A former U.S. attorney from Oklahoma has kept his longstanding lobbying contract with the Missouri-based health care nonprofit now ensnared in a federal investigation that has rocked Arkansas.
Federal prosecutors in court filings have said the nonprofit — first known as Alternative Opportunities and now called Preferred Family Healthcare — concealed its lobbying expenses and spent more money than allowed while under the leadership of former executives.
The organization, founded in the early 1990s, transformed into a giant in the fields of mental health, substance abuse treatment and services for the developmentally disabled across five states, collecting tens of millions of dollars each year from government sources.
Steve Lewis of Tulsa lobbied on behalf of the nonprofit for years while also serving on its board of directors, he confirmed this week. Lewis, who said his share of lobbying fees has been well within federal rules, resigned from the board in April in order to keep the nonprofit as a client.
“I left the board,” Lewis said. “I think that given what has developed over there, that they were just not comfortable — they wanted me to choose between representing them over here and being on the board.”
Lewis, who has not been accused of wrongdoing, acknowledged that he matches the description of “Person #18” in court filings connected to former Alternative Opportunities/Preferred Family Healthcare executive Keith Noble’s guilty plea last week.
Noble, in pleading guilty to not reporting a felony, became the first former member of the nonprofit’s executive team to be charged or convicted in a yearslong, multistate investigation surrounding the nonprofit.
Noble’s plea agreement includes accusations that unnamed colleagues stole, embezzled and misapplied more than $30 million. Prosecutors’ scrutiny of lobbying fees make up a small part of those broader allegations.
In the filings, prosecutors say unnamed conspirators led the charity to misapply money toward lobbying that violated a federal rule that says nonprofits can lose their tax-exempt status if a “substantial” amount of their activities are considered lobbying.
In the past two years, federal investigations have produced indictments, guilty pleas and convictions for six former Arkansas lawmakers, an influential lobbyist, an internal auditor at the nonprofit and the former operator of youth lockups.
Three lobbyists connected to Alternative Opportunities/ Preferred Family have pleaded guilty to federal charges within the past year amid accusations that they paid lawmakers for favors and conspired to defraud the tax-exempt charity.
Two of the lobbyists, Milton “Rusty” Cranford and former state Rep. Eddie Cooper of Arkansas, also worked for the nonprofit. The third, D.A. Jones of Pennsylvania, was a national political operative whose plea agreement says he delivered kickbacks to Cranford and lobbied congressional officials after getting paid by Alternative Opportunities.
Lewis’ appearance in court documents is part of an accusation that charity leaders spent too much money on political lobbying and hid from the IRS such payments to outside firms.
Lewis was speaker of the Oklahoma House of Representatives from 1989-1991. Beginning in 1993, he was the U.S. attorney for the Northern District of Oklahoma for seven years during President Bill Clinton’s administration.
Lewis defended his lobbying contract, saying the payments he has received, taken alone, were not enough to constitute excessive lobbying. Lewis collected more than $450,000 over a nine-year span from the organization, or an average of about $51,000 per year, according to court filings.
“I don’t think there’s a bright line on the percentage [of total activity nonprofits can dedicate to lobbying], but certainly they weren’t even close to the percentage that would be allowed to be spent on my lobbying services,” Lewis said.
Alternative Opportunities acquired a network of outpatient mental health clinics in Arkansas and Oklahoma in 2007 before merging in 2015 with Preferred Family Healthcare, also based in Missouri. The Preferred Family name survived the merger, but former Alternative Opportunities executives assumed key roles at the combined entity.
Preferred Family today operates eight outpatient mental health clinics in Oklahoma under the Dayspring brand. Its Arkansas Dayspring locations are among the assets the nonprofit is selling to a third party after it was suspended from receiving Medicaid payment in the state.
In roughly 2007 — Lewis said he couldn’t remember precisely when — a Missouri-based lobbying firm signed Lewis on as a subcontractor to represent Alternative Opportunities in Oklahoma, he said.
Recent court filings say “Lobbying Firm D,” described as being based in Jefferson City, Mo., received $873,752 in payments from the charity from October 2008 to June 2017.
Missouri Ethics Commission records show the Jefferson City lobbying firm TreecePhillips represented Alternative Opportunities from December 2003 until January 2018 and Preferred Family Healthcare from August 2015 until May 2018. Within a couple of years of the subcontract, Lewis began directly contracting with Alternative Opportunities and was later asked to join its board of directors, he said.
Lewis first appeared as a director on the nonprofit’s tax filings in the fiscal year covering July 2009 to June 2010. He appeared as a board member on every available tax filing since then — the latest covers the year ending June 30, 2016 — sometimes listed as receiving a salary and other times without one.
Lewis said he was never paid in his capacity as a board member, which was voluntary.
Lewis signed conflict-of-interest forms with the nonprofit each year — he said fellow board members knew about his lobbying contract — and was never involved in any decisions affecting his business, he said.
He declined to disclose the specific issues for which he lobbied on behalf of Alternative Opportunities/Preferred Family.
“Generally, I don’t want to identify any particular thing,” Lewis said. “Over the years, there were quite a few issues.”
Preferred Family spokesman Reginald McElhannon said Lewis left the board in April because “current leadership felt it was important for the role of board member to be separate and distinct from that of paid advocate.”
Including Lewis, Preferred Family currently pays three lobbying firms — one each in Arkansas, Missouri and Oklahoma — a combined $38,000 per month, or $456,000 per year, McElhannon said. The Arkansas firm is Impact Management Group of Little Rock, and the Missouri firm is Gamble & Schlemeier, he said.
“It is important to note that this work consists of advocacy and policy support for the issues that impact our clients,” McElhannon said.
Tax-exempt organizations such as Preferred Family are limited in how much they can spend on lobbying and must report what they give firms and what they spend internally on political advocacy.
Such organizations cannot use federally appropriated money to lobby local, state or federal officials. Alternative Opportunities/Preferred Family drew from multiple state and federal government streams, most notably Medicaid funding.
Federal rules concerning how much a nonprofit can spend are complex, however, and sometimes unclear.
Alternative Opportunities/ Preferred Family’s lobbying expenses eclipsed $4.6 million from September 2008 through June 2017, or about $511,000 per year, according to the court filings.
For comparison, in fiscal 2011, that averaged amount would have been about 0.8 percent of the charity’s total $61.7 million in spending.
That sum does not include more than $1 million in kickbacks that lobbyists paid to each other and one former nonprofit executive, the documents say. Nor does it include any salaries paid to staff who personally lobbied officials. It also doesn’t account for contributions to political candidates — either donations directly from executives or through “straw donors” who were later reimbursed by the organization.
Gene Takagi, a San Francisco attorney whose firm NEO Law Group specializes in nonprofits, said in written guidance that one early case found that devoting less than 5 percent of an “organization’s time and effort” was considered insubstantial.
“However, the test appears to have evolved with later cases, and it generally is thought to consider all the facts and circumstances of an organization’s lobbying activities (including cash expenditures, volunteer efforts and donated resources),” the guidance says. “Accordingly, charities must document all of their lobbying activities and expenses. If a charity engages in substantial lobbying in any one year, it may have its tax-exempt status revoked.”
McElhannon, the Preferred Family spokesman, also referenced the 5 percent threshold.
“While there is no specific definition of ‘substantial part,’ a number of commentators suggest that more than 5 [percent] of exempt expenditures would constitute a ‘substantial part,’” he said. “PFH lobbying expenditures are well below that amount and quite small in relation to exempt expenditures.”
Alternative Opportunities, from fiscal years 2009 through 2015, and Preferred Family in fiscal years 2015 and 2016, reported a total of $1.9 million in lobbying expenses on their tax filings, well short of the $4.6 million identified by prosecutors. Preferred Family’s 2017 tax filing has not yet been published in public databases.