How Oakland's fearful politicos enabled waste: Part II

E.M. Health attempts to burrow away debt
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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.

But shortly over 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 over 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.

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