Probe of Shul Group Had N.Y. Crimebuster’s Office in Tangles
New York Attorney General Eliot Spitzer, renowned for his jousts with the titans of corporate America, recently saw his own office tied in knots and thrown into turmoil during a three-year investigation into a small Orthodox synagogue organization.
The group, the National Council of Young Israel, came under scrutiny in 1999 after applying for a mortgage on a nursing home it owned and operated in a New York City suburb. After a check by the attorney general’s office turned up an apparent liability of some $6 million to Medicaid, the attorney general’s Medicaid Fraud Control Unit stepped in; it also identified hundreds of thousands of dollars in problematic payments and loans by the nursing home to the national organization and two of its top officers.
Spitzer’s staff concluded that the anomalies indicated, in the words of the attorney general’s spokesman, “significant problems” at the organization, and began pressing for a series of sanctions and reforms.
What followed were two years of protracted negotiations during which sharp disagreements emerged within the attorney general’s office, leading to mutual accusations of bias and conflict of interest. In the midst of the debates, Spitzer’s top deputy and the head of his charities bureau left the case — one voluntarily, the other removed by Spitzer.
In the end, no formal settlement was ever signed with the National Council to resolve the financial anomalies at the nursing home. As a result, until journalists began probing the issue, the “significant problems” mentioned by Spitzer’s aides were never publicly disclosed. Spitzer and several close aides told the Forward that oral agreements were reached, money had been recouped and substantial reforms have been achieved.
But the Charities Bureau chief during the case, William Josephson, who left the office in 2004, said that the lack of a signed agreement was unusual for such an intense investigation, and inquiries by the Forward suggest that many of the proposed reforms have not been implemented.
Josephson and another attorney familiar with the investigation, who spoke on condition of anonymity, said that the investigation had been hampered by others in the office, leading to unusually lenient sanctions against the National Council.
“There had been so many departures in the handling of this matter from standard procedures that it made it difficult to pursue this case in a straightforward fashion,” said Josephson, who rose to prominence as one of the founders of the Peace Corps during the 1960s.
Spitzer rejected Josephson’s charges and maintained that his office used the “maximum extent” of its powers to force the needed reforms and reimbursement. He and his current staff maintain that the problems in closing the case were caused by Josephson, whom they accuse of mishandling the investigation. Current Spitzer aides allege that Josephson’s charges are driven by conflicts of interest and anti-Orthodox bias.
Spitzer’s spokesman, Darren Dopp, said that Josephson is criticizing his former colleagues because he is embittered after being forced to resign from his job in 2004 for what Dopp called “lapses in judgment.” Josephson, 71, denied Dopp’s charges, saying he chose to retire from his position. Before Josephson went public with his criticism, the attorney general’s office had never publicly spoken negatively about Josephson’s tenure or suggested that he had been dismissed.
The dispute hits an office that has acquired a national reputation for defying special interests while pursuing major litigation against giants of the securities, insurance and other industries. Spitzer’s crusades have given him an image as one of the nation’s most promising young Democratic politicians.
Since Spitzer announced his campaign for New York governor last year, he has come under increasing scrutiny, prompting occasional accusations that his political interests intersect with his office’s prosecutorial work. But the complaints about the National Council investigation appear to be the first criticism of Spitzer’s office from lawyers who worked inside it.
The attorney general’s involvement in the National Council case began in 1999 when the National Council made a routine application to the attorney general’s office for the approval of a mortgage on a nursing home it owned in Mt. Vernon, N.Y., the Shalom Nursing Home.
A first look into the National Council by the Charities Bureau, which Josephson oversaw, turned up what all sides in the attorney general’s office agree were larger problems with the National Council. The Charities Bureau concluded that the National Council owed Medicaid $6.5 million after more than a decade of receiving higher reimbursements than it was entitled to receive. The attorney general’s office said the National Council transferred a portion of these payments out of the nursing home and into other National Council programs.
The National Council, an umbrella organization for more than 150 Orthodox synagogues, conducts a variety of programs, including leadership training, kosher catering on campuses and advocacy for Israeli settlers in Gaza and the West Bank.
After an initial probe, the case was handed over to the Medicaid Fraud Control Unit, signaling a possible criminal investigation. An inquiry by the unit, which was not overseen by Josephson, identified more than $300,000 in what they considered illegal or undocumented payments to two top officers at the National Council. (For more detail, see accompanying article.)
The Medicaid unit eventually decided not to pursue criminal prosecution and the case was returned to the Charities Bureau. As Josephson proceeded with the negotiations, he said he found that Spitzer’s chief deputy, Michele Hirschman, had become unusually involved in the case, given her top position in an office of more than 500 attorneys. Another lawyer familiar with the case, speaking on condition of anonymity, agreed, saying that Hirschman “micromanaged” the case.
Moreover, Josephson and the second lawyer said that Hirschman frequently took the side of the National Council of Young Israel, at one point traveling to a branch office of the attorney general’s office to talk with the staff there about complaints from the National Council’s lawyer.
Hirschman said that her involvement was not irregular. She said her role as deputy attorney general frequently involved her in cases that had both criminal and civil investigations, like the National Council investigation.
“There were, in the course of this investigation, complaints by experienced attorneys representing Young Israel, expressing frustration about the conduct of this office’s investigation,” Hirschman said. “It was my job, having oversight over the two sides, to put the people in a room and say to them, ‘Explain to me the facts, and show me the documents so we can review it together.’ I do that on a pretty regular basis.”
Tensions within the office reportedly increased when Josephson decided to refer a matter of undocumented payments made to one National Council officer to the Internal Revenue Service. Josephson said he received a call immediately afterward from Hirschman, whom he described as “clearly perturbed.”
Hirschman said she questioned the decision to refer the officer to the IRS because she believed it weakened the attorney general’s “strategic position” in negotiations with the National Council by angering the organization.
One thing Josephson and his former colleagues agree upon is that the investigation turned up “significant” problems at the National Council.
“The attorney general’s office found significant problems and we hit them with serious sanctions,” said Dopp, Spitzer’s spokesman.
Spitzer said that whatever internal dissent there may have been during the investigation, it ultimately had no effect on the final sanctions his office imposed on the National Council.
“We forced them to change the entire structure of their governance,” Spitzer told the Forward. “The capacity we had and the leverage that we had was used to maximum extent to force governance change, personnel changes, and [changes at the nursing home].”
However, inquiries by the Forward turned up several areas in which the reforms instituted by the National Council appeared considerably less sweeping than the attorney general and his staff appeared to expect.
While Josephson was overseeing the case, his office attempted to have the National Council sign a settlement — known as a stipulation of discontinuance — that would have obligated the National Council to undertake specific reforms. Josephson told the Forward that stipulations of discontinuance were the standard way his office concluded investigations that did not end up in court. Josephson went through several rounds of negotiations toward such a settlement with the National Council, but it still had not been signed when his superiors removed him from the case in 2003.
Dopp, the spokesman, said that in place of a settlement the attorney general received correspondence from the National Council’s lawyers in which they “agreed in writing to implement the reforms proposed by this office.” Dopp declined to release a copy of the document for publication.
Dopp appeared to be referring to a February 2002 letter from a National Council attorney, Catherine Foti, a copy of which was obtained by the Forward in early 2005. In the letter, Foti proposed specific reforms, which she describes as hypothetical and intended to serve as a starting point for negotiations.
In the first paragraph of the letter, Foti specifies that the letter is not binding, and that “nothing contained in this letter may be used for any purpose other than settlement discussions.”
Daniel Kurtz, who headed the attorney general’s Charities Bureau during the 1980s, said that a letter like the one the National Council’s lawyer sent is “not the ordinary way you conclude an investigation.”
“If the attorney general investigates and has all these concerns, it’s usually concluded in a more formal way,” Kurtz said.
An official from the attorney general’s office acknowledged that the letter was not binding, but said the points made by the National Council were evidence of good-faith intent by National Council’s lawyers.
While acknowledging that no formal settlement was ever signed, the attorney general’s staff pointed to several areas in which reforms were achieved. Hirschman said a key objective during the investigation was removing the former National Council president who she said had taken illegal loans from the organization. The Medicaid Fraud Control Unit concluded that the former president, Chaim Kaminetsky, who also served as the administrator of the nursing home, had received $215,000 in illegal loans and had used National Council funds to make close to $5,000 in payments on behalf of his relatives.
In the non-binding February 2002 letter, the National Council proposed a settlement in which Kaminetsky “no longer actively participates in the NCYI, nor will he in the future.”
Hirschman told the Forward: “We got Kaminetsky out of the deal, and out of these operations, and in my view that was a good result.”
Kaminetsky left his position at the nursing home, and is now the president of another nursing home that receives New York state Medicaid payments. The National Council currently lists Kaminetsky on its Web site as an “honorary president” of the organization.
Hirschman, when asked about Kaminetsky’s current positions, said the attorney general had no authority to keep him from working in nursing homes not owned by the National Council.
Hirschman said another priority for Spitzer’s office was to force the National Council to leave the nursing home business. Hirschman said the National Council’s nursing home is in the process of being sold, and is currently being operated by a surrogate receiver.
The state health department’s records indicate that the home’s operator is still the National Council. When reached by the Forward, the current administrator would not answer questions about whether he was employed by the National Council. An assistant administrator, William Fisch, affirmed that the National Council owns and operates the home.
The February 2002 letter from National Council’s attorney to Spitzer’s office, in addition to discussing Kaminetsky and the nursing home, also proposed a list of other reforms of the organization. Among them, the National Council’s lawyers said the organization would contact a specific employee at the Jewish Community Relations Council of Greater New York to set up a training program in financial oversight for board members. When reached by the Forward, the employee mentioned said she had brief discussions with the National Council but had ultimately never helped with any training.
Spitzer blamed Josephson for any shortcomings in the resolution of the investigation, saying he had soured negotiations by referring the case of a National Council officer to the federal tax authorities. Josephson denied the step had short-circuited the negotiations, adding that talks with the organization continued after the referral to the IRS.
Because there had never been an official settlement, the problems at the National Council were never disclosed to the public before journalists began probing into the story.
A member of the National Council’s board of directors said the board was never told that the attorney general’s office believed the organization and its officers were involved in any problematic behavior. Rabbi Jonah Gewirtz, a Maryland rabbi who has been on the board since 2000, said he had been told briefly about the Medicaid debt, but was informed at a board meeting that the National Council had been “exonerated of any kind of questionable behavior.”
Other board members reached by the Forward would not comment.
In explaining why a formal settlement was never signed with the National Council, both Josephson and current members of the attorney general’s staff made frequent reference to the decision to remove Josephson from the case in late 2003.
Josephson’s removal came up while the attorney general’s office was deciding, in a separate inquiry involving the National Council, whether to approve the sale of the organization’s national headquarters in Manhattan. All major property sales by not-for-profits require the attorney general’s approval. As the inquiry proceeded, the transaction became linked to the separate questions about the National Council’s liability to Medicaid.
Josephson said that in the fall of 2003 he wrote a letter to Hirschman, Spitzer’s deputy, in which he raised questions about the manner in which she was pursuing the case. In the same letter he raised questions about another senior attorney in Spitzer’s office, Avi Schick, who was involved in aspects of the National Council’s case at various stages.
Schick’s brother, Joseph Schick, worked for one of the law firms representing the National Council of Young Israel and had done legal work for its nursing home. Josephson wrote to Hirschman that he had never been told about Schick’s brother and his connection to the National Council’s law firm.
Schick now leads the attorney general’s high-profile litigation against tobacco companies, as well as its attempt to recoup $100 million from the deposed head of the New York Stock Exchange.
Schick said he believed that the only reason Josephson raised questions about his role in the case was because of his own religious disposition.
“Someone says, ‘Okay, Avi Schick’s got a yarmulke, and now there’s something called Young Israel and he has some role — it must be some nefarious purpose, and not because he’s a lawyer,’” Schick said.
“Shame on them for saying it,” he added.
Schick told the Forward that he replied to Josephson in a personal letter, answering Josephson’s complaints about him in a “man to man” fashion. In that letter, Schick said, he defended himself against Josephson’s charges. Schick, in turn, questioned Josephson’s relationship to another organization — the Center for Jewish History — which had expressed an interest in the sale of the National Council headquarters. Schick questioned Josephson’s relationship to the Center for Jewish History, including pro-bono legal work he had done eight years earlier.
A few weeks later, Josephson said he was asked by Eliot Spitzer to remove himself from any further dealings with the National Council of Young Israel case because of his relationship to the Center for Jewish History. Josephson said that he did not consider the reasons given for his removal to be compelling, and he said he told Spitzer as much.
“Eliot can assign or unassign any lawyer to any case without any reason,” Josephson told the Forward. “If he decides to give a reason, it ought to be a good one.”
At the same time that Josephson was removed, Hirschman voluntarily removed herself from the National Council case, citing a potential conflict because of her husband, a law professor at Fordham University who, coincidentally, also has a relationship with the Center for Jewish History.
Spitzer’s counsel, David Nocenti, who handles conflict of interest questions, told the Forward that Josephson’s conflict had been particularly problematic because he had not informed his superiors of his earlier relationship to the Center for Jewish History. Josephson denied this and said he had told his superiors about his connection to the Center for Jewish History a year earlier, in spring of 2002.
At the same time that Josephson was removed, in September 2003, Nocenti said he also considered whether Avi Schick should be removed from the case. In early 2002, Schick’s brother, Joseph Schick, had joined the law firm that was representing the National Council in its dealings with the attorney general’s investigation.
Joseph Schick did legal work for the National Council on matters unrelated to the attorney general’s inquiry, including writing letters and submitting affidavits on behalf of the nursing home.
A lawyer at Joseph Schick’s firm, Maurice Heller, said the firm had taken care to make sure that Joseph Schick “had no participation whatsoever between the National Council and the attorney general’s office.”
Another potential conflict of interest looked at by Nocenti was Avi Schick’s uncle, who had been a regular caterer for the National Council until 2001.
In the end, though, Nocenti decided that Schick did not need to be removed from the case. Nocenti said the decision not to force Schick to remove himself from the case was a “no-brainer. Everyone has relatives.” On the other hand, Nocenti said that Josephson’s removal was “clear cut” because of his attorney-client relationship with the Center for Jewish History.
Three legal ethics scholars reached by the Forward did not agree that the case for removing Schick was strikingly weaker than the case regarding Josephson. After hearing a description of the case from the Forward, Lester Brickman, a scholar of legal ethics at the Cardozo School of Law, said — without giving an opinion as to whether there would be a basis for removal in any of the three cases — “given the facts as I understand them, if you compare the three of them, the possible appearance of impropriety is greatest for Mr. Schick.”
Concerning Josephson’s relation to the Center for Jewish History, Brickman said, “only in some hyper-technical sense could you perceive a conflict.”
Monroe Freedman, a law professor at Hofstra University, and another legal ethics scholar who asked to remain anonymous agreed that the case for Schick’s removal was not weaker than the case for Josephson.
In later conversations, several members of the attorney general’s office said that Josephson also had larger problems in the office. Spitzer said the National Council case “was one of the many things that led to his ultimate departure from this office.”
Dopp, Spitzer’s spokesman, said that Josephson had made “lapses in judgment” in his last year at the attorney general’s office. In early 2004, Dopp said, “it was made clear to Mr. Josephson that he has lost the confidence of the attorney general, at which point Mr. Josephson tendered his resignation.”
Josephson said he had chosen to retire and was not forced out of his job. He denied that any of his superiors had told him he had lost Spitzer’s confidence. Neither side provided contemporaneous documents to back up their assertions.
When Josephson’s successor was named in a June 2004, before Josephson came forward with his charges, the attorney general’s office issued a press release hailing Josephson’s “precedent-setting enforcement” and saying that he had “served the people of New York with vigor and distinction.”
Josephson said that when he went to talk with Nocenti about leaving the Charities Bureau in spring 2004, Nocenti asked on two separate occasions if Josephson would like to stay on in another position with the attorney general. Nocenti denied that he asked Josephson to stay with the office.
Spitzer said that aside from Josephson’s role in the case, his office had done nothing worthy of attention or scrutiny.
“Everything we’ve done in this case has been done for the right reasons, the right purpose,” Spitzer said. “That is what is essential to me about what this office is and how we operate.”