THE LOCAL AREA WATCH

STEM CELL GROUP IS A FRAUD

The non-profit corporation, Michigan Citizens for Stem Cell Research and Cures, puts itself out as an organization dedicated to the education of Michiganders on the pros and cons of various types of stem cell research.  On its website, MCSCRC makes this public statement about itself:

Michigan Citizens for Stem Cell Research & Cures (MCSCRC) was created with the long-term goal of educating citizens about stem cell research. We will present the facts necessary so each individual can form her/his own opinion about stem cell research. As a 501(c)(3) nonprofit charitable organization MCSCRC does not and cannot express support for any piece of legislation or political petition related to stem cell research.  [Our emphasis.]

MCSCRC’s status as a 501(c)(3) organization under the tax code is no small thing.  That means the donations people make to it are tax deductible.  If it becomes involved in political campaigns, it loses that status –- and donors lose their tax deductions.  So MCSCRC must keep its nose clean in this regard.  Indeed, its corporate by-laws prohibit the organization from engaging in propaganda and political campaigns.  Thus, the good folks at MCSCRC present themselves as earnest people sincerely trying to provide all the information Michigan voters need to make decisions on pending legislation and ballot initiatives concerning stem cell research.

Striking a disinterested posture vis-à-vis any particular proposed law is a good way for MCSCRC to gain the public’s trust as an objective voice on the issues underlying that law.  Of course, that trust is abused if, in fact, MCSCRC is not disinterested in the passage of a law –- let's say, the Cure Michigan ballot initiative to end restrictions on harvesting stem cells from embryonic human beings -– and wants to surreptitiously persuade voters to support it.  And that, unfortunately, is the case with MCSCRC.  Its pose as an honest broker in the embryonic stem cell debate is a fraud.

Cure Michigan, the sponsor of the initiative that will now likely appear on ballot this November, is entirely funded by Stem Cell Research B.Q.C.  In turn, Stem Cell Research is a non-profit corporation controlled by MCSCRC.  Under Stem Cell Research’s by-laws MCSCRC appoints its board of directors and upon its dissolution (probably after the November election) all of its assets go to MCSCRC.  Furthermore, Marcia Baum, the executive director of MCSCRC, is also the spokesman for Stem Cell Research and Cure Michigan.  Therefore, the person operating the allegedly disinterested educational group is also actively advocating the passage of a law that the educational group cannot lawfully express support for.

So despite the propaganda to the contrary, Cure Michigan is not a grassroots effort.  It is the creature of Stem Cell Research, which in turn is the creature of MCSCRC.  So little wonder that MCSCRC’s “education” of voters on stem cell research just happens to support the claims of the Cure Michigan ballot initiative.  That is why MCSCRC is a fraud.  Its mission to publicly provide disinterested and objective information on stem cell research is anything but that.  With this sort of falsity in the very bones of MCSCRC/Stem Cell Research/Cure Michigan, let’s not be shocked if falsehood substitutes for fact in the campaign for the Cure Michigan ballot initiative (or that Big Sister is one of its leaders).

KALAMAZOO PROMISE KIBBITZERS

Looking a gift horse in the mouth is certainly obnoxious.  Yesterday the Grand Rapids Press reported a small item.  A panel of experts in higher education at a national conference in Anaheim, California, criticized the "Kalamazoo Promise" and made recommendations on how to fix it.  The "Kalamazoo Promise" is a scholarship program that pays the college tuition for graduates of Kalamazoo's public schools.  The program is funded by an anonymous donor.

The experts in Anaheim criticized the "Kalamazoo Promise" as inadequate for low-income residents of Kalamazoo.  Specifically they complained that more money will go to middle-class students than poor ones because middle-class students tend to go to higher-cost colleges.  Plus, poor students receive need-based aid from other sources.  This is a baffling complaint.  Nothing in the "Kalamazoo Promise" program stops poor students, at least on the basis of family income, from attending colleges that are more expensive.  And, of course, poor students who receive funds for college from elsewhere will need less money from the "Kalamazoo Promise" program.  So what's the problem?

Then the experts also expressed concern that the "Kalamazoo Promise" could usurp the democratic process, because as a private gift from an anonymous donor there was no "community discussion" about the program's rules and administration.  Now think about this, folks.  These eggheads are saying that it isn't enough that a person has contributed his wealth to a worthwhile cause.  They are complaining that this person hasn't allowed the "community" -- i.e., the so-called experts like them -- to dictate how his gift should be used.  The kibbitzers are clueless.  It isn't the community's money to decide how to spend it.

These experts had further gripes, such as the value of homes in Kalamazoo might go up because people are attracted to the city because of the scholarship program.  No kidding.  What an upside-down world we live in when good things are perverted into bad things.  Just goes to show that no good deed goes unpunished.

A HEADSCRATCHER

This week's edition of the Grand Rapids Business Journal had an announcement that the local chapter of Junior Achievement is giving Silver Leadership Awards to Doug DeVos and Mike Lloyd and a Bronze Leadership Award to Bert Bleke.  I don't get it.  What is there to honor in being the son of a MLM scam artist, the editor who devolved the newspaper of record into happy-talk community bulletin, and the school superintendent who presided over the mass exodus of students to other districts?

I realize that these days we are awash in the exchange of tributes, honors, and awards for this, that, and the other thing.  It's all part of the mutual admiration society that River City mucky-ups hunger to join.  But JA has had some credibility as a substantial organization.  Are its honors now meaningless too?

TAXPAYER-SUBSIDIZED AWARD FOR TAXPAYER-SUBSIDIZED BILLIONAIRE

On Friday the Woodrow Wilson International Center for Scholars (WWICS) announced that local kingpins Peter Secchia and Rich DeVos are recipients of this year's Woodrow Wilson Awards.  Secchia is receiving the award for public service in honor of his role as ambassador to Italy during the first Bush administration many moons ago.  DeVos is getting the nod for [ahem] corporate citizenship.

Yes, dear readers, I know your eyes are rolling at the idea of DeVos getting recognition as a model coporate citizen when he is the man who perverted the American dream into the Amway multi-level marketing scheme and never put a dime into any public project in River City unless there was business angle for either him or his late partner, but you need to understand the purpose of the Woodrow Wilson Awards.  It's a fundraising gimmick for the WWICS.

The WWICS is a creature of the federal government.  It was created in 1968 as a "living memorial" to the allegedly idealistic public policy-making of our 28th president, Woodrow Wilson.  (Funny how Wilson's implementation of racial segregation in federal employment is one of his "idealistic" policies that doesn't get much mention.)  Your federal tax dollars subsidize 45% of the center's budget.  The remainder has to come from donations.

So the fund-raising arm of the WWICS targets a community with a couple of bigwigs with plenty of deep-pocket friends and hangers-on to hand out the Woodrow Wilson Awards to those bigwigs at a benefit dinner.  This year the WWICS put River City in its sites to raise funds from Secchia, DeVos, and friends at a celebration on April 19th at the Amway Grand Plaza Hotel.  In the recent past the WWICS targeted Portland, Oregon, and downriver Detroit in the same way.

All to what end?  Well, when was the last you heard of a policy paper from the Woodrow Wilson International Center for Scholars?  Hmm.  I'm sure what they do there is all too high-minded for working-stiff taxpayers like us to know about, let alone understand.  At least we can take comfort that the WWICS provides pleasant sinecures for distinguished ex-congressmen, like the current executive director, Lee Hamilton of Indiana.

ENCORE: HOW TO STEAL $2.4 MILLION FROM YOUR LOCAL HOSPITAL AND NOT PAY THE IRS

[Note:  This article first appeared on September 21, 2005.  This and yesterday's encore article should serve as a good reminder that nothing has been changed since this looting of Butterworth Hospital to protect our public institutions from further self-dealing by those whom we trust to run them.]

A perceptive reader had an interesting observation to make about last week's article on the looting of Butterworth Hospital's reserves to fund a flip of the Autodie Fitness Center.  He noted that by having a closely-held corporate entity, like Joe Rathbun's Rathbun Engineering Inc., receive the proceeds of the sale of the fitness center and then dissolving it immediately afterwards, the transaction is effectively hidden from the I.R.S.  That's because the corporation no longer exists to file a return, and the lack of return from a defunct corporation is not something that shows up on the I.R.S.'s radar screen.

We don't know if either Rathbun or REI filed a return with the I.R.S. declaring the gain from the fitness center sale (the I.R.S. refuses to say), but we do know there was a big gain.  That's because REI was paid $3.6 million for the Autodie Fitness Center by Charlevoix Club III Inc. (Butterworth's shill), but REI had no basis in the property -- i.e., money invested in its purchase or improvement.  According to county records, Rathbun quitclaimed his interest in the fitness center to his company REI in exchange for nominal consideration.  So that means the entire $3.6 million was a net gain to REI.  Worse yet, because REI flipped the property to CCIII within a few days of Rathbun's quitclaim, the $3.6 million profit had to be taxed at the higher rate for ordinary income instead of the lower rate for a capital gain.

Even if Rathbun had in some manner transferred his basis in the fitness to REI, that doesn't help much.  All Rathbun had in that property was his original $50,000 for purchasing one of the buildings that later became the Autodie fitness center and the additional $300,000 he ponied up to provide a kitty for Autodie's creditors to persuade them to release the property from Autodie's bankruptcy estate.  Crediting those sums as REI's basis in the fitness center property means that the company still received a taxable gain in excess of $3.2 million.

Regardless of whether or not the defunct REI ever reported this huge taxable gain to the I.R.S., there still remains the question of how REI -- in actuality, Rathbun -- received the benefit of the millions that Autodie invested into the redevelopment of an old garage and boiler room into a modern fitness center.  It doesn't add up.  Autodie's creditors took it in the shorts, while Joe Rathbun, an old friend and business associate of Autodie's nearly bankrupt owner, acquired for a few pennies on the dollar a valuable Autodie property which he then flipped for almost four million bucks.  How is it Rathbun received that gain and Autodie's workers, suppliers, and shareholders got nothing?  And is it even credible that Rathbun kept the gain, or is it more likely he acted as a shill like CCIII did?

Just another reason why the fitness center sale stinks as we reported last week.  It goes to show how much you can get away with in River City when you have the pull to get your crime "lawyered" -- that is, get one of the bigshot attorneys in town to vet your shady transaction and the authorities will look away.  Better yet, get that attorney to help plan the crime so that the authorities don't even look in the first place.  It is incredible how many dirty deals certain lawyers in this town, like Charlie McCallum, Robert Wardrop, Dick Wendt, Gary Schenk, etc., can rationalize as legit for the right fee.

ENCORE: HOW TO STEAL $2.4 MILLION FROM YOUR LOCAL HOSPITAL AND NEVER SAY YOU’RE SORRY

[Note:  This article first appeared on September 16, 2005.  It is good example of how big piles of money belonging to a public institution, like a hospital, that no one actually owns can attract "volunteers" who have their own ideas about how to put that cash to work.]

Our series on local attorney Charles McCallum, the Fixer, has been very popular.  It’s prompted some questions from our readers.  One that surprised me was why it’s a bad thing to have a bigwig lawyer like McCallum putting time into a non-profit organization like the old Butterworth Hospital?  Somebody has to step up to the plate, right?  So why not prominent citizens as a way to pay back some of the success they have achieved in our community?

The short answer is that it’s not a problem.  It’s great that people want to use the talents that have made them successful to help run our schools, hospitals, and churches.  But here’s the rub, that only works if they aren’t helping themselves in the process.  Volunteering for the board of a local charity means you do NOT use that position of trust to direct the charity to become a client of your business.  That’s self-dealing.  At worst it can be a crime, like embezzlement.  At best, the IRS can step in to strip the charity of its non-profit status.  Always it’s morally repugnant, no matter what the excuses you will hear to justify it.

That’s why McCallum’s tenure as Butterworth Hospital’s chairman, secretary, and chief legal counsel was a bad thing.  McCallum ruled the roost at Butterworth in the late ‘80s and early ‘90s before he helped Amway founder Rich DeVos devour the hospital in the Spectrum Health merger.  He used his positions of trust at the hospital to secure for his law firm, Warner Norcross & Judd, the hospital’s legal business.  And guess who at Warner Norcross had the Butterworth account?  That’s right, McCallum.  That’s self-dealing.  But that’s not all.

While chairman he had the hospital set up through Butterworth Ventures, its for-profit arm, a company called Butterworth Occupational Health Corporation.  He then funneled from the hospital’s reserves a million dollars a year into BOHC.  Guess who was running BOHC?  You got it, McCallum’s wife Lois Temple.  And what happened to that million dollars a year?  Who knows?  Temple certainly got paid a hefty salary.  Although McCallum booked that annual subsidy as an investment of the hospital’s reserves, when BOHC was converted into a non-profit organization in 1994 to bury its financial irregularities, its balance sheet had no assets to show for the millions of hospital dollars dumped into it.

However, upon becoming a non-profit corporation, BOHC did receive one big infusion of capital from the hospital.  It was $2.4 million.  What happened to that money prompts the title for this tale.  You will recall from “The Fixer” series that McCallum had a client named Joe Spruit who was in deep financial waters in 1992 and 1993.  Spruit ran his company Autodie into bankruptcy, and he personally owed Michigan National Bank a lot of money.  He hired McCallum to bail him out.  McCallum could get from Butterworth Hospital the money Spruit needed to settle with Michigan National by having the hospital buy something from him.  Well, there was the Autodie Fitness Center on Ottawa Avenue that Spruit controlled.  So here’s how the deal went down …

McCallum had his wife Lois announce in late ’92 that BOHC was fishing around for a fitness center to operate.  That provided an explanation to Butterworth insiders why BOHC would soon need funds from the hospital’s reserves.  Then there was the matter of the fitness center’s title.  Spruit didn’t have it.  His company Autodie did, and Autodie was about to file Chapter 7 (complete liquidation) bankruptcy.  As it happened Autodie was buying through a land contract part of the lot underlying the fitness center from Spruit’s friend and business associate Joe Rathbun.  To wrest the fitness center’s title from Autodie ahead of its declaration of Chapter 7 bankruptcy, in February 1993 Rathbun filed in Kent County district court a foreclosure action against Autodie because it had defaulted on the land contract.  This gave Rathbun’s claim against the fitness center precedence when Autodie went into bankruptcy a few weeks later.  Eventually this would put the title into hands friendly to Spruit, and so that problem was squared away for the moment.

There still remained the problem of who would actually buy the fitness center.  If BOHC did so directly, Autodie’s creditors, knowing that Butterworth can afford it, would demand that its subsidiary pay the market price for the fitness center and then divvy up the proceeds among themselves.  This would not have been a problem except that McCallum’s objective was not to use this deal to pay off Autodie’s creditors, but to settle up with Spruit’s biggest creditor, Michigan National Bank.  That meant setting up a shill with all appearances of being penniless to front for BOHC’s purchase of the fitness center.  This way Autodie’s creditors would not suspect there was a lot of cash to be had from the sale of the fitness center.  To this end, long-time Butterworth benefactor and dealmaker Peter Cook gave two of his associates about $100,000 in cash to set up the shill.  This resulted in the creation of the Charlevoix Club III Inc. in May 1993.

CCIII, secretly backed by BOHC, then entered into an agreement to purchase the fitness center from Rathbun, secretly obligated to Spruit, for $3.6 million.  The terms of the deal were a $1.2 million land contract and $2.4 million in cash.  Autodie’s creditors knew only about the land contract and not the cash.  To persuade them to release their claims on the fitness center so that Rathbun could sell it to CCIII, Rathbun agreed to throw $300,000 cash into the kitty for the creditors.  To bolster the impression that this was the best deal the creditors were going to get, Michigan National’s attorney Robert Hendricks (now corporate counsel for Peter Secchia’s company, Universal Forest Products) wrote to the bankruptcy court a letter implying that $300,000 was the only cash available from this transaction.  Consequently, the Autodie creditors took the $300,000 from Rathbun, gave up their claims on the fitness center, and then in August 1993 Rathbun closed the sale to CCIII.

To conceal the receipt of $2.4 million in cash from the sale, Rathbun had his company Rathbun Engineering Inc. set up as the seller of the fitness center.  To prepare REI for this transaction, a month before it Rathbun transferred all of REI’s assets to Metro Engineering Inc., a company controlled by his children.  Once emptied out of any value, REI received the cash from the fitness center sale and then Rathbun disbanded the company before it would have to report its new-found wealth in its annual corporate report to the State of Michigan.  So, Butterworth’s $2.4 million, funneled through BOHC and then CCIII, disappeared down a corporate rathole and soon afterwards Michigan National Bank settled with Spruit and newly retired Rathbun moved out of Grand Rapids to a big new house in a luxury subdivision.

After the sale, McCallum and BOHC were also busy.  They had to paper the file to account for the transfer of $2.4 million of the hospital’s reserves from BOHC to CCIII.  Because BOHC had to maintain the pretense that it had not purchased the fitness center, McCallum’s boys at Warner Norcross drew up one of the most bizarre leases in real estate history.  On the face of it, the lease stated that BOHC was renting the fitness center from CCIII.  However, a careful examination of the terms reveals that BOHC had complete control of the property and CCIII was nothing more than the manager of the fitness center operation.  On top of this, BOHC held the mortgage to the property that gave it all the remaining aspects of ownership except for formal title.  For this reason, BOHC booked its “lease” as a $2.4 million asset.

So that’s how you steal $2.4 million from your local hospital.  You need to have McCallum the Fixer as your friend at the hospital who will help set up a sham transaction, take the cash from the hospital reserves to fund that transaction, and then funnel that cash through a shill into the hands of a friend of yours.  Easy as pie – if you have no conscience and so no apologies.
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Note:  What is told here is not guesswork.  The money trail from the hospital to REI is documented.  We do know that the $2.4 million disappears with REI.  It's possible that Spruit and Michigan National Bank never received a dime of that cash, although it boggles the mind why the Fixer and BOHC would go through such machinations to give a multi-million-dollar gift to Rathbun, a man whom they owed nothing.  If you have any doubts about how much this deal stinks, consider that this transaction is the one that prompted local Asst. U.S. Attorney Tom Gezon to report self-dealing at Butterworth Hospital to Federal Trade Commission investigator Joe Lipinski.  It wouldn't be self-dealing if McCallum's client Spruit did not benefit from McCallum's influence at Butterworth.  If you want to know why the feds dropped the ball on this, click on the link above and learn what it takes to buy a favor from a U.S. Senator.

SOME SUNSHINE

Our city government is a dismal business to be sure (see below), but the sun still shines.  Helen Lehman, one of the directors of Catherine's Care Center when she is not busy financing affordable housing for those of us on the lower rungs of economic success or hosting evacuees from the wreckage of Hurricane Katrina, got a hold of me a couple of days ago.  She reported that Catherine's Care, once a program of the Creston Neighborhood Association, is now an independent non-profit corporation.  Congratulations!

Since St. Mary's hospital abandoned its mission to support this unique northeast side medical clinic for the indigent last May, Helen and the rest of the Catherine's Care crew have reinvigorated the clinic and found new support for it in the community.  In just this past week:  On Saturday the Creston business district association raised new funds for Catherine's Care by hosting a car show; also Ronald McDonald's Charities approved a grant of $12,900 for the clinic.  As St. Mary's fades into corporate gray, the warmth of human kindness still colors River City.

LOCAL RED CROSS HELPING KATRINA VICTIMS

Our local chapter of the American Red Cross is taking in evacuees from Hurricane Katrina.  Donations to the Red Cross's national disaster relief fund will not be shared with the local office to pay for any assistance for these folks, because of changes instituted in the wake of 9/11.  Therefore, the local Red Cross is asking for direct cash donations to it.  They have suggested splitting what you are willing to donate between the national fund and the local office.

If you are interested in doing so, here is the contact information:  The American Red Cross / 1050 Fuller Avenue N.E. / Grand Rapids, Michigan 49503 / ph 616-456-8661.

The Red Cross also needs donations of blood.  Please do what you can to help.

BETHANY DROPS BAN AGAINST CATHOLICS

WOOD TV8 just reported that Bethany Christian Services, a national adoption agency headquartered here in Grand Rapids, will no longer reject the adoption applications of Roman Catholic couples.  We reported here earlier this week that the Mississippi offices had a policy of refusing to consider Catholics as adoptive parents and that Glenn De Mots, president of Bethany, had no problem with that.  Today the Mississippi state director of Bethany announced that its offices will no longer discriminate against Catholics because of their religion, and Bethany's national headquarters affirmed that this the policy of the entire organization.

Little by little progress is made.

WELL, OF COURSE, IT'S MISSISSIPPI

Bethany Christian Services is a nation-wide adoption agency headquarted here in Grand Rapids.  It is an explicitly pro-life Christian organization dedicated to placing homeless children in Christian homes.  To this end, it requires couples who want to adopt to agree to a Statement of Faith.  If you follow the hyperlink, you will see that it is an anodyne non-denominational statement of the basics of Christian belief.

Nevertheless, Bethany's Mississippi branch has banned adoptions to Roman Catholics.  Most recently on July 8th the Mississippi state director Karen Stewart rejected an adoption application from a Catholic couple, Robert and Sandy Steadman.  The Mississippians have blacklisted Catholics out of the plainly false belief that Roman Catholicism is in conflict with Bethany's Statement of Faith.  This, of course, smacks of that disreputable prejudice among some Protestants, still institutionally manifested in some places in this country such as Bob Jones University, that those papists are not truly Christian.

Apparently the hoods are gone, but the Klan's noxious creed is still plied by benighted Bethany employees like Stewart.  Yet, while ready to deny Catholics the benefit of Bethany's services in Mississippi, Stewart still collects for Bethany from the Mississippi state treasury the proceeds of the "Choose Life" license plates that Catholics buy.  Oh well, it's not like Mississippi hasn't given state sanction to bigotry in the past.  Moreover, Bethany Christian Services is a private organization whose members are free to engage in such nonsense.

However, it is still worth taking note of the gutless response Bethany's president Glenn De Mots, headquartered here in River City, had to give:  "I think it boils down to [the Mississippi branch's] commitment to place children into families that have the most in common with what their beliefs are as an evangelical Protestant-based office of Bethany."  De Mots added that Catholics in Mississippi do have their own adoption agencies they can go to in lieu of Bethany.  But not a word of misgiving for the Mississippi branch reading out Catholics from the Statement of Faith.

Yet, Bethany holds itself out as a Christian organization that welcomes all members of that faith while it solicits our donations.  It makes grand commitments against racial and ethnic prejudices.  Meanwhile Bethany's president refuses to drop the hammer on a relict of religious bigotry clinging to life in the adoption agency's own Mississippi offices.  Again, as a private organization Bethany can indulge in this kind of foolishness if it wants, but people of goodwill might want to reconsider what support they'll give to its hypocrisy on bigotry.