Jack Pearadin and Doug Nelsen found a 1.73-carat diamond after nearly a year of searching the park's field.
In 2006, Cycle Breakers Inc., a nonprofit corporation, wrote a check for $70 to Judge Willard Proctor Jr. The memo on the check said the money was reimbursement for “mowing lawn.”
The $70 was not the only remuneration that Proctor, the judge in Pulaski County's Fifth Division circuit court, received from Cycle Breakers Inc. And mowing grass was not all that Proctor did for the corporation.
From 2004 to 2006, he ordered hundreds of defendants who appeared in court before him to be placed on probation. He then further ordered those probationers to attend meetings supervised by Cycle Breakers Inc.
The probationers did not have to pay for the court-ordered meetings, but Proctor allowed the nonprofit corporation to impose fines on them for errors, such as missing a meeting or failing to bring a notebook.
In 2006, Cycle Breakers Inc. reported income of more than $85,000 from such court-approved fines. But that was just a fraction of the money the corporation received from its association with Proctor's court.
Proctor's relationship with Cycle Breakers Inc., a corporation he helped to form, appears to be in conflict with state laws and the Arkansas Code of Judicial Conduct.
Though questionable parts of that relationship have been documented in recent weeks, though they are currently being investigated further by the State Police, though complaints about the court have been made to the FBI and the IRS, and though Arkansas judges are sworn to avoid conflicts of interest, there's been no notice of any action by the state Judicial Discipline and Disability Commission, which oversees the ethical practice of state judges. It could be considering Proctor, but its proceedings remain secret until the commission has found probable cause to consider discipline of a judge.
Proctor still officiates in his court, hands down sentences — and orders offenders to attend meetings sponsored by Cycle Breakers Inc.
One thing that has changed of late, however, is the court's handling of money.
Proctor requires his probationers to pay a probation fee of $40 per month. That money goes to the county. The probation fee in most other state courts is $25 per month.
Last year, when Cycle Breakers Inc. was preparing to buy a building, Proctor issued an order providing that part of each probationer's $40 fee — money that had been going to the county — would now be given to the corporation.
The sudden diversion of funds was made to help the corporation pay an anticipated half-million-dollar mortgage. Last February, Cycle Breakers Inc. obtained a bank loan and purchased the building it wanted.
But within months, state auditors were questioning the legality of Proctor's arrangements for repaying the loan. In response, on Aug. 2, Proctor rescinded his order directing county probation funds to Cycle Breakers Inc. The county now again keeps the probationer's $40 fees.
But, with service on the building debt looming large, Proctor issued a new order on Aug. 16. In a highly unusual move, his court then sent notices to its approximately 1,200 probationers, informing them of the change — and that they would now face an additional fee.
On a page titled “Order Modifying Probation Terms,” that was addressed to each probationer individually, Proctor wrote:
“Starting Aug. 1, you will be required to pay an additional $20 per month to Cycle Breakers Inc. for participation in their quarterly mandatory meetings and other programs ...”
Included with the notification was a form that a probationer could fill out court asking that the new fees be modified. According to the form, Proctor would eliminate the new fee if he was “satisfied that the imposition of an additional $20 per month would pose a financial hardship.”
Proctor's most recent order and the attached “request to modify fee” represent an attempt to acknowledge the financial difficulties many probationers face, while at the same time, maintaining a stream of income for a nonprofit corporation that depends entirely on the sentences he orders from his court.
The state auditors reported that Proctor's court and Cycle Breakers Inc. had formed a relationship so tight that “little division” exists between the two. And therein lies the conflict.
On one hand, Proctor is legally and ethically bound to uphold Arkansas law.
On the other, he is personally and passionately committed to Cycle Breakers Inc., an organization that based its ability to repay its mortgage with funds generated by orders imposed on defendants appearing in Proctor's court.
In the middle are the probationers themselves — approximately 1,200 of them. They know that if they do not conform to Proctor's orders and to the demands of his probation officers — who, in addition to working for Proctor's court, also work for Cycle Breakers Inc. — their probation could be revoked and they could be sent to prison.
So they attend the mandatory meetings and, if told to, they pay Cycle Breakers' fines: $100 if they miss a quarterly meeting, $15 if they forget a notebook.
The court's activities, finances and personnel have become so intertwined with those of Cycle Breakers Inc. that auditors trying to sort out the situation said the nonprofit corporation appeared to operate like “any other county department.”
Consider that, until recently:
• The address for Cycle Breakers Inc. was 401 W. Markham Street., Suite 410, in the Pulaski County Courthouse — the address of Proctor's court.
• Cycle Breakers Inc. used the court's stationery and postage, telephones and computers.
• One of Proctor's court employees served as the corporation's executive director.
• The court controlled the corporation's bank accounts.
• Cycle Breakers Inc. paid members of Proctor's staff to work at mandatory meetings, and other probationer events. Some of these staff members apparently were also paid overtime by the county.
Although Proctor has made some changes in response to recent investigations, his latest plan to fund Cycle Breakers Inc., as well as many prior arrangements, remain under investigation.
• Court personnel collected thousands of dollars in fines on behalf of the nonprofit corporation.
• When the organization sought a zoning variance for its building, Proctor personally pleaded for the change before the Little Rock Board of Directors.
• When Cycle Breakers Inc. applied for a commercial loan to purchase a building, its application to Twin City Bank promised: “The primary source of repayment of the loan will be probation supervision fees.”
• Proctor then issued the court orders that diverted part of the fees that had been going to the county into the corporation's building fund.
• Those orders have now been rescinded. But while they were in place, according to figures Proctor reported to county officials, the probation fees collected in his court increased by more than $15,000 over the same period the year before.
The ‘unusual circumstances'
The Legislative Joint Auditing Committee issued its investigative report on interactions between Proctor, his court, and Cycle Breakers Inc. on July 27. It included a written response from Proctor, in which the judge alluded to “the unusual circumstances that exist” between his court and the corporation.
Those circumstances trace back to 1985, when the legislature enacted a law that allowed three courts in Arkansas — and only three, all of them in Pulaski County — to oversee the offenders whom their judges placed on probation.
Probationers in all other courts are supervised by the Arkansas Department of Community Correction.
For most criminal convictions, a circuit judge has the option of sentencing a defendant to a term of probation. That is, the judge can place an offender under court-ordered supervision, rather than send him or her to prison. If an offender fails to comply with the terms of probation ordered by the judge, the judge can revoke that person's probation and order a prison sentence imposed
Of the three Pulaski County courts that can operate their own probation programs, only two do. One is Proctor's. According to the Arkansas Division of Legislative Audit, Proctor, his court reporter, and his court's case coordinator are state employees. The rest of his court's 12-member staff, including six probation officers, are paid by Pulaski County.
All judges, by law, may require that probationers “participate in a community-based rehabilitative program that meets minimum state standards for certification and for which the court may impose a reasonable fee or assessment ...”
In Proctor's court, because of the 1985 law, his probation officers can supervise attendance in such programs. What happened in Proctor's court is that, after he took the bench in 2001, he formed his own program and put his probation officers in charge of it. He called that program Cycle Breakers.
Proctor has said that he hoped the program could be run with volunteers. When that didn't work, in 2002, he and others decided to form a nonprofit corporation in hopes of raising money from donations and grants.
The corporation was also named Cycle Breakers. Over time, the identities of Cycle Breakers, the program, and Cycle Breakers, the corporation, merged. When grants and donations for Cycle Breakers Inc. did not materialize as hoped, the corporation turned to the steady income it could obtain from Proctor's probationers.
No records indicate that Cycle Breakers Inc. meets state standards for certification. Nor are there records that document if or how well various aspects of the program succeed. There is no independent oversight.
State law requires that programs to which probationers are assigned must be secular in nature. But meetings sponsored by Cycle Breakers Inc. often include hymns and Christian preaching, and the corporation's “creed” (at http://www.cyclebreakersinc.org/) refers to “God (the Higher Power).”
While other judges may order a probationer to be drug-tested, get counseling or attend meetings for anger management, for example, Proctor appears to be unique in specifying that probationers in his court receive services from a single source: Cycle Breakers Inc.
One probationer interviewed for this article complained that it was “a monopoly.”
Drug tests administered by Cycle Breakers Inc. cost probationers $15 each time. The drug-test kits cost roughly half. According to the corporation's records, it netted about $20,000 last year for administering court-ordered drug tests.
Another unique aspect of Proctor's probation program is something he calls “civil probation.” Unlike regular probation fees, which were generally sent to the county, Proctor's “civil probation” fees of $40 per month went directly to Cycle Breakers Inc.
Though state officials have noted that there appears to be no statutory basis for this form of probation, Cycle Breakers Inc. earned $10,182 from probationers whom Proctor assigned to “civil probation” in 2006.
Here's how the corporation defined “civil probation fees” on its federal tax return:
“Civil probation is a tool used to encourage the participants to adhere to all conditions of probation, thus enabling the criminal case to be closed in half the time.”
State auditors, who interviewed Proctor during their review, reported he said that some probationers were “able to move to civil probation status and have their records expunged” after completing the Cycle Breakers program. They added:
“The judge requests payment of civil probation fees and continued attendance at quarterly mandatory meetings even after a defendant's record is expunged.”
The fines and fees
These “unusual circumstances” did not just develop. They were established bit by bit, with the acquiescence of county officials, many of whom supported Proctor's aggressive supervision of probationers as an alternative to sending them to prison.
But the entwining of court and corporate roles was shady right from the start. Despite judicial canons that require judges to maintain a high degree of separation from entities with which their courts might have dealings, federal tax forms filed by Cycle Breakers Inc. in 2003 and 2004 list Proctor variously as an officer, director or employee of the nonprofit.
Moreover, although in its application for tax-exempt status, Cycle Breakers Inc. listed as its primary source of financial support “donations from community and private individuals,” it has, in fact, been supported throughout its existence by fees collected from Proctor's probationers.
By 2006, Cycle Breakers Inc. was dealing with approximately 1,000 probationers in programs housed at four different locations. Proctor and the nonprofit's board of directors decided Cycle Breakers Inc. needed a single facility to accommodate its many functions.
Last fall they began negotiating with a commercial real estate broker to buy a 37,400-square-foot building. But, with reported net assets in 2005 of just over $20,000 and no assured stream of income, the corporation was not a good candidate for a loan.
Faced with that situation, Proctor issued an order on Oct. 6, 2006, carving out half of the annual probation fees that had been going to Pulaski County and redirecting that money — approximately $140,000 per year — to the corporation's building fund.
His order noted that Cycle Breakers Inc. would purchase the building “on behalf of Pulaski County.” However, when Karla Burnett, the county attorney, was asked about that language recently, she said:
“The county has no authority or control over Cycle Breakers Inc. The county could neither authorize Cycle Breakers Inc. to make such a purchase, or promise to accept the building at any point in the future.”
According to the legislative audit, Proctor's court order transferring money from probation fees to Cycle Breakers Inc. was in conflict with the Arkansas Constitution, which prohibits a county from giving funds to a corporation, whether the corporation existed as a nonprofit or not.
Proctor's move shocked county officials, whose budget faced a sudden and sizeable dent. But only one county official vehemently objected.
Justice of the Peace Steve Goss, a member of the Quorum Court's budget committee, said he thought it was a conflict of interest for Proctor, a county employee, to fund the purchase of a non-public building with money that belonged to the county.
“The more I look at this thing, the worse it looks,” he said. “We don't have any business doing this with Cycle Breakers.”
Although Arkansas law requires that, “All public funds coming into the possession of any officer of the county shall be remitted to the county treasury,” Burnett, the county attorney, assured Goss and his committee that Proctor's order was legal.
That appeased the Quorum Court on one level, but did not ease its budgetary concerns, so after tense negotiations, on Dec. 12, Proctor revised his court order. In effect, the new court order reduced the amount Cycle Breakers Inc. would receive, from half to roughly one-fourth of the fees his probationers paid.
The change served as an inelegant patch on an already tawdry process. And, over Goss' objections, the Quorum Court accepted it — including the stipulation in Proctor's order that in no year would Cycle Breakers Inc. ever receive less than $70,000.
Proctor explained that such an assurance was needed in order for Cycle Breakers Inc. “to secure financing, loans and grants.”
In fact, the language was critical, because by the time Proctor issued the 2006 orders, Cycle Breakers Inc. was in serious negotiations with the Little Rock School District to buy an unused school building at 800 Apperson St. (See “The Reporter's Disclosure” sidebar.)
Frustrated by what he saw as an illegal diversion of county funds, Justice of the Peace Goss turned to state Rep. Sandra Prater of Jacksonville for help.
He explained his concerns about what appeared to be the judge's commingling of county and corporate money. Prater agreed to request a legislative audit.
Goss did not know at the time that someone in the office of Pat O'Brien, the Pulaski County clerk, was also alert to the unusual nature of Proctor's order.
Steve Sipes, the court administrator for O'Brien, said, “When I was apprised in September of 2006 that the court intended to kind of split the probation fees, I contacted the Division of Legislative Audit. It was just to give them an FYI about what we would be doing — because that office audits us.”
O'Brien said his office complied with Proctor's order because, “I felt it was incumbent on us to give the benefit of the doubt to the judge.” And, he added, “We assume the judges know what they're talking about.”
Legislative Audit decided to investigate. It began the process early this year, by meeting with Proctor on Jan. 19, 2007.
Just two weeks earlier, Kenneth Haskin, Proctor's chief probation officer, had written a letter to Martha Campbell of Twin City Bank on Proctor's letterhead. Noting that “Cycle Breakers Inc. works closely with the Fifth Division Circuit Court of Pulaski County,” Haskin described the corporation's need of the property and concluded, “I hope your bank will invest in our vision by approving our request for financing.”
One of the financial statements Cycle Breakers Inc. submitted to the bank with its loan application concerned “related party transactions.” Here, the corporation reported that, “Cycle Breakers Inc. shares office facilities with the Fifth Division of the Pulaski County Circuit Court, which amounted to $7,200. The circuit court also provides the salary for the executive director ... which amounted to $43,669.”
In the section titled “Source Repayment,” Cycle Breakers Inc. wrote: “probation supervision fees.” Included with the application was a copy of Proctor's court order, directing part of his court's probation fees to Cycle Breakers Inc. and a report showing the court's average collections for the past three years. Haskin noted, “We expect the trend to continue.”
Haskin also mentioned, “We also collect money for civil fees and missed meetings,” adding that this too would go to service the debt.
A problem with the Apperson St. property was that, to accommodate Cycle Breakers Inc., it needed a zoning variance. The Little Rock Planning Commission, after hearing from area residents who feared the influx of probationers and their cars, had voted not to approve the corporation's request for one.
Proctor appealed to the Little Rock Board of Directors, which, on Jan. 30, voted to override the Planning Commission and rezone the property.
Two weeks later, Cycle Breakers Inc. finalized the purchase. It took out a mortgage with Twin City Bank for $502,500. Karen Alford, executive director of Cycle Breakers Inc., signed the note.
The borrower's address on the mortgage is listed as 401 W. Markham St., Suite 410, in Little Rock — the address of Proctor's court.
The corporation paid $290,000 for the building. The loan included a line of credit for $212,500 to be used for building renovations.
Under terms of the mortgage, Cycle Breakers Inc. is to make payments its first monthly payment of $4,203 on Sept. 10, 2007. These payments are to continue until Aug. 10, 2010, when a balloon payment of $472,122 will be due.
Plans for the building seemed to be falling into place. But then, residents of the area around the building and parents of children attending Carver protested the rezoning, and, in an unusual move, the city board agreed to reconsider its decision.
At a packed meeting of the city board, Proctor presented an impassioned appeal on behalf of Cycle Breakers, and some probationers also spoke, lauding the judge's program.
Ultimately, the board sided with the angry parents and wary residents. On Feb. 27, less than a week after Cycle Breakers Inc. bought the building, the city directors rescinded their vote to rezone the property as the corporation had wanted.
The move put Cycle Breakers Inc. in a difficult position — especially since it had already spent more than half of its $212,500 line of credit.
On March 2, Alford reported to the bank that, though vendors were told to stop work on the building, certain work had already completed and invoices — including $93,696 to River City Paint and Janitorial and $22,050 to AXS Computing — needed to be paid.
Despite that, Alford assured the bank, “We are still in a position to fund the loan.” Asked about the bank's decision to grant such a sizeable loan to a nonprofit corporation with such limited resources, apart from its ties to the court, a spokesman Twin City Bank said he could not comment on customers' business.
By May, however, another member of the county's Quorum Court was complaining about Proctor's finances. Justice of the Peace Phil Stowers wrote to County Judge Buddy Villines, calling his attention to a state law and a Pulaski County ordinance which, together, require the county clerk to collect all monetary penalties imposed by state courts.
Noting that Proctor seemed to be circumventing proper procedure both by collecting fees in his office and by diverting some of them to an unofficial entity, Stowers asked that Villines “check into this situation.”
By mid-summer, Cycle Breakers Inc. had the Apperson Street building for sale.
If Villines did investigate, he never said so. But the state auditors released their report at the end of June, and with it, the picture of Cycle Breakers' dependence on Proctor's control of his probationers came into sharper focus.
The auditors pointed out that Proctor uses his judicial authority to require probationers to participate in programs conducted by Cycle Breakers Inc., where they are charged additional fees, “without apparent statutory authority.”
The report showed, for example, that Cycle Breakers Inc. had a total reported income for 2006 of nearly $178,000 (excluding restitution funds owed to victims). But, though the corporation enjoyed tax-exempt status as a public charity, only $521 of its income actually came from donations and grants.
Whether through fines for missed meetings, court-ordered drug tests or “civil probation” fees, almost all of the corporation's income (again, excluding restitution) came, in one way or another, from Proctor's probationers.
And the corporation expended almost all the money it took in. Its biggest expenses in 2006 were slightly over $40,000 for conducting meetings and $26,750 to AXS for computer consulting fees.
Through it all, the auditors concluded that, “there appears to be a financial benefit to the court, judge, and court employees.”
They noted that:
• Proctor was reimbursed $14,099 for supplies he had purchased for Cycle Breakers Inc. — but that $3,117 of that amount was not documented.
• Cycle Breakers Inc. paid $1,207 for Internet service in Proctor's home.
• The corporation paid travel expenses of $4,916 for a court staff meeting in Memphis.
• And, besides paying employees in Proctor's court for working at meetings, Cycle Breakers Inc. provided them with memberships in Sam's Club valued at $1,292.
Further, when auditors conducted a surprise cash count in the court, they found receipts and funds on hand totaling $2,395 — most of it in cash. They reported that receipts for the county and the corporation “were improperly commingled.”
The audit's findings were serious enough to warrant criminal investigation. Pulaski County Prosecuting Attorney Larry Jegley asked the Arkansas State Police to investigate Proctor's relationship with the nonprofit.
Justice of the Peace Goss said, “If he's done what they accuse him of, he needs to leave the bench.”
Proctor was shown a copy of the auditor's report before it was released to the public. In his response, which was included in an appendix, he wrote that he did not agree with many of the auditors' conclusions.
Nonetheless, the judge promised that he would immediately require his probationers to begin paying fees and other court fines directly to the Pulaski County circuit clerk.
He promised to immediately bar members of his staff from accepting payments from Cycle Breakers Inc. for work they performed for the corporation.
He promised that his staff would no longer collect payments on behalf of Cycle Breakers Inc.
And he promised that, beginning Aug. 1, no part of the county's probation fees would be sent to the nonprofit corporation. Instead, he wrote, he would order probationers whom he ordered to attend Cycle Breakers meetings to pay an additional fee of $20 per month.
Sipes, in the county clerk's office, said probationers now pay all their fees — including those designated for Cycle Breakers Inc. — to the county clerk.
While Proctor wrote in his response that he believed the change “would resolve this issue,” many questions remained. One concerned some of the judge's former actions, which auditors had identified as conflicting with state law.
In an attempt to address those, Proctor drafted a couple of ordinances that, he wrote, could “formalize the arrangement that has existed between our court and the Pulaski County circuit clerk.” At Proctor's request, Justice of the Peace Mary Louise Williams submitted the proposed ordinances to the county Quorum Court for approval.
However, in a close vote taken on Aug. 14, the Quorum Court rejected one of Proctor's proposals, and Williams withdrew the other.
In public comments after the audit's release, Proctor and his attorney, Mark Leverett, said they were not aware of some of the statutes the auditors cited. Proctor minimized the seriousness of what had been done, calling it “mostly technical violations of some statutes and rules.”
When asked about that statement for this article, Proctor said he had “no comment.”
He gave the same response when asked how he felt about being investigated by the State Police while sitting as a judge in court. And, again, when asked for a response to the allegations of conflict of interest.
The only question Proctor did answer concerned the additional $20 fee he recently ordered probationers to pay to Cycle Breakers Inc. He said, “I think the services and programs the program provides are commensurate with what they are being asked to pay.”
The Arkansas Code of Judicial Conduct requires a judge to “avoid impropriety and the appearance of impropriety in all of the judge's activities.”
It requires a judge “to comply with the law at all times” and to “disqualify himself or herself in a proceeding in which the judge's impartiality might reasonably be questioned.”
It also says a judge may not serve an organization in any significant capacity, “if it is likely that the organization will be engaged in proceedings that could ordinarily come before the judge.”
Further, the Supreme Court's rules require that any judge who sees “a substantial likelihood that another judge has committed a violation” of the court's Code of Judicial Conduct “should take appropriate action.”
The Judicial Discipline and Disability Commission, the body that has the statutory authority to censure or even to remove a judge for conduct “that is prejudicial to the administration of justice” has made no public statement about Proctor.
When asked if the commission was examining Proctor, David Stewart, its new director, said he could not comment.
What is known is that, late last year, as Proctor was issuing his orders to divert county funds to enable Cycle Breakers Inc. to purchase its building, James Badami, Stewart's predecessor at the commission, was asked similar questions about the judge.
In December, Badami told a reporter that his commission had received complaints about Proctor's apparent conflict of interest and the extra fees being imposed on probationers. However, Badami said that those complaints had been investigated and dismissed.
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