State files lawsuit to recoup $24M in welfare funds from Brett Favre, wrestlers, 34 others

The Mississippi Department of Human Services is suing 38 people or companies for squandering welfare money that was supposed to address poverty in the poorest state in the nation.

The long awaited civil lawsuit, which intends to claw back roughly $24 million in federal funds misused in a sprawling scandal officials began to unravel almost three years ago, targets famous athletes Brett Favre, former running back Marcus Dupree, former linebacker Paul Lacoste, retired WWE wrestler Ted “The Million Dollar Man” DiBiase Sr. and his two sons, among others.

The lawsuit details bold disregard from officials and contractors for either effective public spending or for the people they were supposed to be assisting — actions indicative of a state government with a cynical approach to anti-poverty programs.

“I do not understand these people,” attorney Brad Pigott, who wrote the lawsuit, told Mississippi Today by email. “What kind of person would decide that money the law required to be spent helping the poorest people in the poorest state would be better spent being doled out by them to their own families, their own pet projects, and their own favorite celebrities?”

But two entities who received welfare funds through activities referenced in recent criminal pleas — University of Southern Miss Athletic Foundation and tech company Lobaki Inc. — do not appear as defendants in the May 9 filing.

Nancy New and her son Zach New, who ran a nonprofit that received tens of millions under contracts with the Mississippi Department of Human Services, pleaded guilty in April to several charges bribery and fraud charges related to how they used their nonprofit’s public funding. Much of the money was illegally funneled to other nonprofits or contractors, which were considered “second tier” recipients of the welfare department. The latest civil lawsuit pursues some, but not all of these recipients.

Nancy New admitted to defrauding the government when she paid Lobaki $365,000 to run a virtual reality program. Her son and the nonprofit’s assistant director, Zach New, pleaded guilty to wire fraud for transferring $500,000 to the construction of the physical virtual reality center. He disguised the expenditures as “lease” payments. Zach New also admitted to defrauding the government by transferring $4 million for the construction of the volleyball stadium at University of Southern Mississippi, which was also disguised as a lease.

MDHS originally told WLBT last October that its lawsuit would include the Southern Miss athletic foundation and Lobaki.

And yet, they were apparently removed during the drafting phase, because these recipients do not appear among the defendants in the civil suit filed Monday.

Pigott, the former U.S. Attorney who was hired by MDHS to craft the lawsuit, and the Mississippi Attorney General’s Office, who is also on the suit, have not discussed their process for choosing which welfare recipients to pursue in the case. Many, but not all, of the defendants received demand letters last year from the State Auditor’s Office, the agency that originally investigated the case. The athletic foundation and Lobaki did not.

MDHS was ready to file this lawsuit over six months ago, shortly after independent auditors completed a forensic audit of the welfare program, according to media reports. But the attorney general’s office, which has authority over lawsuits filed on behalf of the state, had to give the agency the green light.

“We wanted this suit to be the best possible suit for the people of Mississippi and we weren’t going to work on any artificial timelines to get a final product,” Michelle Williams, a spokesperson the attorney general’s office, told Mississippi Today last week.

At the center of the welfare scandal is the state’s decision to contract with New’s nonprofit Mississippi Community Education Center and another nonprofit called Family Resource Center of North Mississippi to run a state-sanctioned program called Families First for Mississippi. John Davis was the director of the Mississippi Department of Human Services at the time, answering to the governor who appointed him, Phil Bryant. Christi Webb ran the nonprofit in the north.

By 2017, the second year of Davis’ administration, the state was making unprecedented up-front, multi-million dollar payments to the two nonprofits. Most of the money came from a flexible federal block grant called Temporary Assistance for Needy Families or TANF.

The lawsuit seeks to establish that Davis and Nancy New agreed together to disregard federal laws that stipulate how states may spend federal welfare dollars. Davis would push millions to the two nonprofits, which used the funds on pet projects, and in exchange, the nonprofits would pay for things that Davis wanted, such as hundreds of thousands of dollars worth of contracts to his family members and wrestler friends and luxury travel arrangements for himself, the lawsuit says.

“That illegal quid pro quo agreement and conspiracy between Davis and New resulted in all of the transfers of TANF funds for non-TANF purposes,” the lawsuit reads.

Mississippi Department of Human Services is asking the court for damages of $23.3 million from Davis and $19.4 million from Nancy New and her nonprofit. These figures represent many of the same expenditures.

But the lawsuit also asserts that the people and organizations who received funding from the nonprofits, who are named as defendants, are also liable because they knew they were receiving payment indirectly from MDHS, “which was not designed or authorized to donate public funds for the private enrichment of wealthy individuals or organizations.”

The lawsuit also says none of the recipients possessed special skills that would allow them to be paid as a contractor for the state’s anti-poverty program, and that they knew they were selected despite lacking experience or qualifications in TANF programming and without a competitive selection process.

The civil complaint represents just the first step of the state’s pursuit of repayment, and attorneys may amend the filing to add defendants when the discovery process is underway.

To read the rest of this story from Mississippi Today, click here.