Proctor: Day Three UPDATE | Arkansas Blog

Wednesday, April 29, 2009

Proctor: Day Three UPDATE

Posted By on Wed, Apr 29, 2009 at 1:06 PM

A three-member panel of the Arkansas Judicicial Discipline and Disability Commission is halfway through its third day of hearing 11 ethical misconduct charges against Circuit Judge Willard Proctor of Little Rock. It will make a recommendation to the full commission. At worst, he could be removed from the bench, though the final decision will be up to the Arkansas Supreme Court.

The day has been highlighted by tough testimony against Proctor's financial practices by both a forensic accountant and a state legislative auditor. Each testified that Proctor did things for which they were unaware of support in the law. The accountant compared Proctor's operation of the Cycle Breakers probation program in his court and the related Cycle Breakers Inc. to the lawless operation of Enron, the failed energy company.

UPDATE ON THE JUMP: In cross-examination, Porter didn't shake accountant Bruce Engstrom's testimony and another Proctor employee relayed strange tales of the court.

By Mara Leveritt

 

A forensic accountant, Bruce Engstrom, testified that Proctor appeared to have made “misrepresentations” to government offices in obtaining nonprofit status for the nonprofit, Cycle Breakers Inc., that receives revenue from a probation program in Proctor’s court. He said claims to the federal and state were “not accurate.” He said the source of money was purported to be “public charity,” meaning contributions that could be deducted on tax returns. In actuality, the source of funding Proctor ordered probationers to pay. “These fees don’t count as public support,” Engstrom said.

 

He explained that IRS requires public support to be “widespread, community based and voluntary/” In addition, state and federal laws require that all of a nonprofit’s revenues must go to the nonprofit’s stated purpose. Engstrom said Cycle Breaker expenditures for such things as computer equipment for Proctor’s courtroom fell outside the stated purpose. In further testimony, he said Cycle Breakers appeared nothing more than an “alter ego” of Proctor. He compared operations of Proctor’s court to operations of the failed energy company Enron.

 

Engstrom said that Enron “did not want to reflect on its books” the activity of some of the entities it controlled, lest that impact negatively on its stock. But they controlled the activities of these entities and that later resulted in Enron’s failure. Since then, Engstrom said, auditors have been required to look for similar situations … “where somebody controlled something without documenting that.” Engstrom said, “Judge Proctor controls 100 percent of the revenues of Cycle Breakers Inc. And Judge Proctor controls all of the disbursements of Cycle Breakers Inc. And when you control the revenues and disbursements, it doesn’t matter whether you are on the board of directors or not. It was all Judge Proctor.” He said Proctor was doing the same thing Enron did, but for different purposes. Both were hiding financial transactions from where they were occurring to make it appear they were occurring somewhere else. He said he was particularly concerned about blank checks that were signed by staff and given to Proctor. Such checks, he said, bypass the internal controls that the authorized signatures supposedly suggest.

 

Engstrom said what he found “most striking” was “the charade of having other peoples’ signatures on the checks because it showed an overt attempt to create a document that is a fiction. That is a form of deception in my business.”

 

In response to questions by David A. Stewart, director of the Commission, Engstrom said he came to the conclusion that money never left the control of Judge Proctor. “He creates the money in the Fifth Division Circuit Court and he controls disbursement from Fifth Division Circuit Court.”

 

When asked about his review of the books, tax filings and annual audits of Cycle Breakers Inc., Engstrom said he found “numerous and vast discrepancies.” Austin Porter, Proctor’s attorney, will cross-examine Engstrom this afternoon. Engstrom, in response to questions, said he had been paid almost $50,000 so far for his work, at $295 an hour, in examining Proctor's operation and in attending the hearings.

 

Earlier in the day, Porter asked the three-member panel hearing testimony about Proctor to recuse. “It is quite obvious to me this panel cannot be fair,” he told Circuit Judge Leon Jamison, attorney Jerry Larkowski and the panel’s lay member, Chuck Dearman. Jamison refused the request.

 

David Sachar, an attorney for the Commission, which is seeking to prove 11 charges of misconduct against Proctor, called Kim Williams to testify. Williams oversees the investigative arm of the Division of Legislative Audit. It reported in 2007 on what she called “the confusing relationship” between Cycle Breakers Inc. and the Cycle Breakers probation program in his court. She said the audit found that county employees who worked for Proctor maintained the checking accounts for Cycle Breakers Inc. With regard to financial accounts of the two entities, she said, “you could never tell where the lines stopped …. It was all woven together. We were of the opinion that the judge who orders the sentencing and fees should not have control of the funds.”

 

Williams said the phone number and address for Cycle Breakers Inc. was listed as Proctor’s office and books were maintained there. On the other hand, she said, the treasurer of Cycle Breakers Inc. was not allowed to have access to the accounts. Sachar asked about a 2006 Proctor order that half of the probation fees assessed by the county would henceforth be paid to Cycle Breakers Inc. in order for it to purchase a building. Williams said the Quorum Court objected to that because the county’s rights to those fees in total was established in law. “It was our opinion that a circuit judge cannot have the power to overturn a state law.” When asked about the term “civil probation,” she said, “We could not find any statutory authority for it.” (This was a process by which Proctor retained personal control over probationers who had otherwise completed terms of probation on criminal convictions.) Williams continued, “I never could understand how if you’re not on probation you could still be assessed fees and be required to attend meetings. We could never get our hands around that.” She noted that Arkansas law allows courts to assign probationers to “community-based” programs. “However in our opinion, this was not a community-based program, it was a court-based program.” When Proctor’s attorney questioned Williams, he asked if Williams had found evidence of fraud. She said no. In response to further questions, she said County Attorney Karla Burnett was aware fees were going to Cycle Breakers and Burnett did not appear to have a problem with that.

 

Porter then presented Williams with a photo of an ATM machine for Delta State Bank and Trust that is located in the building occupied by the Pulaski County prosecuting attorney, Larry Jegley. He also noted that offices of the Arkansas Democrat-Gazette were located at both the county courthouse and state Capitol (a reference to press room space provided in those buildings). “So there you have for-profit organization,” he said, “operating out of the state Capitol.”

 

Williams looked perplexed. She said she’d never noticed the ATM and she offered the opinion that Coke machines were also located in county buildings. Porter responded that these were not Coke machines. “Those ATM machines take in a lot of money.”

 

(A spokesman for the county said when the county purchased the building in which the prosecutor's offices are located, a condition was continuing existing contracts for the teller machine and a microwave tower atop the building.)

 

In conclusion, Porter asked Williams if the State Police had investigated Cycle Breakers. Williams said that it had and that she was told investigators found “nothing of a criminal nature.”

 

UPDATE

 

In the afternoon, Austin Porter cross-examined Engstrom. The exchanges quickly degenerated as Porter sought to distinguish between the probation program and the nonprofit. Engstrom refused to say such a distinction existed. “They are one in the same,” Engstron insisted. “Whatever you call them, they are the alter ego of Judge Proctor.”


“Yes, sir,” Porter responded repeatedly. “And I understand you are being paid $50,000 to say that.”


After several such exchanges, Judge Jamison asked Porter to refrain from making the remark in the “interest of civility.”


There followed an exchange in which Engstrom said Proctor engaged in a conflict of interest in that he would be an active participant in  spending money he generated. Porter asked if it would make a difference if Proctor ceased his involvement in expenditures after the 2007 audit. He said it would not because Proctor still controlled the non-profit’s board. “If they didn’t do what he wanted them, to do, he jerks their revenue and they go out of business."


“But he hasn’t done that, has he?” Porter responded.


“It’s not that he has, it’s that he can that gives him the control,” Engstrom replied.


"But do you think he’d run the risk of doing that in light of the legislative audit,” Porter asked.


“I wouldn’t think he’d run the risk of doing what he’s already done,” Engstrom responded.


He further testified with regard to money collected for victim restitution. He said some of the money did not go to the victims and other money was not accounted for.


Engstrom said Proctor was quoted in a deposition as not dealing in blank checks. But he said, “I believe he did.”


A current employee of the judge, Alice Abson, testified that Proctor had people authorized to sign checks to provide him with blank checks. She also said that Proctor attended and recorded the minutes for the non-profit's board meetings. She also contradicted what Proctor once told the Little Rock Board of Directors when it was seeking to use an abandoned school building. He said sex offenders did not use the program, but they did, she said. She said that Proctor became angry any time she or anyone else questioned something she did.


She said he told her at various times that he hated her, that he told the staff sometimes he was so angry at them he could kill them and that he had called her and other staff members “devils.”


By contrast, she said, he once noted when 12 members of the staff were with him, “You’re my staff members and I’m God.” Proctor appeared visibly upset by this testimony. He lowered his head and shook it.

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