Tuesday, April 17, 2018

How SCL Health Removed $251 Million From St. Francis Health Center in Topeka

By Michael Hooper

SCL Health strategically depleted $251 million in reserves from Saint Francis Health Center in Topeka before selling the operation in 2017 to University of Kansas Health System and Ardent Health for a $1.00.



A Form 990 tax return filed for Saint Francis Health Center in 2016 shows the removal of $251 million in assets that had been listed as inter-company receivables the year before.

The explanation for -$251 million is listed in schedule O of the Form 990 at the very bottom, it says, "Transfer of SFT accountable health network net expenses -$114,710 Equity transfer - Refunding of Kansas 2012 bond issue -$32,467,007 Equity transfer - Refunding of Kansas 2010 bond issue -$163,662,319 Equity transfer - Marian Clinic -$649,000 Equity transfer - Unrecognized service cost in pension plan -$14,670,430 Equity transfer - Interest expense in excess of interest income -$21,023,283 Equity transfer - Fund unrecoverable costs of fixed assets -$20,558,442 -Transfer of Medcare assets from SCLHS -$1,334,702."

My math says that adds up to -$254.4 million in "equity transfers." That pretty much wipes out the $251 million in intercompany receivables on the tax return the previous year. How convenient these numbers are nearly the same.

I'm trying to uncover the mystery behind the the two bond issues that add up to a $196 million.

The St. Francis balance sheet on the 2015 tax return lists no bond indebtedness, indeed only $19 million in liabilities. And total assets that year were $368 million, including $251 million inter-company receivables, and virtually no debt. Then in the 2016, the tax return says St. Francis has to pay all these debts? 

I asked Neil Dobler, a St. Francis board member, about the $196 million bond issues. He said he does not remember that much money going to St Francis from those bond issues. He recalls some improvements including a renovation of the Saint Francis Emergency Room, he recalls capital spending around $20 million, but SCL Health capital spending wasn't there in final three years of ownership of St. Francis.

Around the time of those 2010 and 2012 bond issues, SCL Health was acquiring control of three hospitals in Colorado. SCL Health System agreed to pay $275 million to Community First Foundation for full control of three Exempla hospitals, The Denver Post Reported.

SCL Health is the professional management corporation that took over management of the Sisters of Charity of Leavenworth assets.  Around this time SCL Health was also looking to exit Kansas. Around 2011 some changes were made in the system and management company moved the headquarters from Lenexa to Broomfield, Colorado.

SCL Health had actually considered closing the Topeka hospital, but local advocates worked to save the organization. A year ago, hundreds of people rallied in favor of saving the hospital.

Saint Francis Health Center was for over a hundred years a successful hospital that generated a modest profit because of frugal management and high professionalism. The sisters were very particular about their Devotion to the mission of taking care of the sick. The nun CEO was a very important role in the management of the hospitals over the years, but such nuns became scarce. Who wants to take a vow of poverty and do the work of a CEO who normally gets paid hundreds of thousands of dollars? Sister Loretto Marie Colwell was one of the last great nun CEOs. When she left St. Francis in the early 2000s the hospital had over $200 million in reserves, some of that generated by donations in Kansas.

I asked Nikki Sloup, spokeswoman for SCL Health, why did St. Francis issue $163 million in bonds in 2010 and $32 million in 2012? Where did you spend the money? Was the money spent in Topeka?

"I believe you previously discussed this in detail with contacts from SCL Health and our organization had in-depth conversations with the Attorney General, who declared satisfaction with the disposition of these funds. I don't have any additional insights I can offer beyond what's already been shared."

I did look at this issue a year ago. Here is one article about the loss of St. Francis reserves. The difference today is that we have the 2016 tax return proving SCL Health took $251 million from St. Francis in "equity transfers."


I asked the Kansas Attorney General about the depletion of $251 million.

Jennifer Montgomery, spokeswoman for the AG, said "I received your messages. Additional information about the questions you raise can be found in documents posted on our website at the following link:  http://ag.ks.gov/docs/default-source/documents/stfrancis-ag-schmidt-letter.pdf?sfvrsn=58eed41a_4 and here:

In the Attorney General Derek Schmidt letter, he writes, 
"We are aware of a separate but related question that has arisen in community discussion, including comments filed with our office. Some have noted that as recently as 2015, St. Francis' financial statements showed roughly $250 million in an account receivable from SCL, a fact that has led some to question "What happened to those funds?" We need not, and do not, definitively answer that question here. However, because of the community interest in this question, we provide the following information that appears to offer an explanation. First, based upon information available to us at this time, it appears that because of the legal structure of the relationship between SCL and SFH - a structure established by numerous 7 decisions made years ago - SCL (the parent entity) had authority to use those funds for the broader purposes of the SCL system, not solely for the purposes of SFH."

"Three of those past decisions are particularly notable. In 1993, the Articles of Incorporation for SFH were amended to eliminate a requirement that SFH exist solely for the operation of a hospital in Topeka. In 1997, SFH and SCL entered into a Restricted Affiliate Agreement that gave extensive control over SFH finances to the parent entity. And in 2004, SFH again amended its Articles of Incorporation to make express that SFH operates to carry out the broader charitable purposes of SCL."


"Those decisions, which gave SCL almost complete authority over SFH and its finances, were made many years before the proposed transaction and, in any event, are long beyond any statute of limitations. A copy of a timeline explaining the reorganization of SFH is attached hereto at Exhibit E. Second, despite the legal relationship described above that gave SCL broad latitude to use funds generated by SFH, it nevertheless appears the vast majority of those accounts receivable were in fact used for purposes benefiting SFH. Our inquiry revealed the following: As a result of routine transfers of funds over time from St. Francis Health Center, Inc. ("SFH") to the Sisters of Charity of Leavenworth Health System, Inc. ("SCL), as expressly permitted by the Master Trust Indenture and related Restricted Affiliate Agreement, SFH had accumulated an intercompany receivable from SCL in the amount of approximately $249 million as of December 31, 2015. Following the decision by SCL's Board of Directors on May 26, 2016, to either sell or close SFH due to the hospital's continuing losses, SCL opted to use the accumulated assets associated with SFH to effectively "clean up" SFH' s books by defeasing bonds issued for the benefit of SFH and paying off other SFH intercompany obligations. The bond defeasances included a $163. 7 million defeasance in connection with a 2010 Kansas bond, and a $32.5 million defeasance in connection with three Colorado bonds that had been used in identifiable part for SFH asset purchases (since Colorado is a multi-state issuer). In addition, SCL used $20.6 million to fund previously unrecognized pension costs associated with SFH employees, $14.7 million to fund unrecovered costs for information technology assets, $21 million to fund system-wide interest expenses in excess of interest income, and another $700,000 to fund other non-profit entities in the SCL network, for a total of $252.5 million, an amount that accounts for all of the $249 million in 2015 accounts receivable. "

Accounting Tricks

SCL used accounting tricks to swindle $251 million from St. Francis. Those reserves were generated here and belong here. Maybe legally, SCL Heath got ahold of the funds, but morally those funds belong in Kansas.

Sisters of Charity of Leavenworth Started in Kansas, made a huge impact on the world from Kansas, but now their assets are no longer here. Kansas got taken.

I believe the Kansas Attorney General still could make a case for $196 million that belongs in Kansas in a charitable foundation. That money could be used for indigent care, mental health services, drug and alcohol treatment and other health care initiatives needed in Kansas, where there is simply not enough money for health care.


The future

Neil Dobler said the new owners are doing a good job with the hospital.

Despite all the struggles over the past year, the hospital didn't lose too many staff. New people have been hired.

Dobler said the hospital staff are very dedicated and continue to provide excellent care to patients. "It's definitely headed in the right direction," he said.








Tuesday, April 3, 2018

Insurance Company Stock Loses 60% of Value While CEO Jack Brier Earns Quarter Million Annually

By Michael Hooper

One of the great challenges for investors is trying to find a legitimate startup company that is going to make it big.

Topeka has a history of multiple startups that have done well -- but many companies struggle and fail. Some of these businesses go to the public for capital.

Jack Brier, a former Kansas Secretary of State, has led several public offerings of stock in his company, US Alliance Corp. of Topeka. 

Investors have sunk $22 million into his company, but the book value of US Alliance has fallen to $13.9 million, financial statements show. US Alliance is a holding company for US Alliance Life & Security Co., which sells insurance products like group life insurance and pre-need funeral expense policies.  The company’s administrative offices are at 4123 S.W. Gage Center Drive, Topeka. Former Kansas Gov. William Graves is a director of US Alliance. There are about four employees in the Topeka office. Brier responds to questions about his business practices in this article.

A review of the financial statements of US Alliance Corp., founded by Brier in 2009, shows a company losing more than $1 million per year. Meanwhile Brier, chairman, president and CEO, has been earning a quarter million in income from the business annually.

Brier was Secretary of State in Kansas from 1978 to 1987.

Brier asked Kansas shareholders to pay $5 and $6 per share for stock in US Alliance, while he was able to acquire shares as an insider for 20 cents apiece. The 2017 audit of the company shows the stock worth $1.91 in book value on Dec. 31, 2017. Insurance companies typically trade around book value, which is assets minus liabilities.

US Alliance has never turned a profit since its formation in 2009. The company lost $1.05 million in 2017, lost $1.2 million in 2016, and lost $1.7 million loss in 2015.

There are about 3380 shareholders of US Alliance Corporation stock, two thirds of them are from Kansas.

In 2016, Jack Brier earned $200,000, a $57,000 bonus plus another $28,000 compensation for a total of $285,974.

The company wants to raise more money through the sale of stock.

Investors who bought stock in this company in the last six or seven years have seen their shares lose more than 60% of their book value. Meanwhile the US Stock Market has tripled in value since 2009.

Brier acquired 414,800 shares at 20 cents per share. Early organizers and insiders acquired 1.2 million shares at 20 cents apiece when the company was founded in 2009. The first policy was sold in 2013.

During the first four years, the company raised money, often attracting small mom and pop investors around Kansas.

In 2017, the company acquired policies from American Life & Security plus bought another company Northern Plains Capital Corporation and its subsidiary, Dakota Capital Life Insurance. US Alliance paid $1.85 million for $8 million in assets from American Life & Security policies in Wyoming and South Dakota, Brier said. The company used $3 million in stock to buy Northern Plains Capital.

When asked why the company’s shares have lost 60% of their book value, Brier said, “that is the price of increasing the assets of the company from $19 million to $38 million.

“We doubled the assets of the company, but our operating expenses increased just 17%,” Brier said in a phone interview.

I asked him how he justifies paying himself $285,000? And he said he sees the the glass half full, deflecting my question.

“We told shareholders this is a not a get rich quick opportunity,” he said. He complained about low interest rates earning little on capital invested in bonds. Management does not want to take on too much risk. The company is building its revenue and income, he said.

It appears the winner in this US Alliance business is Brier, not the shareholders.

“It’s been a great set up for Jack Brier, but unfortunately he’s burned a lot of investors along the way,” said David Tangeman, a Houston accountant who reviewed the financial statements of US Alliance.

The company’s web site has charts showing how the company has increased its customers and premium income, it sounds like everything is great, the company plans to sell more shares, but its web site doesn’t talk about the loss in book value.

I respect Brier for taking my call about his business, but I think his priorities are skewed in his favor. He talked about his admiration of Warren Buffett, CEO and chairman of Berkshire Hathaway. Brier’s company has bought reinsurance from Berkshire Hathaway’s General Re and also has hired a Berkshire Hathaway subsidiary to handle management of US Alliance’s bond portfolio.

The major difference between Buffett and Brier -- and there are many differences -- is that Buffett took no more than $100K salary from his company while focusing on building up shareholder value. In the early stages of a company, it is common for CEOs to be frugal and pay themselves very little -- a living wage -- rather than a quarter million. The book value of Berkshire Hathaway has increased in value about 20% annually, while Brier’s company has declined in book value by 60% and Brier’s company has never turned a profit.

Investors beware.


The author is a stockholder of Berkshire Hathaway.












Wednesday, January 17, 2018

Best Bitcoin Miners

                                     Antminer S9 15.5TH/s
Bitcoin Market Journal
By Michael Hooper
The best bitcoin miners are hard to find because demand for them is so high. Manufacturers sell out quickly, and marketplaces such as eBay and Amazon often list popular bitcoin miners at double or triple the manufacturers’ price.
Here is a look at two of the best bitcoin miners and a review of profitability and risks in running a bitcoin mining operation.

The Evolution of Bitcoin Mining

In the creation of bitcoin, founder Satoshi Nakamoto gave the responsibility for securing bitcoin’s ledger to miners or nodes. For this job, the miners get paid in bitcoin.
In the early days of bitcoin, when just a few people were interested in bitcoin mining, a simple computer could mine bitcoin profitably.
However, those days are long gone. There are many people mining bitcoin today all over the world. As more people begin mining, mining difficulty increases. Now, the only way to profitably mine bitcoin is with  ASICs (Application Specific Integrated Circuits). These specialized computers run fast, hot, and loud with high-powered cooling fans. The fans create a high-pitched jet engine white noise that is disturbing if not maniacal. Yet, that noise is music to the ears of people mining bitcoin because it is the sound of making money in the mining business.

Tuesday, January 16, 2018

2018 Is The Year To Make Great Gains in Crypto & Cannabis

2018 Is The Year To Make Great Gains In Crypto And Cannabis

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26 comments
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 Includes: APHQFBITCFBRK.BBTCSCOINDDDMDIADOGDXDEEHEPSEQLESFEXFWDDGBTCHSYHUSVIVVIWLIWMJHMLJKDLLSCLLSPOTPIXPEPPSQQIDQLDQQEWQQQQQQEQQXTRSPRWLRWMRYARXRYRSXSBUSSCAPSCHXSDOWSDSSFLASHSMLLSPDNSPLXSPUUSPXESPXLSPXNSPXSSPXTSPXUSPXVSPYSQQQSRTYSSOSYETNATQQQTWMTZAUDOWUDPIXUNPUPROURTYUSSDUSWDUWMVFINXVOOVTWOVV

Summary

2018 is the year to make great gains.
Crypto and cannabis industries set to grow in North America.
Be aware of a new crypto analyst valuation technique giving value to a token's utility.
I'm excited about 2018 after coming off one of my best years in my 24 years of investing. I had a 15.93% return in my brokerage accounts and a 646% return in my crypto investments.
I'm excited about 2018 because gross domestic product is really going up over 3%, which is when the economy experiences job growth. I see lots of jobs developing in the crypto and cannabis markets. Canada’s economy will see a boost if it approves recreational marijuana by July as anticipated by advocates.
To read more click here

Tuesday, January 9, 2018

Topeka Native Brad Garlinghouse Is Worth $9 Billion With Rise Of Ripple

                            Brad Garlinghouse Photo by Heather Hooper

Story By Michael Hooper

Brad Garlinghouse, 46, a graduate of Topeka High School, University of Kansas and Harvard Business School, is a newly minted billionaire, according to Forbes.
Ripple CEO Brad Garlinghouse owns a 6.3% stake in Ripple, a San Francisco-based company. He also owns additional XRP tokens. He has a net worth of at least $9.5 billion, Forbes said. XRP tokens exploded in value in 2017, up from $0.006 on Jan. 1, 2017, to $2.30 on Dec. 31, 2017, — a return of 38,000%. 
The chart from Coinmarketcap.com shows the rise of Ripple in the last quarter of 2017.
Garlinghouse is the son of Kent and Susan Garlinghouse in Topeka.
Brad Garlinghouse has spoken widely about Ripple on business news channels like Fox Business and CNBC. When asked about Ripple, he says the company sells a blockchain technology to banks and payment providers to do real time settlement between banks. He says the current banking system for settlement between U.S. and foreign banks is lengthy and time consuming, it is faster to get on a plane and fly the money to London from New York than to send it through the current banking system.
Over 100 banks have joined Ripple. Most banks pay other banks to make those settlements. Anytime you can do something without that central counter party and go direct peer to peer, this saves time and money.

Garlinghouse said MoneyGram has partnered with Ripple to use XRP in its payment flows.
Garlinghouse acknowledged on CNBC there has been a lot of hype in the crypto space. He said the value of a token over the long term will be its utility, what problem is it solving?
"At Ripple we use XRP to settle liquidity issues between banks," he said on CNBC. The settlement takes place in three seconds.

On Fox Business, Garlinghouse said Ripple was working with American Express and other big money transfer companies.

Ripple XRP fell from a high of $3.84 to $2.21. On Fox, he said, XRP is part of an early stage of volatility.

“There is a lot of volatility in the digital asset market broadly, and certainly that is true in the bitcoin market, it’s been true for XRP and I think that’s because these markets are very nascent. This is still the earliest innings of the creation of what I think is really going to be a new asset category,” he told Fox.

Garlinghouse was recently inducted into the Topeka High School Hall of Fame. Garlinghouse said he has lived in California for 20 years, but he always thinks of himself as a Kansan first. “Topeka High is an indelible part of who I am today,” he said. You may read his comments at the Oct. 1, 2017 ceremony here.

Blogger Michael Hooper owns several crypto currencies including XRP.













Saturday, December 23, 2017

Three Kansas City Crypto Investor Stories

Bitcoin Market Journal
When contemplating an investment in digital currencies, it never hurts to find out what other investors in the space are doing and what results they have achieved.
Here, then, are the stories of three Kansas City entrepreneurs who opened their own businesses in the cryptocurrency space. Kory Bostwick is a miner, Ryan Derks is a crypto asset manager, and Tim Lawrence is a crypto trader and leader of The Kansas City Bitcoin and Cryptocurrency MeetUp Group.
To read their stories click here