“Tangled” by Quinn Dombrowski

March 24, 2017; AL.com

The trial of Jonathan Dunning, the former CEO of Birmingham Health Care and Central Alabama Comprehensive Health, has been delayed by a federal magistrate judge who agreed with the defendant that the case is “complex” under federal rules and requires extra preparation time. The ruling moves the trial date from April 6th to June 8th.

NPQ reported the story last year when the 112-count indictment was unsealed involving the alleged diversion of $14 million in federal money to businesses controlled by Dunning. Dunning pled not guilty and was released on $50,000 bond. Since then, the story has only become more complex, “relating to a complex defrauding of the government based upon extensive accounting evidence related to the use of more than 80 bank accounts and loans,” according to the judge’s order. “The government’s investigation lasted two years and involved multiple indictments of other alleged co-conspirators.” That federal investigation has produced 16 CDs of material covering 150,000 pages of documents and 40 grand jury transcripts.

As if the case weren’t complex enough already, another nonprofit entity has been added to the mix. “Defendant’s attorneys have been advised by the United States that there is one entire Credit Union that was a central part to the alleged scheme/conspiracy and all those records will need to be reviewed.” Birmingham Financial Federal Credit Union was taken over by regulators in 2012 and ultimately liquidated and sold. The 501(c)(1) nonprofit credit union had been serving more than 400 employees of Birmingham Health Care. Current and former Birmingham Health Care executives were board members of the credit union, with Dunning serving as board chair. The credit union operated from a building owned by Dunning.

Federal credit unions, unlike state credit unions, are incorporated by act of Congress under IRS Section 501(c)(1) as “an instrumentality of the United States.” As such, they are not required to apply for federal tax exemption and not required to file an annual Form 990. Instead, they are regulated by the National Credit Union Administration (NCUA), an independent federal agency that charters, supervises, and insures the assets of both federal and state credit unions.

A report to Congress by the NCUA’s Office of Inspector General said the credit union became “insolvent due to management operating the credit union in an unsafe and unsound manner including a serious conflict of interest with the credit union’s sponsor, a continuous lack of action by management to address issues, persistent non-compliance with established timelines for submitting reports, and problems with the credit union’s books and records,” the report stated. A 2012 story noted that the credit union was so small that $200,000 in bad loans wiped out its capital.

Dunning’s story has been going on for close to a decade since he departed as CEO of Birmingham Health Care. Unless the saga becomes yet more complex, it would appear that the convoluted story of alleged federal asset diversion facilitated by multiple conflicts of interest and 80 bank accounts and loans will finally be told in court this summer as both Dunning and the federal government attempt to tell the story and apportion culpability.—Michael Wyland