A Richland County attorney who served on Blythewood Town Council has been linked to an alleged $28 million health care embezzlement scheme that bilked more than 17,000 customers before authorities shut it down.
The scheme, in which attorney Kathleen Devereaux Cauthen faces federal felony charges, also involved shell corporations – some set up to allegedly launder money – in various states, including South Carolina, as well as in the Bahamas and possibly Pakistan, according to documents filed in federal court in Nashville, Tenn.
Efforts to reach Cauthen, who was suspended from the practice of law by the S.C. Supreme Court late last month, were unsuccessful Monday. She could face eight years in prison if convicted.
The court order suspending her gave no specific reason. It also ordered a receiver, Peyre Lumpkin, to take custody of her legal files and trust accounts.
According to court documents, the scheme that Cauthen aided involved setting up corporations that purported to offer legitimate health care coverage to more than 17,000 people and employer groups and the collection of more than $28 million in insurance premium payments. The people who paid premiums were in Arkansas, Indiana, Tennessee and other states, according to legal documents.
When people submitted claims for their coverage, those claims were “unjustly denied or turned down,” according to a separate filing in the case, an indictment in which she is named as an unindicted co-conspirator.
Some of those premiums people paid for health care coverage went into a bank account controlled by Cauthen and a co-conspirator, William Worthy II, at the First Citizens Bank & Trust Co in Blythewood, according to Cauthen’s information and Worthy’s indictment.
Instead of paying for health care insurance coverage, money sent to that account was “primarily converted to the personal use of” Cauthen and Worthy, her information said. An “information” is a document used by prosectors to state the charges against a defendant instead of an indictment. It often means the defendant has agreed to waive indictment and may be cooperating with prosecutors.
According to the indictment, in September 2008, Cauthen set up that account at First Citizens in Blythewood in the name of Nationwide Administrators, listed herself as the firm’s president and used her home address for the firm’s physical address.
Over the next 13 months, $1.8 million was wired to that account. During that same time, some $100,000 was wired from that account to a SunTrust Bank checking account in Mt. Pleasant. That account was controlled by a person identified only as “Individual A,” an Isle of Palms resident, according to the indictment.
The indictment in which Cauthen is named as an unindicted co-conspirator charges Worthy, Bart Posey Sr., Angela S. Posey, and Richard Hall Bachman with numerous separate counts of alleged health care fraud. Worthy already is serving a federal prison sentence at Jesup Federal Correctional Institution, a medium-security facility in Georgia for white collar and drug criminals.
Cauthen’s crimes include “theft or embezzlement in connection with health care,” according to a criminal federal information filed by prosecutors in the case.
According to court records, Cauthen waived her right to being indicted last week. She signed a statement acknowledging she could go to prison for more than one year.
A Tennessee federal magistrate judge also ruled Cauthen doesn’t have enough money to pay for a lawyer. Efforts to reach Cauthen’s court-appointed lawyer, Cynthia Chappell of Nashville, were unsuccessful.
According to Blythewood town records, Cauthen served as a council member from 2008-12.
Before joining the Blythewood Family Justice firm, Cauthen was affiliated with several well-known Columbia firms. She is a 1999 graduate of the University of South Carolina law school.
In 2010, the S.C. Department of Insurance issued a cease and desist order against Cauthen and Worthy, ordering them to halt their insurance selling activities.
In that order, the state insurance department described the scheme as involving “unlicensed insurers and phony insurance, sham corporations and shady associations, deals with Pakistani companies and with entities in the Bahamas, fraudulent insurance documents and fake credit instruments and many millions of consumers’ dollars (including South Carolina consumers’ dollars).”
However, the two immediately appealed that order to the Administrative Law Court. That case is still pending, according to a law court spokeswoman.
If convicted, Cauthen would be the latest in a string of South Carolina lawyers linked to high-profile felony theft or other white collar crimes.
In the past year, former Lexington lawyer Richard Breibart has pleaded guilty in federal court to fleecing clients of millions, and S.C. State University former counsel Ed Givens has pleaded guilty to concealing his knowledge of a kickback scheme at the university. In February, former Florence attorney William Rivers pleaded guilty to federal fraud in connection with the theft of some $3.3 million from more than 100 of his firm’s clients.