BLYTHEWOOD – Former Blythewood Town Councilwoman and Blythewood attorney Kathleen (Katie) Devereaux Cauthen has been charged with two felony counts in a federal court in Nashville, Tenn. The charges include conspiracy to commit “theft or embezzlement in connection with health care” and misprision (failing to report the commission of a felony to judicial authorities). Cauthen faces up to eight years in prison and $500,000 in fines if convicted of the two charges.
In a separate court action on June 27, the S.C. Supreme Court suspended Cauthen’s license to practice law in the state. It ordered attorney Peyre Lumpkin to take custody of Cauthen’s legal files and trust accounts.
Last year, Cauthen was named as an unindicted co-conspirator in an alleged nationwide health care insurance scheme that first came to light in 2010 when the S.C. Department of Insurance (SCDOI) issued a cease and desist order against Cauthen, William M. Worthy II and a number of other individuals and companies and ordered them to halt their insurance selling operations. Cauthen appealed that order to the Administrative Law Court and that case is still pending. The SCDOI alleged that the insurance scheme involved “unlicensed insurers and phony insurance, sham corporations and shady associations, deals with Pakistani companies and with entities in the Bahamas, fraudulent insurance documents and fake credit instruments.” Four of Cauthen’s alleged co-conspirators – Worthy; Bart and Angela Posey of Springfield, Tenn. and Richard H. Bachman of Austin, Texas – were indicted by a federal grand jury in Nashville in June 2013. That case is scheduled for trial in U. S. District Court in Nashville in January 2015
According to the two federal charges against Cauthen, filed June 16, she aided others in a scheme purported “to provide health care benefit coverage to more than 17,000 individuals and multiple employer groups in various states . . . although holding themselves out as providing health care coverage, the defendant and her co-conspirators did not comply with either state or federal regulatory requirements.” According to court documents, Cauthen and her co-conspirators collected more than $28 million in insurance premium payments.
Some of those premiums went into an account opened by Cauthen at First Citizens Bank in Blythewood in the name of Nationwide Administrators for which Cauthen listed herself as president and used her home address for the company’s physical address according to the federal charges. The charges further state that the account was controlled by both Cauthen and Worthy, who is serving a federal prison sentence for involvement in a similar insurance fraud case.
“The funds deposited into the account at First Citizens Bank were intended to represent payments to a non-existent underwriter, but were instead primarily converted to the personal use of defendant Kathleen Devereaux Cauthen and co-conspirator William M. Worthy II,” according to the federal charges against Cauthen.
On July 10, Cauthen waived her right to be indicted on the federal charges. Instead she was charged in a federal information. An information is a formal criminal charge made by a prosecutor without the necessity of obtaining a grand jury indictment. Cauthen signed the information document waiving her right to have her case brought before the grand jury. In the document, Cauthen consented to prosecution by information, and a news article in The Tennessean speculated that she is possibly cooperating with federal prosecutors in their case against others implicated in the scheme. The Nashville newspaper quoted former U.S. Attorney Ed Yarbrough, who is now a criminal defense attorney in Nashville, as saying, “Typical signal you get when there is an information filed is that a prior agreement has been reached between the defendant and the prosecution where they have cooperated with the government and the agreement would limit the scope of their possible punishment. If they want the person to testify in a trial against other co-conspirators, they almost always charge the conspiracy count and also throw in the misprision count.”
Until the S.C. Supreme Court suspended Cauthen’s license to practice law in South Carolina last month, she was listed in good standing with the South Carolina Judicial Department. A 1999 graduate of the University of South Carolina law school, Cauthen most recently practiced law with Coastal Family Justice. She was elected to the Blythewood Town Council in 2008 and served until her term expired in 2012. She did not seek re-election.
A Tennessee federal magistrate judge ruled on July 10 that Cauthen cannot afford to pay for an attorney and appointed a public defender, Cynthia Chappell, to defend her.
The case against Cauthen is slated for jury trial on Sept. 16 at 9 a.m. in the U.S. District Court, Middle District of Tennessee in Nashville.
