acting Director Amy Held. The Criminal Justice Division is led by Executive Deputy Attorney General Kelly Donovan.

The charges filed in this case are accusations. The defendants are presumed innocent until proven guilty in a court of law.

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