Anti-Crime Loans Buy Seniors Karaoke as Banks Reap Credit

Senior Crimestoppers Website
Senior Crimestoppers website is shown in a screen grab taken on Monday Feb. 27, 2012. Senior Crimestoppers, on its website, bills itself as “the only initiative, public or private, that is having a measurable impact on the problem of nursing home crime in America.” Source: Senior Crimestoppers via Bloomberg

With enthusiastic endorsements from top U.S. financial regulators, a Memphis, Tennessee-based organization has signed up 250 banks in 47 states to fund a program dedicated to fighting crime in nursing homes.

In return, the Senior Housing Crime Prevention Foundation promises the banks will earn “risk-free” credit for complying with the Community Reinvestment Act, the federal law requiring them to bolster the economies of low-income neighborhoods.

Banks working with the group aim to satisfy the law’s imperatives in a novel way: Instead of the typical affordable housing projects or small-business loans, they have loaned or invested almost $350 million to pay for personal lock boxes for nursing-home residents, a 24-hour crime-reporting hotline and entertainment including karaoke machines and video game systems.

While the foundation’s website states that its Senior Crimestoppers program cuts crime by 92.5 percent, its officers said they couldn’t release crime data from individual nursing homes because of confidentiality agreements. Interviews with some participating homes suggest the calculation isn’t rigorous.

The foundation’s financial structure and its close ties to the company that supplies the lock boxes depart from standard charity practices, according to analysts who reviewed the records at the request of Bloomberg News. The impact of the donated lock boxes also is unclear. Some nursing home administrators said they don’t need or use them because residents already have locking dresser drawers.

‘Lacks Transparency’

The foundation and regulators are giving banks a way to circumvent the spirit of the law known as CRA, said Peter Skillern, executive director of the Community Reinvestment Coalition of North Carolina, a nonprofit advocacy group.

“That is not in any way related to lending or investing in neighborhoods,” Skillern said in an interview. “This is an operation that allows banks to avoid substantive, meaningful CRA investment, and its operations lack transparency and accountability.”

Under the 1977 law, banks must lend and invest in their regions to benefit people with low and moderate incomes or face restrictions when they seek to expand. While some fairly large banks such as SunTrust Banks Inc. and BB&T Corp. participate in Senior Crimestoppers, the program holds special appeal for institutions with a few billion dollars in assets that may have difficulty competing with bigger banks for CRA-qualified investments, foundation officials said.

Banks earning credit through Senior Crimestoppers take on less risk than they would in traditional projects. Their funds are parked in government bonds or other instruments of their choosing and they keep any returns above a one percent fee to Senior Crimestoppers -- which uses its cut to pay for the lock boxes and other program expenses.

Bair’s Endorsement

While the banks get their principal back after seven or more years, regulators routinely give them credit for the full amount on deposit with the program, rather than just the one percent in interest they effectively donate.

At annual conventions held to recruit new banks, the organization’s speakers have included Sheila Bair, then-chairman of the Federal Deposit Insurance Corp.; Martin Gruenberg, now acting FDIC chairman; Elizabeth Duke, a Federal Reserve Board governor; and John Reich, a former director of the Office of Thrift Supervision. All three agencies give community reinvestment credit for Senior Crimestoppers. Reich joined the foundation’s board after leaving OTS.

“The FDIC strongly supports these efforts, and we show it by granting CRA credit for loans and investments that banks make in the foundation,” Bair told about 200 bankers attending the 2009 convention at the Willard InterContinental Hotel down the street from the White House. “Your work will be increasingly relevant for many years to come.”

‘True Barometer’

Senior Crimestoppers, on its website, bills itself as “the only initiative, public or private, that is having a measurable impact on the problem of nursing home crime in America.” It calls the 92.5 percent drop “a true barometer of results, based on fact.”

Peter Gwaltney, chairman, chief executive officer and president of the foundation, said the group doesn’t claim that its crime data is capturing every incident.

“We don’t hold it up to be perfect,” Gwaltney said in an interview. “It’s just the best we can do.”

Gwaltney, 48, said he’s proud of the service provided by Senior Crimestoppers, which he said is intended to supplement, rather than supplant, typical community development. It helps smaller banks seeking CRA projects that aren’t too risky in a difficult economic environment, he said.

Multiplier Effect

“We just want to be a small part of every bank’s CRA program,” Gwaltney said.

For some banks, Senior Crimestoppers is their only major CRA investment. That’s been the case for the Bank of Oak Ridge in North Carolina, which in 2007 gave $1.6 million to be held for 10 years in a bond. The foundation’s one-percent take amounted to about $64,000 through 2010, according to a FDIC examination report. The rest of the earnings went to the bank. At the end of the 10 years, the bank gets its $1.6 million back.

The investment by the Bank of Oak Ridge sponsors Senior Crimestoppers at two nursing homes in nearly Greensboro. The FDIC, in its most recent published CRA examination of the bank, categorized the transaction with the foundation as an “affordable housing” investment worth $6.4 million -- the $1.6 million loan multiplied by the four years it was held by the program during the exam period.

While the bank also makes CRA-qualified loans to a women’s shelter and small businesses, Senior Crimestoppers is a good way to serve the community, Karen Lewis, the bank’s CRA director, said in an interview.

Suntan Spray

“This is one of those ways that we can do it, and we can qualify for CRA credit as well -- and also it is low-risk,” said Lewis, who said she visited the nursing homes to give supplemental talks on avoiding identity theft.

Senior Crimestoppers has its roots in a for-profit business started in 1995 by Charles C. King III of Memphis, whose previous ventures included a dumpster franchise and an invention he called Sun Centers -- coin-operated Polynesian-themed kiosks where beachgoers could get sprayed with suntan lotion.

King was employed by a division of Memphis-based National Commerce Bancorp. that was looking to provide non-traditional services. “My brain started working, and I said, you know what would really be effective is if we could adapt local crimestoppers programs and couple that with lock boxes for residents in nursing homes,” King, 66, said in an interview.

Swimming Accessory

He found a company that made the “lounge locker” -- a box attached to pool furniture to protect swimmers’ valuables. King said the boxes and hotline proved popular in nursing homes where they were tested. The bank created a subsidiary called USI Alliance with King in charge and trademarked the Senior Crimestoppers name.

USI Alliance charged nursing homes a few dollars a month per bed, suggesting they pass the cost to residents “at an increased rate, thus creating an additional profit center,” according to a 2001 operations manual the company submitted to the Internal Revenue Service. The company offered a cut to nursing home associations that recruited their members.

The operation had nothing to do with the Community Reinvestment Act until 2000. National Commerce’s depository bank had been getting relatively low CRA scores from regulators and, according to King, wanted to raise its rating. He said he flew to Washington to convince the bank’s overseer, the Office of the Comptroller of the Currency, that Senior Crimestoppers should qualify as a service project under recently expanded CRA guidelines, because nursing home residents are typically poor.

Complex Structure

The OCC agreed. “We reviewed it and it fit,” Barry Wides, the agency’s deputy comptroller for community affairs, said in an interview.

King wanted other banks to participate. To claim CRA credit, those institutions would need entities to receive donations, loans or investments. King and colleagues set up a complex structure. USI Alliance would continue to operate as a for-profit, supplying the lock boxes, hiring a contractor to run the hotline, paying reward money for tips that lead to arrests and doling out cash grants for entertainment. A new non-profit Senior Housing Crime Prevention Foundation would accept bank loans. A new for-profit, the Senior Housing Crime Prevention Investment Fund, would handle bank investments.

The Internal Revenue Service initially rejected the foundation’s application for tax-exempt status, saying in a 2003 letter that it appeared to be little more than a “valuable, captive source of business” for USI Alliance, which also had several of its people on the foundation’s board.

IRS Reversal

“Most of your expenses will go to USI under a service contract not negotiated at arm’s length,” the IRS wrote. “You are controlled by private interests, and the facts indicate that your operations will substantially benefit those private interests.”

A year later, the IRS reversed its decision after the foundation promised that a majority of the board would be independent and agreed to review its contract with USI Alliance every five years.

USI Alliance remained a subsidiary of National Commerce until 2004, when the bank was absorbed by SunTrust. The unit was spun off in 2006, purchased by King, who sold it last year to the Independent Community Bankers of America, a Washington-based trade group, for an undisclosed price.

Strong Ties

Ties remain strong between the for-profit USI Alliance and the foundation. In 2010, the foundation paid USI Alliance $1.4 million to run the program and had few other operating expenses, tax filings show. The two entities share the same president, Gwaltney, and same chief financial officer, Thomas Fehrmann.

The foundation’s nine full-time staff members draw their paychecks from USI Alliance, the IRS filing shows, meaning that none of their salaries are publicly disclosed.

Two members of USI Alliance’s four-member board are also on the foundation’s eight-member board. Executives from the community bankers association sit on both boards.

The separate Senior Housing Crime Prevention Investment Fund has the same officers and board members as the foundation.

“Their governance is flawed, and I would steer donors away from this organization because of this arrangement,” said Daniel Borochoff, president of CharityWatch, which evaluates nonprofits. Borochoff questioned why the foundation needed to hire USI Alliance to do its work.

‘Shell Portal’

“Probably the biggest concern of all is that it appears that this organization is largely a shell portal through which a for-profit company is getting business,” said Ken Berger, president of Charity Navigator, which also assesses nonprofits.

The foundation’s practice of paying some board members was questioned by Gary Snyder, a board member of the National Committee for Responsive Philanthropy and a consultant to non-profits on governance issues. Former OTS director Reich, for example, earned about $50,000 in 2010 from the foundation and related entities, records show.

“It’s legal, but it just doesn’t sit well with me,” said Snyder, who estimates that less than 5 percent of the non-profits he works with have paid board members.

Fehrmann, 57, said board members are paid in part because they recruit banks for the program. “We look to them to help us with the people they know,” he said. “Several members of our board of directors have brought us business, and we pay them a commission, if you want to call it that.”

Making Introductions

Reich, in particular, has been helpful in introducing the foundation to community bankers and in setting up meetings with regulators, Gwaltney and Fehrmann said.

In an interview, Reich said he joined the foundation’s board because Senior Crimestoppers is a “very impressive” program. “I think there’s a strong need for the protection of residents in these facilities,” he said.

Asked about his payments for board service, Reich said, “I can’t say what’s typical for these kinds of arrangements.”

Meanwhile, the group’s new relationship with the community bankers association has also helped grow its business, Gwaltney said. The association, on its website and in other marketing materials, urges its members to participate in Senior Crimestoppers -- without disclosing that the association owns USI Alliance, the for-profit company with the exclusive contract to operate the program.

“It really doesn’t come up in conversation,” said Gary Teagno, president of the division of the association that operates USI.

‘Necessary’ Structure

Gwaltney said the structure of Senior Crimestoppers “sounds very complicated, but it’s all necessary for legal and liability reasons.” The relationship between the for-profit and non-profit companies “is not something we hide from in any way,” he said.

While Senior Crimestoppers could operate solely as a for-profit and still be able to help banks get CRA credit, its charitable mission is central to its marketing. That’s especially true at the group’s annual “Doing Well by Doing Good” conference, which was held in October at New York’s Waldorf-Astoria Hotel.

In a speech to attendees, Grovetta Gardineer, the OCC’s deputy comptroller for compliance policy, said her father was a minister who ran a nursing home. “I know firsthand what it’s like to want peace of mind for your loved ones,” she said. “I can tell you as a bank supervisor what a win-win it is for banks.”

FDIC’s Help

John Lund, executive vice president of Rockville Bank in Manchester, Connecticut, took the microphone to say his bank checked with FDIC field staff before making an investment in the foundation. Once the regional office learned that the agency backed the program at the highest levels, there was no problem.

“Certainly Sheila Bair’s endorsement was pretty much the end of the conversation,” he told the crowd.

Gruenberg, the acting chairman of the FDIC, had addressed the 2010 convention in Memphis when he was vice chairman of the regulator. He didn’t attend the 2011 meeting, but the foundation included his letter to Gwaltney in the conference materials.

“I hope all is well,” Gruenberg wrote. “Let me know if I can be helpful.”

Bair and Gruenberg declined through spokesmen to comment for this story.

At the 2011 conference, Gwaltney announced that crime was down by 92.5 percent through September at participating homes. He released a breakdown of reports to the hotline for the first three quarters of 2011: 42 percent involved property crime against the facilities themselves; 32 percent thefts from residents; and 18 percent abuse and neglect of residents. The hotline gets hundreds of calls a month, Gwaltney said later.

Missing Pens

Foundation officials said they compute their statistics by surveying nursing-home operators about the crime rate before they enroll and then comparing that to what is reported from the home to the hotline in subsequent months. Homes should call in “even something as small as a missing pen,” according to the Senior Crimestoppers handbook.

In an e-mail yesterday, Gwaltney supplied updated figures. He said the 1,200 participating nursing homes reported 7,187 crimes to the hotline in all of 2011 -- a rate of about 19 per day. That was 93 percent fewer crimes than the more than 102,000 crimes that the homes estimated they averaged annually before they signed up, Gwaltney said.

Outside analysts questioned the foundation’s methodology.

“Making these kinds of claims without releasing the underlying data is problematic because it does not allow for scrutiny or replication,” said Marie-Therese Connolly, a senior fellow at the Woodrow Wilson International Center and former Justice Department lawyer who has advocated for improvement of statistics on elderly abuse.

Data Challenges

Connolly, who last year won a MacArthur Foundation “genius” grant, said assessing crime in nursing homes has been a challenge for the most dedicated researchers. “We still don’t have independent and reliable baseline data to tell us how much crime there is in nursing homes, let alone the extent to which any program decreases that crime,” she said.

Determining when an incident qualifies as a reportable crime is not a scientific process, said Dwight Adams, facilities manager at the Jewish Home of Greater Harrisburg, which uses the Senior Crimestoppers program.

“When you get into serving the elderly, sometimes they misplace things themselves,” said Adams, who said the program had been useful mainly to alert the community when objects go missing. “I’m not aware that we’ve ever paid out reward money to anyone, but it has helped find some things sometimes.”

Adams noted that the state of Pennsylvania requires nursing homes to provide locked areas for their residents anyway, and so only about a fifth of the Jewish Home’s patients use the additional lock boxes provided by the foundation.

Unneeded Boxes

Another participant, the Lehigh Center nursing home in Macungie, Pennsylvania, doesn’t use the lock boxes at all because it already has locking drawers in each room, said Jonathon A. Weiland, the senior administrator.

“To put a locked box inside a locked drawer would be hard to get to,” he said.

Weiland said no crimes have been reported during his year-and-a-half at the facility and that he didn’t know the rate for previous years. The primary benefits of the program, he said, are its deterrent function and the end-of-year cash grants, which the home used in 2010 for a Nintendo Wii gaming system.

Teagno of the community bankers group said USI Alliance believes that Senior Crimestoppers helps the nursing homes: “The fact that the staff within a nursing home as well as residents realize there’s a phone number to call does provide a higher level of comfort,” he said.

Questioning Credit

Skillern, the community reinvestment advocate in North Carolina, said his biggest objection to Senior Crimestoppers is that banks get credit from regulators for the full amount of the lump sum they loan or invest, while they are really just donating one percent of the interest on the amount.

“They’re taking a few basis points and making a contribution to senior citizen homes for education around safety issues,” said Skillern, who last year complained in a letter to banking regulators about the foundation.

Foundation officials disagree with Skillern’s characterization. “When a bank makes a loan to us, they’re making a seven-year commitment,” Gwaltney said. The money “comes off their books. They’re putting it at risk.”

King, the founder of Senior Crimestoppers, said the program helps all those involved.

“It certainly is good for the residents of the nursing homes,” he said. “It’s good for the nursing homes themselves because it’s free. They get quality program at no cost. The bank is assured they’re not going to have a loss on their investment, and they earn CRA credit. It’s a win-win situation for everyone.”

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