Former nursing home administrator pleads guilty to equity skimming

TEXARKANA, Texas — A former administrator of a Texarkana, Texas, nursing home for Alzheimer’s patients pleaded guilty Tuesday to “equity skimming” in connection with a multimillion-dollar Housing and Urban Development-guaranteed mortgage.

Antonio Otero appeared Tuesday afternoon with Craig Lewis McCloud of Lexington, Kentucky, before U.S. Magistrate Judge Barry Bryant in Texarkana’s downtown federal building. Bryant typically hears cases across the hallway in the Texarkana Division of the Western District of Arkansas but is cross-designated to hear cases in Texas when a judge on the Texas side is unavailable. Assistant U.S. Attorney Jonathan Hornok is representing the government.

According to an information filed earlier this month in the Texarkana Division of the Eastern District of Texas, the Magnolia, an Alzheimer’s assisted-living facility in Texarkana, Texas, is the beneficiary of a HUD-insured mortgage program that prohibits the distribution of assets when the borrower is in default on its mortgage and in a “surplus cash” position.

“After construction of the facility, the Magnolia began making mortgage payments. But just a few months later, the Magnolia defaulted on the loan,” the information states. “From July 2011 through at least December 2015, the Magnolia was in default on its HUD-insured mortgage.”

The information alleges Otero pocketed thousands in addition to his regular salary and that the Magnolia’s mortgage is delinquent by more than $6 million. The information notes that HUD insures loans on care facilities to encourage lenders to fund such projects. Consequently, HUD, not the lender, is on the hook in the event of a default.

“The National Housing Act makes it a crime for owners, agents, or managers of a care facility to take a profit distribution from a care facility when the mortgage loan is in default,” the information states.

“Instead of paying the HUD-insured loan, Otero engaged in a scheme to skim equity from the Magnolia. For example, Otero took money from the Magnolia to pay for $3,952 of camera equipment, a $3,247 watch, $2,520 in landscaping for his personal residence, a $27,408 personal mortgage payment, a $12,750 down payment on a personal vehicle, and $1,540 tickets to a Dallas Cowboys football game. Additionally, he took money from the Magnolia and gave it to other individuals, including $13,000 for cosmetic surgery, $5,500 for a loan repayment, and $30,000 in equity distributions. In total, Otero took personal responsibility for causing a loss to the United States in the amount of $2 million.

As part of his plea agreement, he has agreed to pay restitution in that amount to the United States,” a press statement issued by the U.S. Attorney’s Office in the Eastern District of Texas.

The offense is punishable by up to five years in federal prison. The law also allows the court to impose a fine up to $500,000 or twice the amount gained by the defendant or lost by the victim.

Otero will be scheduled to appear for formal sentencing before U.S. District Judge Robert Schroeder III once the court has received a presentence report including a recommendation for punishment.