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Rehab center mismanagement puts addicts' recovery at risk

For men and women struggling to beat addiction to drugs or booze, American Restoration Centers promises a sober living environment where they can become "healthy, active and productive'' members of society again. • ARC, as it is known, has as many as 60 clients paying $125 to $135 a week to stay in houses throughout Pinellas County. • But soon they could all be out on the street because of mismanagement by a real estate speculator once arrested for bilking people in Connecticut.

While ARC is still collecting money from the residents, it and a sister company owe tens of thousands of dollars to the property owners, at least one of whom has started eviction proceedings.

"We don't know how long we have left to stay here,'' says George Lacagnina, 42, standing outside an ARC house in Seminole. "And no one has anywhere else to go.''

As a large industry has emerged to treat addicts, some of the people trying to capitalize on this opportunity arguably have done more harm than good.

"It's making money off people who are in crisis,'' said Michael Sautter, ARC's former operations manager. "People are being hurt.''

ARC began as a halfway house program in 2006 and was taken over in 2010 by entrepreneur John Donald Folger. While living in Connecticut in the 1990s, Folger was accused of scamming employees and members of a shopping club he owned.

Now Folger is president of American Community Development Group, a new St. Petersburg public company whose shares are traded over the counter. It promotes itself as a "socially responsible'' company that will help government agencies and nonprofit groups provide housing for ex-offenders and substance abusers.

In October, the company announced plans to acquire 1,000 properties in the Tampa Bay area by the end of 2012. But so far it has bought only one property — a ramshackle boarding house off Interstate 275 in St. Petersburg that houses seven ARC clients, all addicts.

Folger, interviewed Thursday in a restaurant near the hotel where he lives, said ARC had trouble paying its own rent because 25 percent to 30 percent of the residents weren't paying theirs. ARC is negotiating with the property owners and is bringing in a new staff, he said.

"In relatively short order we can fix a lot of problems we helped create,'' Folger said. He acknowledged making some "serious mistakes'' and said he would be "embarrassed if (investors) saw some of the properties. They don't meet standards I'd find acceptable."

But he added: "We're working our way through this. I don't want to keep throwing money down a rat hole. I owe more to my investors than that.''

Profits, not people

If you have money, or good insurance, you can buy your way into residential drug treatment centers.

But many people have lost everything to their addiction — jobs, homes, even their families. They don't have insurance. They can't scrape together a down payment for an apartment.

They turn to halfway houses so they won't be homeless. Some "sober living" facilities in Tampa Bay are sponsored by churches or nonprofit agencies. Others, like ARC, are linked to for-profit companies.

Because of the demand for transitional housing, Folger told investors, a typical three-bedroom house can gross $30,000 annually if rented to people paying by the week, compared with $16,000 if rented to a traditional tenant on a year's lease.

"The problem with people running the recovery houses for a profit is that the first priority needs to be the recovery of the residents,'' said Christine Allamanno, a lawyer with Gulf Coast Legal Services who works with the homeless.

"If the focus is on profits and not people, these people who tend to fall through the cracks anyway are worse off than if they'd never gone to this house in the first place.''

'A smooth talker'

Transitional housing is a new field for Folger, a 62-year-old New Yorker whose business background includes restoring antique homes and starting a horse farm.

In 1997, Folger bought the Preferred Consumer Network International, a Connecticut buying club that sold memberships for up to $2,400 that entitled customers to discounts on appliances, furniture and other items.

After more than 150 members complained that they never received the merchandise, Connecticut's attorney general filed an injunction that forced the company out of business in 1998, according to the Hartford Courant. Criminal charges were brought against Folger after several employees said they hadn't been paid.

Folger got probation, agreed to a $140,333 settlement, and was barred from operating shopping clubs in Connecticut.

However, he soon became president of HouseHold Direct Com, a Delaware-registered public company that was supposed to create the world's largest Internet wholesale shopping club. According to a filing with the Securities and Exchange Commission, the company paid off $190,000 of Folger's debts and arranged to buy a car for $35,000 before it too ceased operating.

About six years ago, Folger moved to Pinellas County. ''I invested in real estate and got killed,'' he said.

Court records show several judgments against him stemming from failed ventures, including one in which businesswoman Marie Kraft loaned him more than $30,000 to buy, renovate and flip houses.

"He took all the money that was supposed to be for investing in property and used it for other things, like hiring an ad person or having a staff member sit and make phone calls,'' Kraft said. "He was trying to act like this big real estate mogul before he made a penny. Then he tried to recover and got involved with more bad people.''

Kraft said Folger has yet to repay a dime. Folger said she "is at the top of my list'' of all those he will repay if he makes money from his stock in American Community Development Group.

Folger said he became interested in transitional housing when another woman offered him a chance to invest in a St. Petersburg trailer park whose residents included people convicted of sex crimes.

"I saw that 80 percent did something stupid while they were drinking or were stoned, or they slept with someone under-age,'' Folger said. "It became an eye-opening experience for me and started me thinking about other offender populations'' like substance abusers.

In 2010, Folger took over West Coast Serenity, a halfway house program whose founder, Christine Mangels, wanted to get out of the business. She said Folger agreed to give her $50,000 and pay the mortgages on three houses.

"He is a smooth talker, very personable,'' Mangels said. "It worked out terrible because he did not pay the mortgages and the houses still had residents in them.''

Mangels does not blame Folger entirely for the current problems — she said he initially trusted the operation to a man with a long criminal record who stole thousands of dollars in rent payments.

"He had control of everything and John was oblivious to it,'' Mangels said.

Early last year, West Coast Serenity became ARC. It leased more houses in St. Petersburg, Pinellas Park and Seminole. Folger brought in another manager, also a felon, who let residents stay on even after they stopped paying their rent.

Folger said his public company, American Community Development Group, invested $175,000 to keep ARC going, but fell behind in mortgage and lease payments.

"We became a homeless shelter,'' he said. "That's not an economic model on which you can survive.''

A 74-year-old widow, Dolly Bluhm of Seminole, says Folger owes her more than $50,000 on three ARC houses she owns.

"He comes across as honest as the day is long,'' Bluhm said. "But it was this same story over and over and over — the money's coming, the money's coming.''

'Bounced around'

Part of Folger's plan was to start or partner with businesses that might give jobs to addicts. He hired Michael Sautter as ARC's operations manager. Sautter is a recovering addict who had a small hauling and recycling business.

Folger also brought in Tammy Taylor, a real estate agent who wanted to help people find sober housing because her ex-husband was once a homeless crack addict.

Taylor said she urged Folger to register ARC as a nonprofit corporation with the IRS so it would be eligible to receive tax-exempt donations, grants and other forms of financing.

Instead, she said, Folger seemed more interested in finding investors for his for-profit American Community Development Group.

In a series of enthusiastic news releases, the company outlined its strategy — buying bargain-price properties and leasing them to nonprofits and government agencies that provide housing for ex-offenders and substance abusers.

"They were telling investors that typically a rental gets $1,000 a month but these properties can get $2,5000,'' Taylor said. "That may be the case, but staff has to be paid, utilities have to be paid, rent has to be paid'' even if the residents stop paying.

Taylor said ARC "basically imploded'' in late November as it fell further in debt to landlords and was chronically late on utility bills. But it kept taking in residents, including Chris White.

A recovering crack addict, White, 32, had spent two months in another program — Sober Living America, which housed dozens of clients in a Clearwater apartment complex. But Sober Living stopped paying the rent, so last month White wound up in a two-bedroom ARC house in Seminole that he shares with three roommates.

"I worry every day about being kicked out of here tomorrow,'' White said. "I just got a job at a restaurant. I want to stay here.''

He sighed and kicked the stoop. "I'm so tired of being bounced around.''

Investors come first?

ARC's reputation is so poor that the Pinellas County Sheriff's Office has not recommended it to inmates who need transitional housing when they get out of jail. In hopes of changing that, Folger met last week with Ramona Schaefer, the sheriff's program services supervisor, and told her his company had been subsidizing the rent for residents who can't pay.

Schaefer said she later learned ARC was so far behind on its own rent that residents were facing eviction.

"That's different than what he presented,'' Schaefer said. "It's so dishonest. Obviously I wouldn't refer anyone to them even if they turned themselves around.''

Folger said American Community Development Group has raised about $250,000 from some 300 shareholders. It stopped putting money into ARC after the $175,000 infusion, he said, "because I have a fiduciary responsibility to my shareholders.''

Although the company doesn't pay dividends and is so small it is not required to report to the SEC, its stock trades at about three-quarters of a cent and has generated some interest.

Randy Jones, who helps small public companies market themselves, said American Community Development Group's business plan could make it attractive to investors drawn to cheap stocks.

Folger said the company no longer expects to acquire 1,000 properties by year's end. However, it is working on a merger with a firm headed by Shaun Carcary, who held the "We Buy Ugly Houses'' franchise in Tampa Bay. Carcary said the deal would give American Community Development Group access to 48 of Carcary's properties in return for some cash and stock.

"They have a need for multi-family units and if they can put their recovery program in there, the income on those properties could triple,'' Carcary said Friday.

Carcary said he was aware of Folger's business failings, and knew many landlords are owed lots of money. ARC already has clients in four of Carcary's houses, and Folger's company is behind in the rent on all of them.

"But we're sticking it out, and merging with him, because I believe he has a solid business plan now," Carcary said.

Is he worried? "Yes. That's why we're making sure there's an escape clause."

American Community Development Group also plans to make money by offering various services that will help nonprofit groups reduce expenses and increase revenues. "There isn't a minute to lose!'' the company says in one news release.

Folger gets no salary from the company, he said, although it pays his expenses. Those include about $1,000 a month for a room at Homestead Studio Suites on Ulmerton Road in mid Pinellas.

Why would someone invest in a company whose president lives in a hotel room and has a string of judgments against him?

"It's because I've learned a lot since then,'' Folger said. "I think we've made every mistake you can make.''

Calls keep coming

The headquarters of both ARC and American Community Development Group is a 1,400-square-foot house at 1126 22nd Ave. N in St. Petersburg. The owner says he hasn't received any rent since September.

"They want to give me stock, and I don't want none of that crap,'' said owner Kevin Yeates, who lives in Kentucky.

Folger took all of ARC's client files last week and fired Sautter, the operations manager. But Sautter is still living in the house, along with four other men.

In the small, cluttered office at the back of the house, the phone kept ringing Wednesday. More than a dozen messages choked the voice mailbox.

Everyone wanted something.

People from the power company, the water department, Bright House cable, DISH Network, all wanted payment on overdue bills.

People from Boston; Albany, N.Y.; and New York City were calling about doing business with a company that stopped paying those bills.

And one caller just wanted to know if there was room for one more veteran struggling for sobriety.

Times researchers Natalie Watson and Carolyn Edds contributed to this report. Susan Taylor Martin can be contacted at susan@tampabay.com. Lane DeGregory can be contacted at degregory@tampabay.com.

Rehab center mismanagement puts addicts' recovery at risk 02/11/12 [Last modified: Saturday, February 11, 2012 9:46pm]

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