E.M. Health, Part II: E.M. Health attempts to borrow away debt
Home health care company founded by Your Black Muslim Bakery member opens in July 1996 with a $1.1 million loan from Oakland.
By Cecily Burt, G.W. Schulz, Judy Campbell, Thomas Peele, Josh Richman and Bob Butler, Chauncey Bailey Project
E.M. Health Services, a home health care company founded by a high-ranking member of Your Black Muslim Bakery, opened for business in July 1996, flush with a $1.1 million loan from the city of Oakland.
Investigative Report: E.M. Health Services
E.M. Health, Part I
E.M. Health, Part II
E.M. Health, Part III
But slightly more than a year later, signs of trouble already plagued the business — and a review of documents shows that the founders of the struggling company paid themselves lavish salaries, and lucrative consulting contracts went to bakery associates and family members.
More than a decade later, the city hasn’t received one penny in repayment for the loan, and questions remain about why city officials granted the loan in the first place.
Under the terms of E.M.’s loan, the company wasn’t scheduled to make principal payments for two years — until 1998 — but just 15 months after getting the money, CEO Nedir Bey asked to defer repayments until 2000.
The city, which had already questioned several invoices submitted by the company, did not approve the extension.
Instead, officials responded by requesting an audit of E.M.’s books.
In his request for an extension, Bey did not mention that in May 1997, E.M. Health had applied to the California Department of Insurance for a $2 million loan to purchase a 4,000-square-foot office building on 17th Street in downtown Oakland.
In his application to the state, Bey cited Oakland’s loan approval as proof of his good reputation, even though by then the city was already questioning tens of thousands of dollars in operating expenses claimed by his company.
The $1.1 million loan agreement called for E.M. Health to begin repaying monthly interest and principal payments of $19,692 on May 1, 1998, the date the company was projected to have enough billable clients to break even.
But May came and went with no payments.
And, documents show, E.M. Health would ask for more.
But the story of how the business, a subsidiary of the now-bankrupt Your Black Muslim Bakery, received the money despite a flawed business plan and a disturbing criminal incident in Nedir Bey’s past illustrates the extent politics and pressure played in officials’ decision to approve the loan.
Bakery members also have been linked to several violent incidents, including the Aug. 2 shooting death of journalist Chauncey Bailey, as well as alleged real estate and welfare fraud and child rape.
Details of the company’s financial growth were outlined in correspondence between Nedir Bey and various city staff who reviewed documentation to support the original $1.1 million loan application, as well as documents surrounding Nedir Bey’s later attempts to obtain a $2.5 million loan that was never granted.
In a January 1997 letter to the city, E.M. Health said it had contracts with 13 patients between October and December 1996, which should have generated more than $23,000 in revenues for the three-month period.
The same letter said seven would-be home health aides had graduated from a training program run by a different company. Those aides could not be sent out to care for Medicare/MediCal patients until they passed their certification exams that month, the letter said. The letter also reveals that E.M. Health had a goal of generating $1.2 million in income in 1997 by providing services to 50 clients. The company instead reported large losses in 1996 and 1997.
It started to pull in more revenue early the following year, according to a letter from former Economic Development Chief Bill Claggett addressed to then-City Manager Robert Bobb.
Clagget’s letter stated that the company had a net profit of $30,068 for the first two months of 1998, but was still experiencing delays in receiving reimbursements for its Medicare/MediCal clients.
By June 17, 1998, Nedir Bey stated in a letter to city loan department manager Teri Robinson-Green that E.M. was “doing about $80,000 a month.” In another letter listing E.M.’s achievements, Bey claimed the company had hired 55 people, trained 30 people and served more than 200 patients.
But still no loan payments.
E.M. Health’s agreement with the city stated that the company and its employees, many of whom were also trusted bakery associates and family members, would not profit from the business. Any extra income after expenses would be funneled back into Qiyamah, a nonprofit organization founded by the bakery to further Yusuf Bey’s community work. Qiyamah was E.M. Health’s parent company.
But the salaries, car lease and billing rates charged by bakery members who moonlighted as consultants to E.M. Health coupled with too few billable clients and delays in reimbursements by Medicare and MediCal all but ensured there wouldn’t be enough money left over to pay back the city’s loans.
“It’s interesting how that millionaire from the skating rink got $12 million and declared bankruptcy and never paid the city back,” Nedir Bey said, referring to the builders of Oakland’s downtown ice rink, who defaulted on an $11 million loan before E.M. Health Services was funded. The city took possession of the rink. “Is the city calling him and trying to ask him those kind of questions?
“The bottom line for me, I’m trying to move forward with my life. Everything that you’re discussing is in my past,” Bey said.
A popular message
E.M. Health’s business model resonated with Oakland’s black politicians who were eager to even the playing field for black businesses that had not gotten an equitable share of city contracts and loans. They lauded the accomplishments of Yusuf Bey — the controversial but charismatic founder of Your Black Muslim Bakery — and viewed the health care proposal as a continuation of his good works.
The plan also resonated with the U.S. Department of Housing and Urban Development and appeared to meet its criteria for loan funding. E.M. Health’s $1.1 million loan came from a $44 million pot of money the federal agency offered Oakland to fund start-up organizations that sought to provide jobs in low-income communities. Still, in a June 4, 1996, letter to Kofi Bonner, Oakland’s then-director of community development, local HUD director Steven Sachs wrote that “E.M. Health Services business plan is still being developed …” with many “issues still to be worked out.”
Sachs urged the city to consider “providing a much smaller amount of financial assistance to this start-up business.”
That same night, despite Bonner’s warning that Nedir Bey had not yet provided several documents the city required for the loan, nor procured a provisional license from state health officials, the council voted to give the company a $275,000 advance on the $1.1 million HUD loan.
In fact, even though E.M. Health was $63,000 in arrears in its business taxes, the company ended up getting $538,000 in interim loans from the city of Oakland over the next six months, before HUD officials reimbursed Oakland for the money in April 1997.
Nedir Bey relied on that type of sentiment when he approached the city in February 1998 and asked for an additional $2.5 million — half loan, half grant — to buy a shopping center in West Oakland to house a new urgent care clinic, in addition to funds he sought unsuccessfully from the state department of insurance.
The shopping center plan lacked numerous financial details and included no downpayment or personal investment by Nedir Bey.
Nonetheless, he lined up his supporters and produced letters of recommendation from well-respected medical experts, including David Kears, director of the Health Care Services Agency for Alameda County; Michael Lenoir, president of the Ethnic Health Institute at Alta Bates/Summit Hospitals; and H. Geoffrey Watson, president of the Golden State Medical Association, which represents 2,000 African-American physicians in California.
Claggett said he would have loved to have someone revitalize that blighted shopping center, but nothing about E.M.’s finances by then suggested it could support a new business venture. City records show that E.M. Health incurred losses of $425,000 during 1996 and $343,000 in 1997.
E.M. Health was already three months behind on the payments for the $1.1 million loan, and a mere six months later, E.M. Health’s parent, the Qiyamah Corporation, would default on a
$100,000 bank loan originally signed by Saleem Ali Bey, also known as Darren Wright.
‘I don’t think they ever gave up’
Nedir Bey nonetheless again pressured the city into rushing the review of his new loan request. By July 1998, he sought direct backing from then-Mayor Elihu Harris, whose father was an E.M. Health patient for a short time, according to company records on file with the city.
“Staff should be more inform (sic) on the procedures and policies of the city of Oakland as opposed to me having to check with the mayor and then letting you know what you can and cannot do,” Bey said in a July 1998 letter to Gregory Hunter, now Oakland’s redevelopment agency director, apparently unhappy that the request had not yet been forwarded to the loan review committee. Kears recalls Nedir Bey first approached him for a letter of recommendation, but that evolved into a request for money to finance outreach efforts for new patients. The county wound up giving Bey a $25,000 contract, the most it could provide without approval from the Alameda County Board of Supervisors. Kears said he doesn’t know whether E.M. Health ever submitted invoices to use any of the money.
The $2.5 million loan application eventually stalled as Nedir Bey failed to produce documentation requested by the city related to the first infusion of cash, the repayment of which was falling further and further behind.
By the time the city sent its first default letter to E.M. Health in December 1998, the payments were eight months past due and the company had crumbled.
City employees would later discover that the company’s offices had been cleaned out, office furnishings and computer equipment pledged as collateral gone.
Claggett said that not long afterward, he was questioned by the FBI about E.M. Health and Nedir Bey. The FBI’s San Francisco office did not return a call seeking comment about the probe.
No way to collect
The Oakland city attorney sued E.M. Health
in December 2000 in an attempt to recover $1.45million in loan funds and $98,600 in unpaid interest. The city won a default judgment, but no one could collect on it, in part because there was no personal guarantee made when the loan was awarded.
City Attorney John Russo said recently that it is up to the city’s Finance Department to collect on the $1.5 million judgment, which remains unpaid today.
The city wasn’t the only one left holding worthless paper when E.M. Health deteriorated. Orthopedic and Neurological Rehabilitation, Speech Pathology Inc. of Los Gatos sued Nedir Bey and Cecil R. Moody, an E.M. Health agent listed among business registration records, in 2000 to recover $8,700 worth of services it provided to the company’s patients over a two-month period. According to the lawsuit, E.M. Health billed MediCal and Medicare but never reimbursed the company.
In May, Daulet Bey, a Muslim wife of Yusuf Bey and mother of current bakery CEO Yusuf Bey IV, 21, and her daughter Jannah Bey filed papers to revive Qiyamah’s state business license. It’s not clear whether bakery associates plan to use Qiyamah to attempt a new business venture.
The license was promptly suspended again by the state Franchise Tax Board for failing to file an information report in 2005, according to spokeswoman Denise Azimi.