The elderly Houston couple responsible for the largest scam ever uncovered in a U.S. Department of Veterans Affairs' program meant to protect vulnerable veterans will be going to federal prison for 46 months after conspiring to carry out a $2.3 million ripoff of 49 disabled military men.
Houston lawyer Joe B. Phillips, 73, stood in federal court Wednesday to receive an identical punishment to that of his legal assistant and wife of four decades, Dorothy, who has claimed a casino gambling addiction first compelled her to siphon funds from veterans' bank accounts years before a VA audit finally detected the losses.
"I did not personally do it myself, but I accept responsibility because it happened in my office. It happened on my watch," Phillips told the court.
He asked to serve out his sentence in a cell near his 72-year-old spouse.
Government prosecutors unsuccessfully urged U.S. District Judge Lee H. Rosenthal to give a longer sentence to Joe Phillips, who was legally responsible for safeguarding disabled veterans' funds as a VA-approved fiduciary and as a guardian appointed by Texas probate judges. They pointed out that on Phillips' watch, 46 different fraudulent bank accounts were concocted to conceal long-term and ongoing thefts from veterans' accounts.
Investigation: Some vets' money managed - and stolen - by scoundrels
On Wednesday, Phillips unexpectedly turned over veterans' bank statements for an estimated $45,000 in apparently previously unreported assets to government investigators. Phillips' attorney, Robert Jones, said Phillips continued to receive those statements nearly five years after being removed as a VA fiduciary.
The VA first uncovered irregularities in 2007 after auditing Phillips' accounts for first time in 25 years.
The findings of that audit were "shocking to me," Phillips said Wednesday, though prosecutors claimed in court records that about $1 million in funds were transferred to an account Phillips shared with his wife.
Many went undetected
A Houston Chronicle/Hearst investigation this year of similar scams nationwide showed that many large-scale thefts in the VA guardianship program went undetected for years. Some were carried out by VA-approved "fiduciaries" with financial, personal or criminal problems, including gambling addictions, bankruptcies and felony convictions.
Federal legislation to reform the VA's fiduciary system and tighten oversight passed the U.S. House this year but has not cleared the Senate.
In the past decade, twice as many Texans have been prosecuted for stealing from their disabled veteran charges as in any other state, a related review of court and VA Inspector General records by the Chronicle shows. More than 20 veterans' family members and trusted members of the community have been criminally convicted for taking the disabled vets' assets - including a former police officer, a federal employee, an optometrist and now Phillips - a longtime Houston attorney and former VA employee.
Phillips, who first became a fiduciary in the early 1980s, told the court the government assigned him 54 veterans simultaneously - about twice as many cases as he could manage. Phillips said he got so "caught up in seeing these veterans … had clothing and places to stay" that he failed to properly supervise "people in my office" who were handling funds.
Defense cites VA
Some of the 49 veterans who lost money under Phillips complained to the Chronicle that the VA never provided a full accounting of losses, though others said they're satisfied with compensation provided by the VA or by insurance companies that backed Phillips' work in probate courts.
Phillips and his attorney both argued that the VA's appalling lack of oversight contributed to the veterans' losses.
More cases: Disabled veterans in Texas fleeced
"We have to learn something from this," Jones said. "Is there a mechanism from keeping this from happening?"
VA and court officials annually reviewed the Phillipses' financial reports but failed to spot irregularities that began at least a decade ago, according to documents reviewed by the Chronicle.
A lesser sentence
Phillips faced a maximum eight-year sentence after pleading guilty in September to charges of conspiracy and income tax fraud, admitting he and his wife conspired to take $2.3 million and concealed thefts with fake reports, imaginary bank accounts and a bogus income tax return.
Instead, Rosenthal gave Phillips a slightly shorter sentence, praising him for his early public service and his accomplishments as a man who lost his mother at age 6 and went on to earn a law degree, though his career ended in disgrace after four decades. Rosenthal said evidence suggested that Dorothy Phillips, though only a legal assistant, had unusual oversight and control over accounts.
Rosenthal ordered the Phillipses, who previously declared bankruptcy, to repay $2.35 million to the VA, which claims to have compensated most victims, and an additional $282,112 to the IRS.
The judge is allowing the couple to spend Christmas together and wrap up Phillips' legal practice before reporting to prison.
"This is a very sad case," Rosenthal said. "Sad because of the lives so changed … the victims of course were in a sad place to start with and that's why they needed Mr. Phillips. He did not serve them."