Arizona governor: Sober living scandal a humanitarian crisis and must be prosecuted as one

Arizona's massive Medicaid fraud scandal involves multiple reports of "horrific" human trafficking and kidnapping, but so far, known criminal indictments connected to the case concern financial crimes only.

Taxpayers were enormously victimized by what investigators describe as deceptive scams that involved luring patients into getting treatment at phony or subpar outpatient behavioral health treatment facilities for alcohol and drug dependence.

The financial toll could exceed $2 billion in money that was fleeced from the Arizona Health Care Cost Containment System, which is Arizona's Medicaid program and also known as AHCCCS.

The human cost was unquestionable. People were the commodities necessary to complete the fraud, and the primary targets were Indigenous people who were enrolled in the AHCCCS American Indian Health Program, which is a fee-for-service program, investigators have said.

People were held in unlicensed sober living homes against their will, according to reports, with no cellphones, no way to contact their families, and with no one to help them get well. Other allegations have emerged too, including reports of sex and drug trafficking that preyed on vulnerable people with addiction problems.

The Arizona Attorney General's Office and the U.S. Attorney's Office for Arizona have indicted people accused of the financial side of the sober living scam, but The Arizona Republic has found no publicly available indictments for the human trafficking side of the problem.

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Arizona Gov. Katie Hobbs said she wants to see perpetrators connected with the scam held accountable for human exploitation, too, and not just financial fraud.

Hobbs, a Democrat who took office in January 2023, told The Arizona Republic this week that in addition to being about financial fraud, Arizona's sober living scandal is a humanitarian crisis and "must be" prosecuted as one.

"I cracked down on fraudulent sober living homes to bring an end to the human trafficking, exploitation, and abuse that targeted some of the most vulnerable Arizonans," Hobbs said in a written statement emailed Feb. 13 by spokesperson Christian Slater in response to The Republic's questions.

"Arizona should have a zero tolerance policy for human trafficking, and the perpetrators of these crimes need to be held accountable to the fullest extent of the law," Hobbs said.

'All we talk about is the fraud. We haven't even talked about the deaths'

Allegations connected with the scam include reports of people in white vans targeting tribal members on Arizona reservations, in some cases kidnapping them, giving them drugs and alcohol, and holding them in unlicensed sober living facilities against their will, for financial gain. That scheme in some cases prevented people with substance use disorder from getting the help they needed.

"It's gotten so brazen where we call it the 'white van syndrome' ― the predatory recruitment," Hopi Tribe Chair Timothy Nuvangyaoma told reporters on May 16, when the scandal was announced at a multi-agency news conference.

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State Sen. Theresa Hatathlie, D-Coal Mine Canyon, has said she's heard multiple reports of deaths connected with sober living homes. Hatathlie is a member of the Navajo Nation, which has reservation land in northern Arizona, and has been in her elected position since January 2021.

"In my time that I've been here, I've had to listen to my relatives, I've had to listen to my people talk about the many deaths in the communities based on what has happened in the sober living homes," Hatathlie said Feb. 6 during an Arizona Senate Health and Human Services meeting.

"I go home and people are still crying, they are still mourning. It's horrific. It's atrocious. ... And what about restitution? There's nothing. All we talk about is the fraud. We haven't even talked about the deaths."

AG's office will continue to investigate 'from every conceivable angle'

A spokesperson for Arizona Attorney General Kris Mayes wrote in an emailed statement that while Mayes' office has to date not prosecuted anyone associated with the scam for kidnapping or other humanitarian-related reasons, her office "remains committed to those who have been heartlessly exploited or outright harmed by these criminal elements."

The statement goes on to say that Mayes' office will "continue to investigate these cases from every conceivable angle, to include human trafficking and humanitarian criminal offenses, generally."

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As of Jan. 25, there had been 72 indictments from the Arizona Attorney General's Office related to the sober living fraud: 44 under Mayes, a Democrat, and 28 under former Arizona Attorney General Mark Brnovich, a Republican. Mayes took office in January 2023 and has said that while indictments related to the scams did start under Brnovich, he did not do enough to shut down the flow of money from AHCCCS to the fraudulent billers.

"You can't prosecute your way out of this problem," Mayes told reporters on May 16.

She explained during the news conference that Brnovich's office would prosecute one of the "bad actors," but then that bad actor would open a new limited liability company and start billing AHCCCS as that new entity.

"The attorney general's staff, lawyers, investigators, would tell AHCCCS about this, and AHCCCS for three years refused to do anything about it," she said.

Couple used AHCCCS money to purchase 8 homes, indictment says

The U.S. Attorney's Office for Arizona has made public two cases related to the scam:

• Diana Marie Moore of Mesa pleaded guilty in July to wire fraud and money laundering in connection with bilking AHCCCS of money through two behavioral health counseling services she owned and is scheduled to be sentenced in April. The indictment accused Moore, who is in her 40s, of defrauding AHCCCS of more than $22 million. Seven luxury vehicles, more than 30 designer bags and multiple pieces of diamond jewelry were among the property seized from Moore and subject to forfeiture.

• Thvoughn Lynden Curry, 31, and his wife, Alexis Daneen Curry, 32, of New River, were arrested Nov. 2 on wire fraud and money laundering charges and accused of submitting fraudulent claims to AHCCCS connected with an outpatient behavioral health clinic they operated in Mesa. An indictment says that between Feb. 1, 2021, and March 31, 2023, the couple submitted claims for reimbursement to AHCCCS totaling more than $12.5 million for services purportedly provided to about 185 individuals, 163 of whom were insured through the American Indian Health Program. A federal search and seizure warrant says the couple used the fraudulent funds to purchase eight houses, numerous vehicles, clothing and jewelry. The case is ongoing.

When asked whether the U.S. Attorney's Office for Arizona had indicted anyone on charges of humanitarian-related crimes in connection with the Medicaid fraud, spokesperson Zach Stoebe wrote in an email that "these cases are of great importance to this office and to our tribal partners. However, I am not in a position to provide any further information."

Sex trafficking investigated at Tucson location connected with scam

During a recent legislative subcommittee hearing, Tucson Police Department Capt. Mickey Peterson testified that a sober living scheme in Tucson involved investigations of sex , drug and gun trafficking.

The alleged scam was run by a purported behavioral health business that changed its name multiple times and operated out of a rundown building called the Ocotillo Apartments & Hotel. When AHCCCS suspended payments to the operators of the program, the program stopped paying the rent for about 250 people who were living at Octotillo, Peterson said. The scheme, he said, created both an "expanded criminal nexus" and a community crisis.

"It was way beyond the scale of what we could handle on our local level," Peterson told the state House subcommittee on budgetary funding formulas on Jan. 25. "We had to reach out to the Governor's Office, the county, the state and bring in resources."

Peterson said there are multiple ongoing cases associated with the Tucson location that involve sex and gun trafficking, among other things. At one point, the operator of the sober living facility had armed security monitoring the tenants, he said.

"If you've got a vulnerable person and they are suffering from addiction, mental health issues, then you can provide them the narcotics they need to feed that habit," Peterson said. "You can get them to steal to support that habit and you can get them to perform other acts against the law to maintain their housing and stay in that facility."

Initially, the operators of the facility targeted people who were homeless and that transitioned into targeting Indigenous individuals, who came from tribes both in and out of Arizona, Peterson said.

The Arizona Republic on Feb. 5 asked Tucson police for more information about the alleged human trafficking at the Ocotillo Apartments & Hotel. As of Feb. 8, officials said they were still checking with their legal department about what they could say "due to this being an investigation led by the FBI."

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It's unclear how many people were victimized overall by perpetrators in the alleged sober living fraud scheme, but investigators have said victims included Indigenous people from various tribes in Arizona, as well as from other states, including Montana and New Mexico.

Reach health care reporter Stephanie Innes at Stephanie.Innes@gannett.com or at 602-444-8369. Follow her on X @stephanieinnes.

This article originally appeared on Arizona Republic: AZ sober living homes scandal: No indictments for human trafficking