Casino receives funds stolen from Veterans

At what point do we hold 'Casinos' accountable for receiving stolen funds?

Houston ripoffs of disabled vets went undetected for more than a decade
BY LISE OLSE, HOUSTON CHRONICLE

Sometimes when she watched her son standing outside his personal care home, Wylma Barnett thought the disabled ex-Marine looked homeless clad in his worn and raggedy clothes, though he had plenty of money in the bank.

The picture seemed wrong, she thought, for a man who had served his country and whose ample assets for the last 20 years were entrusted to a Houston attorney by the Department of Veterans Affairs.

Instead, next month, Joe B. Phillips, 72, and his wife Dorothy, 71, are expected to stand trial for conspiracy to commit fraud and theft in a Houston federal court. They are accused of embezzling more than $2 million from at least 28 disabled veterans, including Barnett's son, and allegedly carrying out the biggest rip-off ever uncovered in a VA program responsible for about $3.1 billion in disabled veterans' assets nationwide.

But according to court records reviewed by the Houston Chronicle and interviews with those who investigated the thefts, local veterans lost even more money and the fraud persisted longer than authorities initially reported. Evidence of possible exploitation in Phillips' own public accountings and actions were overlooked for years.

"All they would have had to do was ask," Barnett said, referring to the government's lack of scrutiny. "Ask anybody who had been assigned to Phillips."

More than two dozen veterans and insurance companies have since filed civil lawsuits against Joe Phillips, who continues to practice law four years after a VA auditor first found evidence of embezzlement.

Phillips declined to comment for this story.

Money missing in 2001

Phillips, a former VA attorney, has worked as a money manager for local veterans since the 1980s. Money went missing from their accounts as early as 2001 - years before the VA's audit, according to indictments and lawsuits filed in Harris County probate courts.

At least 28 veterans have been compensated by taxpayers for losses estimated at $3,000 to $250,000 each. Twenty won additional settlements from insurance companies. Others are pending. Barnett's mentally disabled son received a settlement in October.

No one so far has investigated whether Phillips or his wife took more money from disabled veterans who died before the shortfalls were discovered.

18 settlements

A VA audit first found problems with Phillips' accounts in late 2007.

Bernard Hebinck, a retired U.S. Air Force colonel and attorney who also serves as a VA fiduciary in Houston, said it was the first formal audit by the VA of fiduciary records in this area in about a decade. He and his partner, Kevin Alter, subsequently sued Phillips on behalf of 20 veterans and obtained 18 settlements so far.

"I treat veterans the way I would want to be treated as a veteran - with respect," Hebinck said.

A VA spokesman declined to comment, citing the pending prosecutions. But officials did say stricter safeguards are in place because of thefts in Houston and elsewhere. Fiduciaries, for example, are now required to provide original bank documents in annual reports.

In responses to lawsuits, Phillips blames the VA for the missing money, claiming auditors and administrators failed to adequately protect veterans' assets.

Phillips filed for bankruptcy in 2009. But bankruptcy attorneys have been unable to determine where the vets' money went, aside from gambling debts that Phillips accumulated at the L'Auberge du Lac Casino and the purchase of a Lexus. Despite subpoenas, Phillips has failed to turn over his bank records, claiming a garage fire and a flood destroyed his files.

The evidence of possible theft and mismanagement appeared in reports Phillips submitted annually to probate courts and the VA. Court records show he sometimes failed to properly list veterans' savings accounts. Some would inexplicably disappear in reports and reappear years later with different balances. He also failed to properly balance veterans' checkbooks, records show.

Paperwork filed by Phillips also contained more sophisticated elements of fraud, including account balances verified with forged bank officers' signatures and a confusing assortment of real and fake accounts in Texas and out-of-state, according to records and interviews.

Communication issues

In one case, Phillips turned in documents with the forged signature of an official at a bank where Phillips served on the board of directors.

Caregivers and relatives of veterans whose money was stolen say Phillips was unresponsive, rude or evasive when questioned about expenses or accounts.

Shirley German, whose disabled son relies on a wheelchair, said Phillips often acted like her son's money belonged to him, resisting requests for unexpected expenses, like house repairs or appliances.

Rose Redding, a caregiver for another veteran, said Phillips was "always rude" and brushed the vet off even when he asked for copies of his bank statements: "He could have spotted (problems). He was never privileged to get that."

Since October 1998, the VA's Office of the Inspector General has conducted more than 315 fiduciary fraud investigations, resulting in 132 arrests across the country.

Katrina Eagle, a California attorney who represents veterans, said problems could be prevented if veterans and designated relatives were given more information about their own money.

"It seems so simple to me. The fiduciary (should be) required to provide an accounting to his client - that's who he serves," she said.

Chronicle reporter Lindsay Wise contributed to this story.