First federal charges in connection with housing program prosecutors call ‘riddled with fraud’

Eight people were charged Thursday in what federal prosecutors are calling a “massive” scheme to defraud Minnesota’s embattled Housing Stabilization Services program of millions of dollars for services they never provided to vulnerable people.

In a news conference, the U.S. Attorney’s Office announced the “first wave” of wire fraud cases connected to what was described as a sprawling plot to defraud the Medicaid benefit program by creating sham housing companies.

“The HSS program is riddled with fraud,” said acting U.S. Attorney Joe Thompson. “Many of these companies operated out of dilapidated storefronts or run-down office buildings that were full of other fraudulent health care companies.”

Thompson said the defendants charged Thursday followed a similar pattern by identifying Medicaid-eligible individuals, many of whom were exiting drug or alcohol rehab facilities, and signing them up to receive housing stabilization. The defendants then billed Medicaid for services they did not provide.

“The money was just simply stolen,” Thompson said. The money stolen among the defendants in the latest indictment amounted to more than $10 million, he noted.

The charges are the latest development to rock the program created to find and maintain housing for older adults and people with disabilities, mental illness and substance-abuse disorder. Minnesota was the first state to opt into the Medicaid-funded benefit in 2020, with an estimated annual cost of $2.6 million, according to the Department of Justice. The spending quickly and dramatically surpassed those projections. Last year, more than 700 providers received more than $100 million in Medicaid payments, according to data the DHS provided to the Minnesota Star Tribune.

Eric Grumdahl, the state official overseeing housing instability programs, departed his role Tuesday as assistant commissioner of the Homelessness, Housing and Support Services Administration. The Minnesota Department of Human Services declined to say why. His exit came the day before Gov. Tim Walz announced his signing of an executive order detailing measures to combat fraud, including data-driven reviews of billing, increased transparency and coordinating council between inspectors general of different agencies.

DHS is seeking to terminate the program and said it cut off payments to 115 providers that billed the state for more than $100 million. How much of that $100 million may be fraudulent is not clear.

DHS officials told lawmakers Wednesday they have historically waited to cut off payments while they investigate providers to avoid tipping off fraudulent actors who may delete evidence or tamper with witnesses. Now, they say they’re shutting off payments at the first credible allegations of fraud.

In response to the indictments, Department of Human Services temporary Commissioner Shireen Gandhi said the charges should serve as a “warning” to fraudsters.

“The charges announced today are the result of ongoing collaboration between the Minnesota Department of Human Services and our law enforcement partners to root out fraud in state programs and hold criminals accountable,” she said in a statement. ”Let today’s actions serve as a warning to anyone who steals from Minnesota taxpayers: You will be prosecuted to the fullest extent possible by our law enforcement partners.”

Minnesota Attorney General Keith Ellison in a statement made similar remarks while expressing disappointment over state lawmakers’ refusal during the legislative session this spring to fund the expansion of the Medicaid Fraud Control Unit in the state office.

The first defendants include:

Court records do not list attorneys for many of the accused. Joseph Tamburino, Asad Adow’s attorney, declined to comment. A message was left for Patrick Cotter, Anwar Adow’s attorney.

Thompson described the latest indictment as an “all too familiar” tale in Minnesota and drew parallels to another mammoth federal fraud investigation, the Feeding Our Future case. In that investigation, more than 70 individuals have been charged with defrauding a federal child nutrition program by claiming to have served needy children during the COVID-19 pandemic and requesting reimbursements. In reality, they used the money for lavish personal purchases.

“Most of these health care fraud investigations ... essentially grew out of the Feeding Our Future investigations,” Thompson said. “We just went down that rabbit hole of looking at bank records and looking to these individual companies.”

None of the individuals in the latest indictment are tied to the Feeding Our Future prosecution, Thompson said, but said there is overlap between the cases. He pointed to the prosecutions as examples of a “wholesale attack” against Minnesota’s programs that show the state’s “trust but verify” system underpinning its social services ecosystem no longer works.

James Clark, inspector general for the Minnesota Department of Human Services, said in a legislative hearing Wednesday that the agency is seeing webs of providers work together across programs to defraud the government. Rather than rogue employees committing fraud, he said, “fraud is the business model.”

“Greedy people and businesses have learned how to exploit our programs,“ Clark said. ”It’s an unfortunate reality, but this work is serious and challenging.”