Golden Valley nonprofit target of state, federal investigations

A nonprofit executive is the target of separate federal and state investigations for allegedly siphoning millions of dollars from his Golden Valley-based home health care agency to finance luxury shopping sprees, risky investments and six-figure salaries for himself and family members.

Michael Tobak, the former president and treasurer of International Health Care Services (IHCS), acknowledged that he has borrowed from the nonprofit for business development, investments and some shopping purchases. But he told the Star Tribune that he has always paid back those loans with interest.

"We are honest people," he said. "We borrowed the money and we returned that money."

The Minnesota attorney general's office began looking at Tobak and IHCS in August, according to court records. The U.S. attorney's office and the Internal Revenue Service's Criminal Investigation unit also are scrutinizing Tobak and the IHCS, which was called before a federal grand jury in April 2015.

"Tobak and his family appear to have used IHCS's charitable assets for, among other things, shopping excursions at Neiman Marcus and Saks Fifth Avenue and to pay themselves six-figure salaries," according to a court document filed by Attorney General Lori Swanson. "IHCS also 'loaned' Tobak $10 million of its charitable assets and he promptly lost $9 million of this amount in a single futures trade."

IHCS receives Medicare and Medicaid dollars to provide home health services focused on clients with a "multicultural and international background, primarily the non-English speaking aged community," according to federal tax filings.

Tobak said that IHCS serves 500 clients and employs 350 people. Reached at his office Tuesday, he admitted making some accounting mistakes after turning his for-profit business into a nonprofit in 1999, but said the services he provides are legitimate.

Tobak's attorney is trying to stall the state's civil investigation and postpone responding to state demands for information until the federal criminal case is settled. His argument: To respond to the state now would violate Tobak's Fifth Amendment right not to incriminate himself.

IHCS and Tobak are currently "negotiating a potential resolution of the U.S. attorney's investigation that might result in a guilty plea by Tobak to a federal crime," wrote defense attorney William Mauzy in a court filing.

Swanson's office is pushing back, arguing that the separate state investigation should move forward.

"The conduct being investigated is troubling. We believe our investigation should be permitted to proceed under the charities laws, notwithstanding any criminal investigation," Swanson said.

Under Minnesota and federal law, nonprofits receive tax breaks. In return, a nonprofit's assets "must be used to benefit the organization's charitable purposes and the public benefit, rather than for the benefit of those who manage the assets," according to a brief filed by Swanson's office.

Tobak immigrated from the Soviet Union to the United States in 1989, he said. He worked as a home health aide while attending the University of Minnesota, an experience that led him to open a home health company in 1993. He said his accountant advised him to turn it into a nonprofit in 1999.

"Michael did not appreciate the significant differences in running a private corporation and a nonprofit," Mauzy said in an interview. "It is a real business. The day-to-day operations are continuing. They continue to provide outstanding services to their clients."

Tobak served as president and treasurer until he resigned in August. His wife Irina now runs the nonprofit. Until recently, the IHCS board of directors had solely comprised Tobak and his family.

Tobak's salary in 2015 was $683,615, a dramatic increase from $73,000 in 2013. His wife, daughter, sister and brother-in-law also were on the payroll. Irina Tobak's salary increased from $46,800 to $140,000.

In addition to collecting a paycheck, Tobak's brother-in-law billed the nonprofit $5,250 a month for IT services.

"I have a study that shows I was personally underpaid for several years," he said. "When we decided to change things and give ourselves appropriate wages and salaries, it looks like a six-figure salary — yes, because we deserve that."

Tobak said he did use IHCS money for some shopping.

"Yes, I wrote out a few checks for those stores," he said. "I returned all the money that I borrowed. I paid for the checks with interest."

Tobak said his goal now is to resolve the investigations and keep IHCS afloat.

"We would like to continue to work and to correct things. I have made mistakes because I didn't know. I am taking responsibility for those mistakes," he said.