When Shirley German couldn't get her son's guardian — an attorney handpicked by the Department of Veterans Affairs — to fork over $250 for Thanksgiving dinner for the disabled U.S. Marine and his family, she sensed something askew.
Her son, after all, had more than $200,000 in veteran's benefits saved in accounts the guardian controlled.
That man, Joe B. Phillips, a 71-year-old Houston lawyer and former VA employee, now stands accused of stealing more than $2 million from at least 28 Texas veterans and hiding those thefts with faked bank statements, padded expenses and even imaginary accounts verified with forged signatures, according to dozens of civil suits and a 2010 federal court indictment.
His 70-year-old wife and legal assistant, Dorothy Phillips, faces identical charges.
The fraud appears to be the largest ever detected in the VA's enormous guardianship program.
Individual disabled vets lost anywhere from a few thousand dollars to more than $250,000.
Among the Houston victims was German's son, Leland Spencer (pictured), 39, a Marine who had been scheduled to be shipped to Iraq in 1991 when he collapsed in a coma and nearly died of a crippling disease at a U.S. military base on Okinawa.
"My son paid a price and the rest of the disabled veterans did, too — and I'm furious they have to go through something like this," German said.
Spencer and most other veterans have received only partial repayments from the VA so far, though his current attorney, W. Kevin Alter, who was among the lawyers appointed to clean up the mess, predicts that all vets will be fully compensated as a result of court battles that continue in Harris and four other counties in Southeast Texas.
Spencer joined the Marines when he and his twin sister graduated from Kashmere High School in 1989. He had dreamed of a military career. Instead, every day he folds his 6-foot-1 frame into a motorized wheelchair and makes the best life he can despite a limited ability to speak and move freely.
He still proudly wears his Marine Corps cap, bracelet and the tattoo he got right after joining up. Lianne, 39, a U.S. Army veteran herself, said her brother is fortunate to have the support of a close-knit family. Other disabled vets aren't so lucky.
"There are people over their money and they spend it," she said. "That's why you see veterans under an overpass with a cup."
Collectively, the VA's guardianship program manages cumulative estates exceeding $3 billion and oversees benefit payments for about 108,000 veterans and other beneficiaries — such as widows and children — who, because of "injury, disease, or the infirmities of age" cannot manage their own financial affairs, according to recent congressional testimony.
Only three cases of fraud exceeding $1 million have been detected in the program's history: in California, Texas and Minnesota, according to information VA officials provided to Congress in April. They refused to provide details for this story.
For years, Spencer's mother said she had to beg Phillips for money to repaint scuffs made by her son's motorized wheelchair on the walls of his house. Meanwhile, Phillips and his wife drove a Lexus and racked up $8,337 in debts at the L'Auberge du Lac Casino in Lake Charles, La., bankruptcy documents show. Phillips filed bankruptcy in 2009 to try to protect his assets against claims filed on behalf of disabled veterans.
Insurance companies that guaranteed his guardianship work have countersued Phillips to recoup their losses.
In answers to lawsuits, Phillips has argued that the VA — and U.S. taxpayers — should pick up the tab for the debacle since under various laws federal officials are required to audit, review and approve all bills submitted by VA-approved guardians. He did not respond to a request for comment for this story.
The theft went undetected for years despite required reviews by VA officials and audits by Harris County probate courts, which oversaw many of the guardianship cases.
Court officials and lawyers described the fraud as "sophisticated." Some bank statements and expenses appeared to have been expertly altered. In one case, the signature of a real out-of-state bank official was lifted from another document to falsely verify the existence of a phony bank account. A signature that appears to be Phillips' is on at least $1 million in checks payable to himself against the accounts of 20 veterans.
Phillips has acted as a guardian for dozens of veterans for decades after leaving his job at the VA in Houston. The total number of victims and the scope of the fraud remains unknown. In addition to the guardianships, Phillips also managed estates of veterans who died and managed and received payments for other disabled veterans who did not have guardianships.
A Houston VA field auditor first discovered that Phillips' client files were "incomplete, misleading or inaccurate" in a routine visit in November 2007, federal court records show. A subsequent review in 2008 found a $2 million shortfall. Phillips and his wife were charged with 26 counts of conspiracy, tax fraud, misappropriation of veterans' funds and related crimes in June.
A spokesman for the Houston VA Regional Office, Jessica Jacobsen, refused to say what actions the VA took to protect or compensate disabled Texas veterans during the 30 months that lapsed between the time the thefts were first detected in November 2007 and when federal charges were filed in June.
"VA's primary mission is to be an advocate for veterans, first and foremost," Jacobsen said, but she specified only that the Houston VA Regional Office "is fully cooperating with the U.S. Attorney's Office and the VA Office of Inspector General during ongoing investigation(s) into the alleged misappropriation of funds."
Phillips has generally denied he committed theft or fraud. His trial on federal charges is set for April.
"Right now the discovery process is ongoing and we are investigating the case and preparing a defense and that's all I can say right now," said James R. Alston, his court-appointed attorney.
A federal indictment claims Phillips ripped off veterans from 2003 to 2008. Attorneys say it's impossible to know exactly when the problems began since banks often don't keep records for more than five or 10 years and Phillips claims to have lost documents in a garage fire.
Some veterans were denied money they needed for living expenses, according to interviews.
Many of Phillips' own accountings showed tens of thousands of dollars missing, court records show.
He came up $49,282 short in the accounts of a 50-year-old female veteran from Houston who supports a 17-year-old son. Phillips had managed the woman's money since 1987, records show.
German's son was first assigned to Phillips in 2001 — 10 years after he nearly died in military service.
Marines arrived at Shirley German's door on June 19, 1991, and told her that her son, then 20 years old, had two days to live.
Spencer's unit had been stationed on Okinawa and in the Philippines, and she'd been expecting him to be deployed as part of Operation Desert Storm, when the U.S. and its allies invaded Iraq during the first Gulf War.
The single mother of seven immediately flew to a military hospital on Okinawa, where Spencer lay in a coma produced by a deadly strain of encephalitis B endemic to rural Asia, and watched until he gradually recovered enough to come back to Houston, barely able to move or speak.
"God did not see fit to call him home," German said. "He's been in a wheelchair for 20 years."
She said federal prison is too good for Phillips and his wife.
"I would like for him to be sentenced to wear a sign saying 'I stole from disabled American veterans,' and stand out in front of the VA hospital," German said.
Monday, November 8, 2010
Houston lawyer, who was a designated VA guardian, accused of stealing more than $2 million from disabled vets
The Houston Chronicle:
Posted by BA Haller at 1:51 PM