Ousted Cardinal leaders tried to keep control of taxpayer money, state attorney says

In the days before the state takeover of Charlotte-based Cardinal Innovations, the ousted CEO and other former leaders secretly worked to try to keep control of taxpayer money, the state Attorney General’s office said Wednesday.

Special Deputy Attorney General Michael Wood told a judge that former CEO Richard Topping and two former board members shared emails over the weekend that suggest they had a plan to keep agency money from the state.

The emails were released in a Mecklenburg County Court filing Wednesday when a judge granted a temporary restraining order against Topping and 11 former board members. State officials accused Topping and the others of trying to get access to Cardinal money before the state seized control, court documents show.

The Cardinal leaders sent the emails before the N.C. Department of Health and Human Services took over Cardinal on Monday and removed the board. The ousted board chair, Lucy Drake, said she didn’t expect the state to take over the agency but worried about DHHS seizing Cardinal’s fund balance.

In one email that Topping sent Sunday, he told Drake that officials had an idea that would mean taking action before “the state raids – whether legal or not – the fund balance.”

“If the money is gone, they have to chase it,” Topping wrote. “Since they don’t have a legal right to it, they’ll never get it. If they already have it, it will be much harder to go get it back.”

Drake replied a few hours later, “Whatever we need to do to get this done. I’m in. Our funds are needing to get secured for certain.”

Wednesday’s court hearing represents the latest twist in a fight between Cardinal and the state over spending, including $3.8 millions paid in severance to Topping and other executives. State officials have demanded that Cardinal repay the $3.8 million in “unlawful” severance by Friday.

Cardinal offers services for people with disabilities, mental health needs and substance abuse in 20 N.C. counties, including Mecklenburg. The agency received $587 million in Medicaid money and another $88 million from the state’s mental health office in the 2016 budget year.

Superior Court Judge Todd Pomeroy approved the temporary restraining order against Topping and former board members that prohibits them from interfering with the Department of Health and Human Services takeover or gaining access to Cardinal coffers.

After citing the email chain between Topping and the former board members, Wood told the judge the restraining order was needed to protect public money.

“This sounds like insiders between the board and the company worried about the state coming in, as we’ve done, and doing something with funds in Cardinal accounts before the state could get to them,” Wood said.

Wood refused an interview request after the hearing, saying he was not authorized to speak to the press.

DHHS said in a statement Wednesday that the agency pursued the restraining order “out of an abundance of caution in the protection of taxpayer dollars.”

Topping has not returned several calls since Tuesday.

Drake, the fired board chair, told the Observer that the email exchange was not out of the ordinary for agency leaders. The emails were sent before the state took control of operations and while she and board members were still in charge.

The Cardinal board had been worried about the state taking money from Cardinal for a long time, Drake said.

Board members were worried “that they would come and take the fund balance to balance the budget or anything else,” she said. “That money is earmarked for Medicaid people.”

Monday’s takeover caught Drake off-guard, she said.

“This was a complete surprise,” she said. “It really was.”

Officials from DHHS and the State Bureau of Investigations came to Cardinal’s two Charlotte offices Monday.

That’s when DHHS took over Cardinal, saying the agency “acted unlawfully” in giving its ousted CEO $1.7 million in severance.

Cardinal has been under scrutiny for spending on CEO pay, as well as on lavish Christmas parties and board retreats, charter flights for executives and “questionable” credit card purchases, including alcohol.

This story was originally published November 29, 2017 at 1:23 PM with the headline "Ousted Cardinal leaders tried to keep control of taxpayer money, state attorney says."