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Ex-nonprofit chief sentenced to 2 years in corruption case

by Eric Besson | Arkansas Democrat-Gazette | February 27, 2020 at 3:50 a.m. | Updated February 27, 2020 at 3:51 a.m.

The founder and longtime executive director of South Arkansas Youth Services received a 2-year prison sentence Wednesday, coming more than a year after he pleaded guilty as part of a public corruption investigation spanning Arkansas and Missouri.

Jerry Walsh, 73, pleaded guilty to a federal conspiracy charge and was convicted in July 2018 of funneling more than $380,000 of the nonprofit's money to former Arkansas lobbyist Milton "Rusty" Cranford, one of Cranford's relatives and an unnamed former Arkansas state senator.

Walsh spent the money, without his board's approval, as part of an effort to preserve the agency's state contracts to run youth lockup facilities in southwest Arkansas and to otherwise secure favorable treatment from officials, he said in his plea.

Walsh is among 13 people, including five former Arkansas lawmakers, who have either pleaded guilty to or have been convicted of federal crimes as part of a 3-year-old probe into public corruption in Arkansas and Missouri.

U.S. District Judge Susan O. Hickey in El Dorado also sentenced Walsh to three years of supervised release and restitution of nearly $516,000.

Hickey, who denied an effort by Walsh's attorney for a lighter sentence, ordered him to report April 8 and recommended that he serve at FMC Fort Worth, according to minutes from the sentencing hearing. The Federal Bureau of Prisons website describes the facility as an "administrative security federal medical center."

Phone and email messages left for John Pickett, the Texarkana attorney representing Walsh, were not returned.

When Walsh pleaded guilty in 2018, then-U.S. Attorney Duane "DAK" Kees said the case "exposes the depths to which 'pay to play' politics has corrupted a nonprofit organization which was formed to help children."

Founded in 1977, the now-defunct, Magnolia-based South Arkansas Youth Services held state contracts to operate youth lockups and treatment centers in Dermott, Lewisville and Mansfield. Between the fiscal years 2011 and 2015, the nonprofit received $75.6 million, mostly from state government, according to Walsh's plea.

In 2013, Walsh grew concerned that the Department of Human Services and its Division of Youth Services would award the South Arkansas Youth Services contracts to out-of-state providers and write new rules unfavorable to his agency, according to his plea.

Cranford, the lobbyist, told Walsh then that he "needed to hire" the unnamed state senator - referred to as "Arkansas Senator C" - and one of Cranford's relatives, according to his plea. Cranford also told Walsh to pay higher lobbying fees.

Walsh's guilty plea describes Senator C in 2013 as a senior member of the 35-person chamber who served on the influential Arkansas Legislative Council. The council is empowered to act on legislative matters, including contracts, when the full General Assembly is not in session.

Walsh told the Arkansas Times in May 2018 that former state Sen. Jeremy Hutchinson, R-Little Rock, and former state Sen. Michael Lamoureux, R-Russellville, performed legal work for the Magnolia nonprofit.

Hutchinson awaits sentencing after pleading guilty last year to conspiracy, bribery and tax fraud charges in Arkansas and Missouri. The allegations in those cases did not involve South Arkansas Youth Services or Walsh. Hutchinson's attorney has said he does not believe Hutchinson was "Senator C."

Lamoureux, who has not been charged in connection with the investigation, has not responded to repeated questions about Walsh's plea.

Walsh directed $124,000 in the nonprofit's money to "Senator C" from July 2013 through November 2014 and concealed the payments from the board of directors, the plea says. Walsh's plea says the money was "general legal representation" that the lawmaker was never expected to provide.

He also hired Cranford's relative to what prosecutors have called a "no show" job with a $60,000 annual salary. He doubled Cranford's annual monthly lobbying payment, according to the plea.

Cranford pleaded guilty in June 2018 to a federal bribery charge.

Cranford spent millions of dollars on illegal campaign donations, kickbacks and other gifts to Arkansas lawmakers between 2011 and 2017 to help secure favorable treatment for Preferred Family Healthcare, a Missouri nonprofit that became Arkansas' largest provider of behavioral health services, according to his plea.

In November 2016, the Department of Human Services awarded a contract to an out-of-state provider to run seven youth lockups, including the five run by South Arkansas Youth Services. But the Legislative Council, as a reviewing authority on state contracts, rejected the department's action.

With the agency and lawmakers at a stalemate, Gov. Asa Hutchinson announced that the Human Services Department would take control of the facilities in January 2017. He criticized lawmakers for overextending their authority as a body that can review executive branch contracts.

The Magnolia nonprofit filed for bankruptcy in January 2018.

Arkansas operated the lockups until July 1, 2019, when Indiana-based Youth Opportunity Investments took over management of five of them spread among Dermott, Harrisburg, Lewisville and Mansfield.

Since Youth Opportunity began work under its contract, the state closed the Dermott Juvenile Treatment Center, one of two facilities in Dermott. The Dermott Juvenile Correctional Facility is still open.

The Colt Juvenile Treatment Center closed in January 2019.

Youth Opportunity will not extend its contract with the state for another year, the Arkansas Department of Human Services announced earlier this month. The company blamed financial problems that sprung from lockups that weren't filled.

Rite of Passage Inc. of Nevada manages the state's other lockup, the Arkansas Juvenile Assessment and Treatment Center near Alexander.



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