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Lawyer accused of stealing from special-needs trusts

September 6, 2017

An Indianapolis lawyer suspended after police say he stole more than $85,000 from two Lawrence County residents’ special-needs trusts faces a second attorney discipline complaint, and that may be just the tip of the iceberg.

Indiana State Police Detective Stacy Brown said in an interview that authorities are investigating the possibility of “numerous victims in multiple states” involving Kenneth S. Service. Brown said he’s been made aware of as many as 17 potential cases where money may be missing from special-needs trusts Service opened in Indiana, Florida and West Virginia, but there may be even more.

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Brown said the Service case grew too large in scope for a single detective and was referred to ISP’s Special Investigation Section and the Federal Bureau of Investigation. Mary F. Higdon, a Bloomington defense attorney representing Service in his Lawrence County criminal case, said the FBI informed her it declined to take the case, and that her client intends to defend himself.

“Mr. Service believes he never violated the Trust Code,” Higdon said. “He believes he was fully compliant with the Trust Code. That’s our defense.”

Higdon declined to answer questions about whether money was missing from the Lawrence County trusts but said Service had not made any reimbursement to the trusts of the funds police say he stole.

“Just because there are so many allegations out there doesn’t mean he’s guilty of anything,” Higdon said. “I don’t think there should be a rush to judgment as far as his guilt whatsoever.”

Service could not be reached for comment. The telephone number listed for him on the Indiana Roll of Attorneys played a recording saying the number was no longer accepting calls.

Investigators and attorneys who’ve intervened in multiple cases to remove Service from trusts he established and administered say the total amount missing is likely to run to at least several hundred thousand dollars.

The Indiana Supreme Court suspended Service from the practice of law in June for failure to cooperate with a Disciplinary Commission investigation launched in March, three months after he was charged in Lawrence County with Level 5 felony theft.

Brown wrote in a probable cause affidavit that Service stole from the accounts of two people in the Bedford area whose special-needs trusts the lawyer established and administered. “The two Lawrence County victims have suffered a combined loss of over $85,522.29,” the affidavit says. The charging information claims Service used money from clients’ special-needs trusts to pay for personal expenses from casino trips to his dry cleaning.

‘Devastating’

After Service’s first discipline matter was filed after he was charged in the two Lawrence County cases, court records show attorneys intervened to remove him from cases around Indiana where he had established special-needs trusts and designated himself trustee. In many of those cases, his removal appears to have come after the financial damage was done.

“It was devastating,” Brown said of the impact Service’s action had on his clients. The detective noted one victim was a mother with terminal cancer. She was counting on money in a special-needs trust Service opened to be a nest egg to provide care after she dies for a child with significant disabilities.

“Unfortunately, she thought she had six figures in an account, and it had nothing,” Brown said.

In some cases, Brown was breaking the news to Service’s victims that their money was missing — including this mother. “To hear her scream and cry, it’s terrible,” he said. “When I talked to the victims, that was the worst part of the case.”

Fort Wayne attorney Kristin Bilinski was called upon to intervene in five cases where Service was supposed to establish special-needs trusts for clients who received settlements in personal injury cases. She said the clients were either disabled from birth or as a result of an accident or injury.

“I would say well over $200,000 is missing so far,” Bilinski said of the five cases where she appeared and removed Service as trustee. She said clients in those cases are spread across northern Indiana — in Allen, LaPorte, St. Joseph and Wabash counties.

The clients had been referred to Service by law firms that won settlements for them. Court records show that when Service established special-needs trusts for clients, he typically also appointed himself trustee. Special-needs trusts serve two purposes: the money can be used to pay for the injured person’s short-term or long-term care and other needs, and they preserve the disabled person’s ability to continue to qualify for Medicaid and Supplemental Security Income benefits from Social Security.

Bilinski said there’s nothing inherently wrong with attorneys serving as trustees, but it’s becoming less common because of potential liability. She said some legal malpractice insurance carriers no longer even cover lawyers who serve as a trustee for clients.

When Bilinski began seeing money missing from these trusts, she said her reaction was, “honestly, just dismay. Because these people, first of all, had obviously had a terrible accident to have received a settlement, and they’re living with some kind of disability. … For this to come along and delay or completely hinder access to money that’s rightfully theirs, it’s just horrible. I don’t know what else to say.”

Bilinski is hopeful some of the money might be recoverable. She said she’s preparing applications to the Indiana State Bar Association for possible relief from the Clients’ Financial Assistance Fund that serves victims of attorney theft. However, she said that fund’s limited resources can’t possibly make her clients whole without other recovery of the missing money.

“The fact that we can’t find the funds and can’t get any information about them is very concerning,” she said. “In some cases, the trust account wasn’t even set up.”

‘Knew something was wrong’

Marion attorney Josef D. Musser intervened in a case where Service had established a special-needs trust for a man disabled since childhood. He’d been cared for by his mother until she died, and a prior guardianship had been established to provide for his care.

Service established the trust for the man with the settlement proceeds the client received after he was injured in a crash while a passenger in a van. Musser said when the guardian submitted requests for reimbursement from the trust Service set up to repay the guardian’s legitimate out-of-pocket expenses, red flags started going up.

Service “continued to delay, delay, delay on paying those,” Musser said. “I knew something was wrong there with his operation, and he would continue to tell me the delay was caused by the fact he didn’t have staff hired and was overwhelmed with his workload. … He didn’t pay and kind of changed his reasons why he didn’t pay, and he wouldn’t respond to phone calls and communications. We got very concerned.”

Musser said the guardian ultimately was reimbursed, and the client in this case suffered no financial harm. Another attorney intervened in this case and removed Service as trustee in March, after the first attorney discipline case began.

“I’m just glad we weren’t one of the clients that actually lost money,” Musser said.

‘Stop talking to the bank’

Brown, who investigated the Lawrence County thefts, alleged Service wrote checks for cash to himself from his clients’ special-needs trust accounts. In at least one of those cases, he also had a debit card for the special-needs trust account that the client in Bedford told police he didn’t know about.

That client also told police that Service had refused the client’s multiple requests to access money from his trust to make needed repairs to his home and to buy a car. Brown wrote that after the client was contacted by his bank about money missing from his trust account, the client “called (Service) who informed him that he would be down to Bloomington to buy him a new car if he would stop talking to the bank employees.”

The Bedford client said Service made good on the promise and wrote a check for a new Toyota, but the check didn’t come from the client’s trust account. Similarly, the charge against Service alleges he used the Bedford client’s trust account to pay for a root canal and crown procedure for client in another county who had a special-needs trust Service managed.

“I feel that Mr. Service is using other trust funds in his control to pay for expenses on other trust funds and then claiming he is using his own money,” the detective wrote in the probable cause affidavit. “Mr. Service will then withdraw funds from the trust fund that he claims is owed repayment … and keep the money for his personal use.”

Service used money he took from the Lawrence County trusts to pay for a stay and room service at the Blue Chip Casino in Michigan City, and to pay for at least 35 nights’ stays at an Indianapolis Marriott hotel from March 1-April 10, 2016, the charging document alleges.

One of the Lawrence County cases involved a woman for whom Service opened a special-needs trust in June 2015. The woman died that November, and her sister was tasked with closing the woman’s estate. Brown wrote that he asked the sister if she knew “any reason (Service) would make repeated trip(s) to the teller window at PNC Bank and withdraw thousands of dollars in cash from the trust fund” in late 2015 and early 2016. Brown said the sister replied, “there would be no reason at all for that to have been done.”

Authorities allege Service stole more than $43,000 from that victim’s account.

“It’s scary to think how many more might be out there that you don’t know about,” Brown said.•

 

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