Healthlink Exec Had Troubled Past Former Controller’S Resume Didn’T Note Financial Debacles
1998, The Spokesman-Review
Mark Shelby has left a trail of ruined companies, angry investors and lawsuits stretching from South Carolina to Idaho Falls.
Yet Shelby’s past somehow escaped the attention of HealthLink, a Spokane health-care management company that hired him for a top financial post two years ago.
The U.S. Securities and Exchange Commission sued Shelby and a former business partner four years ago for misleading investors, who lost $2.5 million in an Idaho-based company.
Shelby and family members were later accused in a flurry of lawsuits of diverting more than $500,000 from the same company, Medical Financial Services, for their personal use. They’ve been ordered to pay most of that money back.
Faced with dozens of angry creditors, Shelby and his wife filed for personal bankruptcy in 1995. A year later, newly formed HealthLink hired him.
Shelby, 41, worked as controller at HealthLink for 21 months before resigning last August.
The firm has not accused him of misconduct, but as of late October new management was still investigating what caused the company’s financial collapse.
Company officials didn’t return telephone calls last week.
Shelby says his past problems have nothing to do with HealthLink and two related firms it manages.
Together, they owe more than $10 million to hospitals, doctors and other health-care providers.
He says he never volunteered information about the SEC complaint because he’s trying to put the matter behind him. He also didn’t mention the lawsuits.
“Nobody asked me about it, and I didn’t tell them,” says Shelby, who says he left HealthLink over philosophical differences. “It never came up.”
HealthLink, started by North Side doctors and hospitals, essentially acts as a subcontractor for health insurers in the region. At its largest, it paid for the care of about one in 10 people in Spokane County.
In July, the company started having financial problems and stopped paying many specialists and hospitals. Since then, new management has been hired.
The company filed for protection from creditors under Chapter 11 of the bankruptcy code and laid off three-quarters of its workers.
As controller, Shelby was the company’s top on-site financial manager, responsible for the accounting.
The chief financial officer, Dr. Thomas Boone, works full time as a doctor in Chewelah and was rarely at the company offices at 140 S. Arthur. Boone did not return telephone calls for comment.
The company’s former chief executive officer, Jason Sargent, says he asked Shelby to resign after company officials learned about the SEC complaint from a Spokane hospital administrator.
“I think all that stuff was well-hidden, frankly,” says Sargent, who resigned last month at the request of the HealthLink board of directors. “I wish I’d have known it. When I look back and try to sort all this out, if I had known of any of the history of mismanaging financials, we might not be here.”
Sargent says he checked Shelby’s references before offering him the job.
News of the SEC lawsuit isn’t hard to find. A search of Shelby’s name on the Internet would have revealed an SEC news release detailing the case.
Shelby also left an extensive paper trail in Idaho Falls. Seeking nearly $3.3 million, at least 31 lawsuits have been filed against Shelby and companies he ran in Bonneville County from 1991 to 1997.
He once ran a ComputerLand franchise, a business called Intermountain Computer Systems, and real estate and development companies.
Most of the lawsuits claim Shelby failed to pay his bills. Collection agencies, a phone book company, AT&T, banks and a computer company were among those taking him to court.
In at least 14 cases, a judge ordered Shelby to pay up, records show. The total bill: about $460,000. Four other cases, seeking almost $2.5 million, have been settled out of court.
People involved with Shelby in the past say they couldn’t believe HealthLink hired him for such an important post.
“Oh my God, those people don’t have a brain,” says John Freeman, a securities expert and law professor at the University of South Carolina. Freeman helped represent some of the investors who lost money in Shelby’s Idaho company.
Millions raised quickly
Shelby formed Medical Financial Services in Idaho Falls in September 1992. He was the president, and his wife, Jan, was the secretary.
The company gave health-care providers up-front money on unpaid health insurance claims, which take months to process. The doctors got about 40 cents on the dollar right away.
The company was supposed to get the full amount later from insurance companies, pay the doctors another 50 cents on the dollar and keep 10 cents as profit.
Medical Financial started looking for investors to get seed money to buy the bills. Shelby says a lawyer told him the company could get loans from individuals, and that those loans would not be considered securities.
Loans don’t require the same kind of SEC oversight as securities.
Christopher Cooper, a college friend of Shelby’s, and his associate, Keith Norris, raised almost $2.5 million in Georgia and South Carolina in less than three months. Cooper and Norris live in South Carolina.
As many as 35 people invested, some putting in their life savings. They were supposed to get their money back, plus 12 to 18 percent interest per year.
In promotional materials, Medical Financial claimed to have “a nationwide network of professionals recruiting clinics and hospitals interested in utilizing the company’s expert billing and financing capabilities.”
But it was really just Shelby, who ended up signing contracts with only four clients - three private-practice clinics and a group of three nursing homes, all in California.
The client who ran the nursing homes north of San Francisco was a convicted murderer, lawyers say.
“The reason MFS failed was that in three of the four arrangements in California, Mark got screwed,” Cooper says. “He was stupid. He was absolutely stupid.”
Shelby didn’t follow his own rules for buying the claims, Cooper says. For instance, Shelby paid one client $400,000 for a supposed $1 million in claims that would have meant a $100,000 profit.
But these claims had already been paid by an insurer, and Medical Financial never got any of its $400,000 back, Cooper says.
Life savings lost
Many investors were elderly couples who lost their savings and retirement money.
“Their mistake was having confidence in us,” says Cooper. “Our mistake was having confidence in Mark Shelby.”
One South Carolina couple, John and Sandy Bedosky, put in $150,000 - their life savings, plus money from a mortgage on their home. Their investment returns came by Federal Express, but the checks bounced.
“It was very hard, I’ll tell you that,” John Bedosky says. “It almost ruined us. We’ve been struggling for five years to recoup that.”
An investor, worried about her money, complained to the Beaufort County Sheriff’s Department in South Carolina and the state’s Securities Division. Days later, on Nov. 9, 1993, the state ordered Medical Financial and its officers to stop selling unregistered securities.
Seven weeks later, Shelby and Cooper formed a new company in Farmington, Utah, called Physicians Financial Inc. Shelby’s father was the registered agent.
The SEC said Physicians Financial was essentially the same as Medical Financial, created to evade securities regulations. So the agency shut down Physicians Financial, after it sold about $30,000 worth of promissory notes.
Dr. Blake Brog, a Utah orthodontist, invested that $30,000, part of his retirement money. He says he was given the investment tip by his accountant, who was a friend of Cooper’s. Brog never received a receipt.
“It was like my money vanished,” Brog says.
“I tried to call Mr. Shelby. It was a mess. I chased him from place to place. He would work at a place. Then he’d leave. … I finally nailed him down. He made me some promises. He said he would pay everything back. Nothing was further from the truth.”
Brog sued. He won a $32,500 judgment against Shelby, but he hasn’t been paid.
The SEC sued Shelby, Cooper and Medical Financial in April 1994, claiming they misrepresented the financial condition of the company and its use of an independent, bonded escrow agent.
The agency also says Physicians Financial, the second company, began an unregistered, fraudulent offering of $6.5 million in promissory notes.
In a settlement with the SEC, Shelby and Cooper agreed to never engage in that kind of business practice again. They didn’t admit or deny the agency’s allegations. The two were ordered to pay about $2.5 million back to investors, but that amount was waived based on their inability to pay.
Shelby says investors in Medical Financial have been paid back $1.7 million, but lawyers involved in the case and his former partner say that’s not true.
Medical Financial filed for bankruptcy in October 1994, and a former bankruptcy judge, Ezra Cohen, was appointed the company’s receiver.
Cohen filed a claim on behalf of investors to recover money from Shelby. The complaint alleges that over an eight-month period in 1993, Shelby transferred at least $279,500 in investors’ money from the company to himself, his family and to others.
Shelby spent more than $15,000 on a used Ford van and more than $6,700 on two Kawasaki all-terrain vehicles, the claim says.
He also was accused of paying at least $18,000 of Medical Financial money to his sister, and of using more than $214,500 from a Medical Financial account to buy property in Utah for his parents.
An Idaho bankruptcy judge ended up ordering Shelby to pay back more than $235,000.
In separate judgments stemming from civil lawsuits, his sister was ordered to pay back $25,000, and his parents were ordered to pay back $207,000.
But Cohen says he hasn’t seen any money.
The Bedoskys, along with several other investors from Hilton Head Island, S.C., sued the brokerage companies and insurers connected to Cooper and Norris. They didn’t sue Shelby because any money he had would be tied up with Medical Financial’s suit, their lawyers say.
After suing, the Bedoskys say they got back about half their investment.
Cooper, Shelby’s partner, was sued four times. A civil jury ordered him in April to pay almost $1 million back to the Hilton Head families. He hasn’t paid anything yet.
Neither Shelby nor Cooper faced criminal charges. Norris, a company broker, pleaded guilty to criminal charges of selling unregistered securities, but he never spent any time behind bars.
Lawyers urge removal
Shelby and his family moved to Spokane in March 1996, where he was hired by the accounting firm of LeMaster & Daniels. Officials at LeMaster & Daniels declined to answer questions about their former employee.
Shelby says he came to Spokane as a certified public accountant, but he’s never been certified with the state of Washington as required. He is certified in Idaho.
In November 1996, Shelby was hired at HealthLink. At the time, four people worked at the fledgling company.
Sargent says he learned about the SEC complaint from a Spokane hospital administrator in late July. He says he immediately sent Shelby to the corporation’s lawyers. Sargent says the lawyers told him to ask for Shelby’s resignation.
Sargent says an external auditing firm was called in to do an audit after Shelby left. That audit was still going on when Sargent left the company in late October.
Shelby says he resigned because he didn’t like the direction the company was heading. He denies taking any money from HealthLink.
Shelby says HealthLink had financial problems because it failed to establish capped limits on the specialists and hospitals who were paid through HealthLink. That wasn’t his decision, he says.
He says he’s trying to start over, trying to make a living through consultant work now. He doesn’t see any connection with HealthLink’s financial condition and his past.
Cooper says his former partner is a bad businessman - not a crook.
“If you want to look for a pattern, there’s a pattern with Mark Shelby,” Cooper says. “He has a lot of good ideas, and he works very hard to make them work. But he makes a lot of promises he can’t keep.”