State Files Lawsuit to Recoup $24 million in Welfare Funds

By Anna Wolfe

Mississippi Today

The Mississippi Department of Human Services is suing 38 people or companies for squandering welfare money that was supposed to address poverty in the poorest state in the nation.

The long-awaited civil lawsuit, which intends to claw back roughly $24 million in federal funds misused in a sprawling scandal officials began to unravel almost three years ago, targets famous athletes Brett Favre, former running back Marcus Dupree, former linebacker Paul Lacoste, retired WWE wrestler Ted “The Million Dollar Man” DiBiase Sr. and his two sons, among others.

The lawsuit details bold disregard from officials and contractors for either effective public spending or for the people they were supposed to be assisting — actions indicative of a state government with a cynical approach to anti-poverty programs.

“I do not understand these people,” attorney Brad Pigott, who wrote the lawsuit, told Mississippi Today by email. “What kind of person would decide that money the law required to be spent helping the poorest people in the poorest state would be better spent being doled out by them to their own families, their own pet projects, and their own favorite celebrities?”

But two entities who received welfare funds through activities referenced in recent criminal pleas — University of Southern Miss Athletic Foundation and tech company Lobaki Inc. — do not appear as defendants in the May 9 filing.

[Editor’s note: A full list of defendants and a copy of the full lawsuit appears near the bottom of this story.]

Nancy New and her son Zach New, who ran a nonprofit that received tens of millions under contracts with the Mississippi Department of Human Services, pleaded guilty in April to several charges bribery and fraud charges related to how they used their nonprofit’s public funding. Much of the money was illegally funneled to other nonprofits or contractors, which were considered “second tier” recipients of the welfare department. The latest civil lawsuit pursues some, but not all of these recipients.

Nancy New admitted to defrauding the government when she paid Lobaki $365,000 to run a virtual reality program. Her son and the nonprofit’s assistant director, Zach New, pleaded guilty to wire fraud for transferring $500,000 to the construction of the physical virtual reality center. He disguised the expenditures as “lease” payments. Zach New also admitted to defrauding the government by transferring $4 million for the construction of the volleyball stadium at University of Southern Mississippi, which was also disguised as a lease.

MDHS originally told WLBT last October that its lawsuit would include the Southern Miss athletic foundation and Lobaki.

And yet, they were apparently removed during the drafting phase, because these recipients do not appear among the defendants in the civil suit filed Monday.

Pigott, the former U.S. Attorney who was hired by MDHS to craft the lawsuit, and the Mississippi Attorney General’s Office, who is also on the suit, have not discussed their process for choosing which welfare recipients to pursue in the case. Many, but not all, of the defendants received demand letters last year from the State Auditor’s Office, the agency that originally investigated the case. The athletic foundation and Lobaki did not.

MDHS was ready to file this lawsuit over six months ago, shortly after independent auditors completed a forensic audit of the welfare program, according to media reports. But the attorney general’s office, which has authority over lawsuits filed on behalf of the state, had to give the agency the green light.

“We wanted this suit to be the best possible suit for the people of Mississippi and we weren’t going to work on any artificial timelines to get a final product,” Michelle Williams, a spokesperson the attorney general’s office, told Mississippi Today last week.

At the center of the welfare scandal is the state’s decision to contract with New’s nonprofit Mississippi Community Education Center and another nonprofit called Family Resource Center of North Mississippi to run a state-sanctioned program called Families First for Mississippi. John Davis was the director of the Mississippi Department of Human Services at the time, answering to the governor who appointed him, Phil Bryant. Christi Webb ran the nonprofit in the north.

By 2017, the second year of Davis’ administration, the state was making unprecedented up-front, multi-million dollar payments to the two nonprofits. Most of the money came from a flexible federal block grant called Temporary Assistance for Needy Families or TANF.

The lawsuit seeks to establish that Davis and Nancy New agreed together to disregard federal laws that stipulate how states may spend federal welfare dollars. Davis would push millions to the two nonprofits, which used the funds on pet projects, and in exchange, the nonprofits would pay for things that Davis wanted, such as hundreds of thousands of dollars worth of contracts to his family members and wrestler friends and luxury travel arrangements for himself, the lawsuit says.

“That illegal quid pro quo agreement and conspiracy between Davis and New resulted in all of the transfers of TANF funds for non-TANF purposes,” the lawsuit reads.

Mississippi Department of Human Services is asking the court for damages of $23.3 million from Davis and $19.4 million from Nancy New and her nonprofit. These figures represent many of the same expenditures.

But the lawsuit also asserts that the people and organizations who received funding from the nonprofits, who are named as defendants, are also liable because they knew they were receiving payment indirectly from MDHS, “which was not designed or authorized to donate public funds for the private enrichment of wealthy individuals or organizations.”

The lawsuit also says none of the recipients possessed special skills that would allow them to be paid as a contractor for the state’s anti-poverty program, and that they knew they were selected despite lacking experience or qualifications in TANF programming and without a competitive selection process.

The civil complaint represents just the first step of the state’s pursuit of repayment, and attorneys may amend the filing to add defendants when the discovery process is underway.

Circumstances outlined in the lawsuit echo Mississippi Today’s reporting in its investigative series, “The Backchannel,” including Brett Favre’s involvement in the use of MDHS funds to purchase personal investments in the pharmaceutical start-up Prevacus, which was developing a treatment for concussions.

Favre already knew that Nancy New had access to millions in few-strings-attached federal grant funds because he got her to pay $5 million towards the new volleyball stadium that the quarterback was credited with helping build at their alma mater University of Southern Mississippi, texts show.

Favre encouraged his business partner, Prevacus founder Jake Vanlandingham, “to solicit Nancy New to use MDHS grant proceeds to invest in the stock of Prevacus,” the lawsuit reads.

“She has strong connections and gave me 5 million for Vball facility via grant money. Offer her whatever you feel like,” Favre wrote Vanlandingham by text, Mississippi Today first reported.

This text came just two days after the two men met with then-Gov. Phil Bryant to discuss how to elevate and find funding for the company.

While the lawsuit highlights the Prevacus payments — which are also the subject of criminal charges against New and Davis — it does not scrutinize the role of the former governor Phil Bryant, who was also offered stock in the company.

During his last year in office, Bryant used his political influence to help advance Prevacus’ interests. The governor was set to accept the stock after he left office, texts show, but arrests derailed his arrangement.

These details do not appear in the initial civil complaint filed Monday.

The lawsuit describes the Jan. 2, 2019, meeting at Favre’s home, during which he, Vanlandingham, Davis and Nancy and Zach New discussed the deal. On paper, the parties agreed that the News would pay Prevacus $1.7 million in exchange for the promise that Prevacus would locate its clinical trial sites in Mississippi. Later, the News would funnel more money into an offshoot called PreSolMD, which Vanlandingham said was developing a preventative cream.

“That representation of that motive or purpose, for investing $1.7 million of TANF funds into Prevacus and/or PreSolMD, was false,” the lawsuit reads. “The written Agreement was a sham, as it concealed the material fact that the actual purpose of the transaction was financially to benefit Defendants Nancy New, Zach New, Jesse New, Jacob Vanlandingham, Brett Favre, Prevacus and PreSolMD.”

The New nonprofit also paid Favre individually $1.1 million under a contract with Favre Enterprises that required the athlete to “speak at three different public events, and one ‘keynote address,’ and that Favre sign autographs at events promoting MCEC itself.”

Neither Favre nor his company, the lawsuit reads, “ever performed any such speaking or autograph ‘services.’ Certainly no services were performed by Favre that had anything to do with the pursuit of lawful TANF purposes.”

The lawsuit asks for a $3.2 million judgement against Favre and $1.1 million against his company. It also asks for $2.1 million from Vanlandingham and his companies.

The civil complaint also chronicles how Davis’ brother-in-law Brian Smith and his nephew Austin Smith, the DiBiase wrestlers, friends of the wrestlers, Brett Favre and his pharmaceutical venture, and other football players came to receive millions in welfare funds.

While Davis was living at the same residence as the Smiths, he got the nonprofits to pay his sister’s husband Brian Smith or his companies over $600,000 in a nine-month span, including a $150,000 lump sum on his first pretend day of employment and $365,050 through a fake “lease” on a building that did not exist. Davis also arranged for the nonprofits to pay his 24-year-old nephew Austin Smith, who also lived at the same house, $426,397 over 17 months. They said he was teaching coding skills to needy students.

“He was not,” the lawsuit reads.

A Hinds County grand jury reindicted Davis in late March on new bribery and conspiracy charges. The new indictment says he acted in concert with or aided, among others, his sister, Twyla Smith, and her husband, the brother-in-law Brian Smith, but officials have not charged any of the Smiths.

After developing a close relationship with Teddy DiBiase Jr., Davis elevated the wrestler within the department and arranged for him and his companies to receive payment from the nonprofits, the lawsuit says. The wrestler received over $3 million in anti-poverty funds to, among other things, “address the multiple needs of inner-city youth,” the lawsuit reads, though he possessed no qualifications to provide TANF services. He received duplicate payments of $700,000 from each nonprofit, “but not in exchange for services actually performed by Teddy DiBiase,” the lawsuit reads.

“Teddy DiBiase, who spent most of his workday hours accompanying John Davis at MDHS offices and on trips, made no substantial effort to supply any such contractual services, either as an individual or through any organization or entity,” the lawsuit reads.

The lawsuit says Nancy New’s other son Jess New, an attorney and director of the Mississippi State Oil and Gas Board, helped arrange legal entities for Teddy DiBiase so the wrestler could receive more welfare funds.

Davis also directed New to transfer $30,000 in TANF funds to the Northeast Mississippi Football Coaches Association, the lawsuit says, as a reward for the organization selecting Teddy DiBiase as its 2018 banquet speaker.

Teddy DiBiase’s brother Brett DiBiase also received duplicate payments from each of the nonprofits totaling $600,000 and “never performed services of any significance which served any lawful TANF purpose.” Brett DiBiase, who also went to a luxury rehab clinic in Malibu on the nonprofit’s dime and was paid as a contractor while he was there, is the only TANF subrecipient to face criminal charges. He pleaded guilty to fraud in 2020 and agreed to cooperate with prosecutors.

The lawsuit also alleges the luxury treatment center, Rise in Malibu, knew or should have known they were receiving funds illegally, and names the facility as a defendant.

Davis got the nonprofit to pay for his travel, including first class flights, a luxury hotel suite and a chauffeured limousine, to visit Brett DiBiase in California while he was in treatment.

The lawsuit says Teddy DiBiase urged Davis to divert $1.7 million in TANF funds to his father Ted DiBiase Sr.’s ministry called Heart of David. The department contracted directly with the ministry to provide services for eligible needy people. “After receiving TANF funds pursuant to those contracts, however, they substantially ignored all lawful TANF purposes (and all of the interests of all potential beneficiaries or lawful TANF services).”

Ted DiBiase Sr. used some of the money for his personal expenses, did not maintain any personnel files or a financial management system, and while his organization maintained a website, one of the only visible, public facing products of the program, “the website content was entirely created at MDHS expense by an employee of MDHS, as ordered by John Davis,” the lawsuit reads. Davis, Webb and Family Resource Center employee Amy Harris also arranged for the nonprofit to pay Ted DiBiase Sr. a lump sum of $250,000 for motivational speaking.

When he received the check, Ted DiBiase Sr. emailed his sons, “Look what I got today!” the lawsuit says.

The lawsuit asks for almost $2.9 million in damages from Teddy DiBiase and the same from his companies, almost $2 million from Ted DiBiase Sr., $1.7 million from Heart of David, $824,258 from Brett DiBiase, $48,000 from his company Restore2 LLC, and $160,000 from Rise in Malibu.

The lawsuit says Teddy DiBiase Jr. also urged Davis to divert TANF funds to a consulting and management services contractor Adam Such. Davis got Webb to pay Such $250,000, the lawsuit says, to pretend to operate a “Center for Excellence” and a “referral network,” though “nothing of substance was expected of or delivered by Such.”

Davis similarly arranged for TANF money to go to Teddy DiBiase’s business associate Nick Coughlin, an aspiring actor and reality TV contestant who worked for powerful law firm Butler Snow and in the Mississippi Attorney General’s Office in 2020, though he is not an attorney. His degree is in business and marketing from Mississippi College, according to his resume. His resume says his skills are in marketing, brand management, economic development and motivational speaking.

Coughlin received almost $169,000 “to perform vague tasks such as having ‘conversations with industry leaders,’” the lawsuit reads, though he and his company “never engaged in any substantial activity … much less did they do anything toward pursuing lawful TANF purposes.”

Former linebacker and Jackson native Lacoste, described as “active in political affairs in Mississippi,” the lawsuit says, knew or should have known that Davis ran a government agency charged with assisting the disadvantaged when the athlete proposed the director divert money to his fitness program. His company Victory Sports Foundation received $1.3 million to conduct “fitness boot camps” in Flowood, Madison and Pascagoula, the lawsuit says, which were not lawful under TANF guidelines.

The lawsuit asks for $1.3 million in damages from Lacoste and his company.

Both nonprofits paid Marcus Dupree large salaries to act as a “celebrity endorser” and “motivational speaker,” and the New nonprofit effectively purchased and paid the mortgage on a 15-acre property in Flora in the name of Dupree’s nonprofit, Marcus Dupree Foundation, but which the athlete used as his private residence.

The lawsuit asks for $371,000 in damages from Dupree and his foundation.

The lawsuit also attempts to recoup funds from four other entities that it says illegally received TANF funds, SouthTec, Inc., Chase Computer Services Inc., Warren Washington Issaquena Sharkey Community Action Agency and Soul City Hospitality. Mississippi Today first reported that Jackson restauranteur Jeff Good’s nonprofit, Soul City Hospitality, received federal funds through a sublease agreement with the New nonprofit for a project that was supposed to turn “ugly” produce into meals for poor residents. The program fed no one.

The lawsuit asks for damages, plus additional awards for legal fees, from the following defendants:

• John Davis ($23,256,224)
• Brian Smith ($615,894)
• Austin Smith ($426,398)
• Nancy New ($19,403,504)
• Mississippi Community Education Center ($19,403,504)
• New Learning Resources Foundation Inc. ($6,513,393)
• Zachary New ($2,100,000)
• Jesse New ($2,654,221)
• Magnolia Strategies LLC ($554,221)
• Family Resource Center of North Mississippi ($3,852,720)
• Christi Webb ($3,852,710)
• Amy Harris ($250,000)
• Brett Favre ($3,200,000)
• Favre Enterprises ($1,100,000)
• Jake Vanlandingham ($2,100,000)
• Prevacus, Inc. ($2,100,000)
• PreSolMD, LLC ($2,100,000)
• Ted DiBiase Sr. ($1,971,223)
• Heart of David Ministries Inc. ($1,721,223)
• Ted “Teddy” DiBiase Jr. ($2,897,487)
• Priceless Ventures LLC ($2,197,487)
• Familia Orientem LLC ($700,000)
• Brett DiBiase ($824,258)
• Restore2 LLC ($48,000)
• Rise in Malibu ($160,000)
• Adam Such ($250,000)
• SBGI LLC ($250,000)
• Nicholas Coughlin ($168,733)
• NCC Ventures LLC ($168,733)
• Paul LaCoste ($1,309,183)
• Victory Sports Foundation, Inc. ($1,309,183)
• Marcus Dupree ($371,000)
• Marcus Dupree Foundation ($371,000)
• SouthTec, Inc. ($137,935)
• Chase Computer Services, Inc. ($375,750)
• Soul City Hospitality LLC ($200,000)
• Warren Washington Issaquena Sharkey Community Action Agency ($49,190)

Many of the dollar figures calculated in the lawsuit represent overlapping debts, meaning the total the state could recoup from all defendants is roughly $24 million.

For example, the amount owed by Brett Favre, $3.2 million, includes the same $1.1 million owed by Favre Enterprises, so the total that the state seeks to recoup from those two is $3.2 million.

While Favre has returned $1.1 million to the state, the money is sitting in an account at the State Auditor’s Office, which means, for purposes of the lawsuit, he still owes the money to the welfare department.

Because the money flowed from Davis’ department and most of it through Nancy New’s nonprofit, the lawsuit claims Davis and Nancy New are jointly liable for the large amount that they and others illegally spent. If any of the subrecipients pay their damages, that would likely reduce the debts for Davis and Nancy New.

If the court assesses damages, the welfare department can force the defendants to disclose their assets and ability to pay to ensure the state recoups as much as possible. In cases where the court determines damages are owed due to fraudulent actions, the defendants will not be able to get rid of those debts by filing for bankruptcy.

The U.S. Department of Health and Human Services has declined several interview requests from Mississippi Today about the welfare scandal, but it said in a statement in 2020 that it was waiting for the state’s investigation to conclude before attempting itself to claw back misspent funds.

John Davis and a young former procurement officer for the agency, Gregory “Latimer” Smith, are now the only people with pending criminal charges related to the welfare scandal. Smith, who is facing conspiracy, embezzlement and fraud charges, did not allegedly receive any of the funds himself. Hinds County recently charged Davis in a superseding indictment and the judge rescheduled his trial for Sept. 26, 2022.

Nancy New and Zach New, who pleaded guilty to separate federal charges for bilking public school funds for their private school, recently received plea deals in the state welfare fraud case. The deals ensured that they would receive no additional time beyond their federal sentence for their crimes in the welfare case. They agreed to cooperate with the prosecution.

None of the other civil suit defendants have faced criminal charges, which come with a higher burden of proof than civil charges.

Federal authorities have also not brought any criminal charges in the welfare scandal.

The U.S. Attorneys Office and FBI have declined to comment, but recent plea deals indicate their investigation is ongoing.

Read the full lawsuit documents here: https://www.documentcloud.org/documents/21952751-msdh-civil-lawsuit-5922

This article first appeared on Mississippi Today and is republished here under a Creative Commons license.