On the way to making its disastrous $2.2 million loan to a local medical lien company, Miracle Flights for Kids charity officials ran the deal past its board of directors.
Just how much actual due diligence was done prior to the loan’s April 30, 2013, approval is debatable, and in fact the subject of an ongoing litigation, but on paper there was ample incentive to complete the deal: In exchange for the loan, Medical Lien Management Inc. promised to pay the charity $1.32 million in interest.
After $660,000 in interest was paid, the loan busted out and went into default. The money is gone, and there’s no shortage of finger-pointing.
Although the litigation accuses Med Lien co-owner Brad Esposito of failing in his fiduciary duty, he blames his estranged partner Lincoln Lee of ripping off the loan. Metro has begun investigating the deal, which according to court documents reeks of a scam.
Through his attorney, Esposito has pledged his full cooperation and reminds skeptics that he was first to report the trouble to the cops. But it’s also true that back in 2013 Esposito had at least one character reference on the Miracle Flights board: current Nevada Republican Party Chairman and former Las Vegas City Councilman Michael McDonald.
McDonald and Esposito have been friends for years. Although McDonald resigned from the board on June 6, 2014, and is quick to state that he disclosed the relationship, declared a conflict and abstained from the vote to approve the loan, he also admits he began working for the company in a government affairs capacity not long after it received the $2.2 million.
He became a shareholder-investor in the company while still on the board of the charity.
McDonald said he finds nothing suspicious or improper in that. In fact, he said, that there was no breach of ethics because Med Lien didn’t make a return appearance before the board.
Then again, it didn’t need to. It already had the money.
“They never came before us again,” McDonald said Tuesday. “I had no conflict.”
He did, however, benefit substantially from his relationship with Med Lien at approximately the time Lee is accused of blowing company assets — including loan proceeds — on “jewelry, home utility bills, colon cleanses and a $115,000 dune buggy,” according to the lawsuit and Esposito’s written statement.
All the compensation McDonald received, he said, was “put on my taxes and declared as income” from his government affairs work. He adds that he also lost money he invested in the company due to Lee’s profligate spending and is considering suing.
“I’m pretty pissed,” he said. “I’m out a good chunk of change.”
But according to a July 2014 company ledger, McDonald also had access to Med Lien assets. McDonald said the lien company’s five-page ledger, now entered as an exhibit in the lawsuit, inaccurately describes the $140,000 he received on July 31, 2014, as a “Shareholder loan.” On Another page, there is another entry of “-$200,000″ under the heading “Investor Loan-McDonald Nevada.”
“There is no loan,” he said. “I don’t have a loan. … It wasn’t a loan. I declared it on my taxes as income.”
Perhaps not, but the timing of his business relationship with Med Lien was nothing short of amazing. Despite his long friendship with Esposito, McDonald said he had nothing to do with connecting Med Lien with Miracle Flights.
“I don’t recall who brought them to the table,” he said. “… It was not me.”
According to a court document filed in the litigation, that person may have been former board Chairman Larry Scheffler, who supposedly “both vetted Med Lien and recommended the so-called investment to MFFK.”
There’s no shortage of confusion and finger-pointing these days, but what’s becoming painfully clear is the fact the charity’s $2.2 million loan is history.
Miracle Flights for Kids provides air travel for medically fragile children. It made headlines earlier this year after Review-Journal columnist Jane Ann Morrison reported the charity’s founder, Ann McGee, was in line to receive a retirement worth $2.3 million.
Impressive retirement goes with hefty salary for Miracle Flights founder