By Taylor Knopf
Cardinal Innovations officials filed a lawsuit Monday against the company’s former CEO to recover more than $1.6 million in severance pay.
An outside investigator, hired by new Cardinal leadership, claims that former CEO Richard Topping stole intellectual property just before his firing, intentionally deleted relevant electronic data, and ultimately used Cardinal to “enrich” himself.
Investigator Kurt Meyers with the law firm McGuireWoods LLP outlined his “significant concerns” about Topping’s actions for more than an hour during a Monday press conference in Charlotte.
Cardinal is one of seven management organizations that dole out state behavioral health funds. State lawmakers have scrutinized the organization since late 2016, questioning Topping’s high salary and other lavish expenses for Topping, top executives and the board of trustees.
A scathing report issued last spring by the state auditor found expenditures such as four chartered flights during a three-month period for Cardinal executives, all within the state of North Carolina.
After firing Topping and Cardinal’s board of directors in November, employees from the Department of Health and Human Services worked to get the organization back on track. In December 2017, commissioners from the counties where Cardinal manages services chose a new board and the department handed over the reins to the new board and management in late January.
Interim Cardinal CEO Trey Sutten took a very different tone than his predecessor when addressing state lawmakers during a March 13 meeting of the Joint Legislative Oversight Committee on Medicaid and NC Health Choice.
‘Lack of arrogance’
“What I’ve heard and learned is people are extremely frustrated by the decisions of prior leadership,” Sutten said at his presentation to state lawmakers.
“There’s a need for transparency and inclusiveness. There is also a culture of fear and mistrust inside the organization and from various stakeholders outside the organization. We are working aggressively on some of those things.”
Sutten has revamped the way Cardinal runs board meetings. Meeting times, locations and minutes are now posted on Cardinal’s website. The board is also rotating where it holds meetings throughout its coverage area so more members of the public can attend.
Lawmakers, who have expressed nothing but outrage with prior Cardinal leadership and Topping, were pleased with Sutten’s management so far.
[sponsor]“This is probably one of the better Cardinal updates,” committee co-chair Rep. Donny Lambeth (R-Winston-Salem) said after Sutten’s update. Others in the room chuckled in agreement.
“It demonstrates your leadership … and your common sense approach to solving problems,” Lambeth said, noting that Sutten’s presentation lacked the arrogance he’s seen from Cardinal in the past.
Sutten’s presentation included what he’s learned so far on the job and a corrective action plan for Cardinal.
“For example, we were criticized for having board meetings, trainings and other events, Christmas parties, et cetera at lavish locations,” Sutten said. “We are not doing that anymore.”
No more booze, no more first-class tickets, he said.
There is a new policy where itemized receipts must be turned in with expense reports, and those will be audited in six months, Sutten said.
“We are committed to getting back on track, to refocusing on our mission, and getting things right going forward.”
Additionally, Sutten announced that Cardinal will be starting a $3.8 million community reinvestment initiative soon. Right now, he’s asking for “high-impact” project proposals. Final approval of the projects will come from DHHS.
‘Intellectual property theft’
Meanwhile, McGuireWoods partner Kurt Meyers, a former federal prosecutor, announced the initial findings from his investigation of Topping, which he began in January.
Topping and a few other ousted executives refused to be interviewed for the investigation.
Meyers alleges that relevant electronic information had been intentionally deleted and that he could not access some other information on iPads that have yet to be returned to Cardinal by former board members.
Meyers interviewed other former board members, executives and current Cardinal employees. Meyers honed in on the time frame of September to November 2017.
Meyers highlights a number of text messages between Topping and former Chief Information Officer Peter Murphy. On the day Topping initiated his severance package in November, he had a text exchange with Murphy indicating that he had backed up files onto a home drive.
“I’m leaving nothing to chance,” Topping wrote.
“Smart,” Murphy replied.
Then Topping sent a “hush” emoji.
“This emoticon indicates his intent that he didn’t want Peter Murphy to tell anyone what he had done,” Meyers said. “This is concerning particularly because of what was on that [storage] drive.”
It contained competitive business strategies, confidential strategic plans and reports prepared by expert consultants using proprietary data, as well as personnel files, Meyers said.
Meyers gave a potential motive for the alleged theft.
“Topping appears to have been creating a new venture that would participate in the same space as Cardinal,” Meyers said.
He went on to outline what he called a “pattern of conduct designed for self-enrichment at the expense of Cardinal.”
Meyers showed emails where Topping talked about the struggle he was in with the state of North Carolina.
Topping often discussed Cardinal’s fund balance as if it rightfully belonged to him, Meyers said.
“This indicated his mindset and approach. He searched for ways to capture the benefits of the fund balance for himself,” he said.
Meyers noted that Topping frequently mentioned in emails lawmaker’s criticism of his salary. At his earnings peak, Topping convinced Cardinal’s board to approve a base salary of $635,000, plus as much as $250,000 in annual bonus.
But Topping told his staff a different story.
“At the JLOC hearing, the disparagement of Cardinal was severe,” he wrote in a staff email, referring to the Joint Legislative Oversight Committee.
“Cardinal Innovations is in this position because we have pressured the state of NC to implement Medicaid reform in a way that best serves our members, through integrated care and choice,” Topping continued in his email.
Meyers said Topping portrayed the situation as a “battle between Cardinal doing things the right way and the state trying to take over.”
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Even as DHHS is trying to “claw back” money from Cardinal, Cardinal is terminating services to “claw back” the money from recipients. How does that make sense?