A federal judge has ordered the owners of the former management company of the local hospital and their bankers to open their business and banking records for examination by the attorneys for the hospital's successor in bankruptcy.
U. S. Bankruptcy Judge James Mixon signed separate orders Jan. 8 in Texarkana to compel Arvest Bank of Little Rock, BancorpSouth of Little Rock, and Carraway Medical Systems, LLC, of Springfield, Mo., to surrender for examination by Feb. 19 all banking and business records held by both banks and Carraway relating to the banking and business dealings of Teddy R. Cheek, James A. Cheek, Herschel Brieg, Wayne Cheek, Scott Cheek, Carraway Medical Systems LLC, Healthcare Staffing LLC, CBC Capital LLC, Golden Care LLC, and Cardio Dynamics.
The orders were signed in response to motions filed by James Smith, attorney for Hope Medical Park Hospital LLC as Debtor-in-Possession to the former Medical Park Hospital here, now known as Wadley Regional Medical Center at Hope.
Smith specifically sought the documents in separate filings before the court to determine whether cash and other assets of the former Medical Park Hospital had been stolen.
In identical filings, Smith specifically alleged that, “In the years prior to the filing of this chapter 11 case, large sums of money were transferred without explanation or, it appears from the available business records, without legitimate basis for the transfers.”
Smith said the bankruptcy estate is entitled to recover from any such transfers.
“The debtor, as fiduciary in the case, ultimately seeks to ascertain the legitimacy of the transfer of funds from the accounts, and to recover improperly transferred funds for the benefit of the estate,” Smith argues. “The debtor seeks the bank records for the years during which it appears such transfers were made in order to trace the flow of funds.
“Some of these accounts are not in the name of the debtor, but are owned by entities controlled by the debtor's former operators, several of whom are now incarcerated,” he argues. “Accordingly, the records relate to the debtor's acts, conduct, and liabilities and is within the scope of allowed examination under Rule 2004.”
Smith specifically alleges that Carraway was a key to the looting of the hospital's assets.
“It appears that vast sums of the debtor's funds, assets and resources were manipulated by certain individuals who operated numerous affiliated and related entities, and, utilizing these entities, transferred funds out of the accounts of the debtor,” he argues. “One of the primary entities to which transfers were made is Carraway Medical Systems, LLC, the entity with which the debtor contracted for management services.
“The debtor seeks records of Carraway Medical Systems, LLC, in order to discern the transactions, who controlled them, and, ultimately, to recover improperly transferred funds for the benefit of the estate,” Smith argues.
Page 2 of 3 - Relative to the BancorpSouth – Little Rock filing, Smith is seeking “any and all documents associated with” four specific accounts, including the Hope Medical Park Hospital, BancorpSouth Depository Account, two accounts listed as Carraway Medical Systems LLC Clearing Account, and one account listed as Carraway Medical Systems LLC.
A Springfield, Mo., BancorpSouth depository account record for MPH filed earlier in the bankruptcy proceeding shows that in a four-month period that single account received a total of $7,874,528.85 and disbursed $7,788,809.19. Of those totals, about $1.3 million was disbursed into the Hope Medical Park Operating Account in Missouri.
During the same period, a total of $3.9 million was disbursed to two accounts for Carraway Medical Systems, LLC, Clearing Acct, and $826,500 disbursed to a TC 48 (Carraway Medical Systems, LLC) account.
At the same time, CBC Capital, LLC, was disbursed a total of $217,650. CBC Capital, LLC, is a “healthcare leasing” company formed in Nevada and currently domesticated in Wyoming, with principal offices in Tampa, Fla., and it was incorporated in Arkansas in August, 2010, by Herschel Breig, with William Dudley Bell, Jr., as its tax preparer and member or manager, according to filings with the Arkansas Secretary of State.
Also, during the same period, another entity, which is not named in the checking register, was disbursed a total of $1,278,598.04. According to the notes to the disbursement register, the receiving entity is CBC Capital LLC, also known as Sterling Rental Properties, LLC.
Sterling Rental Properties, LLC, is a company formed to “Buy, repair, rent and sell Real Property plus any additional legal activity approved by the Board of Directors” originated in Wyoming in May, 2010, with principal offices originally at 3825 S. Campbell, Suite 215, Springfield, Mo., but moved in February, 2011, to 2101 W. Chesterfield Blvd., Suite C 100-95, Springfield, Mo., and having Herschel Breig as its registered agent and member, according to filings with the Missouri Secretary of State.
Relative to the BancorpSouth-Little Rock filing by Smith, Mixon ordered the production for examination of all accounts, IRS Form 8300 and safety deposit box records for signatories including Teddy R. Cheek, James A. Cheek, Wayne Cheek, Scott Cheek, Brieg, Carraway, CBC Capital LLC, Healthcare Staffing LLC, Golden Care LLC, and Cardio Dynamics.
Mixon ordered the same production for examination of all accounts, IRS Form 8300 and safety deposit box records from Arvest Bank, of Little Rock.
Relative to the Carraway filing by Smith, Mixon ordered the production for examination of all minutes of management, senior staff and board meetings; monthly financial statements, supporting documents and journal entries with supporting documents; and, bank statements, cancelled checks and reconciliations for each account by month.
Mixon has also ordered production for examination of all invoices paid with copies of each check; unpaid invoices with receiving reports or other support documents; contracts with third parties; management contracts with MPH, related entities, including those named in the checking account records; a detailed general ledger for each year with accounts and descriptions; all persons current or former with signatory authority to any banking or financial account transaction; all credit card statements by month; all policies and procedures relative to MPH accounting and personnel; and federal, state and local tax returns and supporting documents.
Page 3 of 3 - Mixon also ordered production for examination of all accounts payable and accounts receivable for Carraway at the close of the fiscal year, Dec. 31, 2011; balance sheets and supporting documents for the same period; all tax forms submitted to the IRS; all financial statements of Carraway reflecting any other interests ever held; and safety-deposit box accounts.