05/23/2014 02:55 pm ET Updated Jul 22, 2014

Rauner's GTCR Settled Racketeering Lawsuit in 2006

Actually not just civil racketeering claims -- as in the Racketeer Influence and Corrupt Organizations statute, or "RICO." At the same time GTCR also settled other federal and state civil claims including allegations of mail fraud, wire fraud, fraudulent transfer, unlawful conversion of assets, and intentional submission of false financial information.

The case was originally filed in state court in Ohio in 2004, but was then moved to federal court.
The main defendants were the GTCR-created-and-controlled Trans Healthcare, Inc. along with various Trans Healthcare subsidiaries and affiliates. GTCR Fund VI, L.P. (one of the parent GTCR's investment funds) was also specifically named due to its ownership and control of Trans Healthcare.

The lead plaintiff was Aegis Services, Inc. ("Aegis"), a landlord which leased land and facilities to defendants for use in their nursing home business throughout Ohio. Under the terms of the lease agreements, Aegis was entitled to aggregate monthly rent of $714,773.12, plus escrows and other related payments.

Aegis sued when defendants stopped paying rent, and after delivering a notice of default.
According to Aegis, defendants stopped paying rent because those monies were being unlawfully diverted. Specifically, Aegis claimed defendants were engaged in a "massive and wholesale pattern of wrongful and fraudulent conversion" of nursing home derived money which defendants were taking for themselves, while ignoring their rent obligations to Aegis.

Aegis sought the appointment of a receiver in order to provide for ongoing care of nursing home residents and to avoid disruption of operations. Aegis had substantiated concerns that defendants were planning to wrongfully resist any direct takeover of operations by Aegis as landlord. A receiver was in fact appointed by the court on November 12, 2004.

Aegis provided evidence that the receiver's efforts to obtain critical operating information, including basic books and records, were rebuffed and ignored by defendants -- to the point that "the Receiver and his counsel were threatened with arrest" when they appeared at a branch office to obtain the cooperation of Trans Healthcare officers and employees. Aegis also claimed that in furtherance of the fraudulent scheme, Trans Healthcare entities threatened to terminate employees and to cancel their health insurance.

At a pre-trial conference on November 2, 2005, the Federal Judge set a date for a bench trial. Once that was done, it took only four months for the parties to settle. Based solely on that settlement, the Federal Judge dismissed the case on March 30, 2006.

We don't know the specific terms of that settlement, but a court filing in another federal lawsuit stated that "[t]he THI Enterprise, through the GTCR-controlled board of directors, reached a settlement of the Aegis lawsuit concurrent with the restructuring for approximately $6,000,000."

We mentioned this RICO lawsuit in our very first article which broke the Rauner nursing home scandal story in January. We noted that a Kirkland & Ellis LLP lawyer who represented Trans Healthcare and GTCR in the matter includes a tidbit about the case in his firm bio.

Since no one else followed-up on the story in four months, we did.

The one must-read document is Aegis' Counterclaim and Third Party Complaint. The 32-page Counterclaim can be read here. This is the action which was settled in March of 2006, presumably for several million dollars. And again, you'll note the case started in Ohio state court but was adjudicated in federal court after transfer.

The Counterclaim is packed with devastating charges. Read the whole thing yourself, but here are just a few of the allegations.

"Defendants wrongfully and fraudulently converted and misappropriated federal and state tax refund monies of nearly $9,000,000.00." (Counterclaim ¶ 39)

"[A]lthough Defendant [Trans Healthcare] and its affiliates were being paid exorbitant sums for fraudulent 'management' services, these entities in fact colluded and conspired to further enhance their excessive profits on these management arrangements by significantly slashing staff previously overseeing THIC operations, and reassigning other staff, leaving THIC operations completely understaffed and unsupervised." (Counterclaim ¶ 44)

"Defendants failed to undertake, perform and fund required and necessary repairs, renovations and improvements at the Facilities." (Counterclaim ¶ 45)

"The information that Aegis has been able to obtain post-default reveals unexplained systematic transfers and conversion of money generated from the operation of Defendant THIC to Defendant THI or other Defendant THI entities of at least $54 million per year in 2003 and 2004." (Counterclaim ¶ 46, emphasis added)

"Defendant's improper unauthorized and unlawful conversion and fraudulent transfer of these operating funds of THIC eventually rendered Defendant THIC insolvent and unable to pay ongoing operational expenses, including but not limited to the rents due to Aegis." (Counterclaim ¶ 50)

"Defendant THI and its subsidiaries currently are comprised of dozens of recently established, overlapping, and undercapitalized 'shell' corporations and entities, all with similar and confusing names, which series or system of deceptive 'shell' corporations has been purposefully and systematically designed and created by Defendant THI, Defendant THI Holdings and/or Defendant GTCR Fund VI to obfuscate and conceal the conversion and misappropriation of operating revenues." (Counterclaim ¶ 52)

There is much more. Again, read the entire Counterclaim here.

It's certainly easy to imagine why this case settled and why Rauner didn't want his firm going to trial in this case. It's also easy to imagine Republicans screaming for impeachment if there was even a hint that Pat Quinn was linked to RICO conduct.

Something else jumps out regarding this case. Note that while the Aegis case transpired four or five states away and involves completely separate plaintiffs, the narrative is nearly identical to the one being told in federal court in Florida right now in other cases we've detailed.

Again, we've got a nursing home business allegedly being plundered for the financial benefit of a few -- largely the very same few accused of plundering nursing homes in Florida. Meanwhile we again have Rauner's GTCR right in the middle of the story during a time when Rauner chaired the firm.

The other interesting thing about the Aegis case is it's the same story being told in Florida, but this time it's not just nursing home residents and their families sounding the alarm. In Ohio it was business people accusing other business people of being racketeers.

Racketeering, mail fraud, wire fraud, and fraudulent asset transfers -- it's yet another alleged "bust out" scheme which can be directly linked to the unnecessary suffering and deaths of elderly nursing home residents.

Was there corruption within the walls of GTCR during Bruce Rauner's reign that would shame even the worst assumptions about Springfield government? It's officially become a fair question to ask.

And given all of the evidence which was easily accessible, it's a question which Republican voters and the press should have been asking long before the March Primary.

Doug Ibendahl is a Chicago Attorney and a former General Counsel of the Illinois Republican Party.