Three former employees tried taking concerns about irregularities and ethical issues to the trustees and officers of Bayside Housing and Services. They were unsuccessful. Now one of them has taken their concerns to the Washington Attorney General.

Port Townsend Free Press has obtained a whistleblower complaint submitted for investigation to the Attorney General. The whistleblower has legal counsel. I have seen confirmation that a complaint was received and was being assigned. I have also been informed that an AG investigator conducted the office’s first interview on the matters raised in the complaint.

Bayside Housing and Services is a non-profit dedicated to providing transitional housing. It leases rooms in Port Hadlock at the Old Alcohol Plant, which is owned by Inn Properties, LLC., a for-profit corporation. Gary J. Keister owns 67% of and manages Inn Properties. Since July 2019 he has also been the acting managing director of Bayside Housing. His two partners in the Inn Properties are also Trustees of Bayside. Vince Verneuil is the Secretary/Treasurer. Christopher Eagan is a past president.

I wrote about these obvious conflicts of interest last week in “Cherry Street Handover: Red Flags About Bayside Housng.” Those red flags arise against Mr. Keister’s history for bank fraud, conspiracy and money laundering. The article asked whether taxpayers should be concerned about turning over the Cherry Street project to Bayside, which is essentially turning it over to Mr. Keister.

After that article was published I was contacted by another former employee of Mr. Keister’s. This person shared their concerns and knowledge about Mr. Keister’s operations. I learned he is involved in the failed development of the Hastings Building in downtown Port Townsend. I have been informed he serves as business consultant for that project and is a creditor. The address of one of the corporations in that project is the same as that of Mr. Keister’s offices in the Old Alcohol Plant in Port Hadlock.

During the conversation, while I was checking statements by the former employee on my computer, I stumbled across five Nevada corporations formed in 2000 for which Mr. Keister was listed as a director or officer or with which he had some other connection. This is in addition to the approximately 30 corporations mentioned in last week’s article.  All those corporations were formed after he got out of prison, except one, Wescom Capital, which may have been started while he was still incarcerated.

This former employee said that Mr. Keister had claimed to have owned a fishing fleet but was put out of business by the Exxon Valdez oil spill in 1989. Indeed, in a promotional piece for a reading of his autobiography at Village Books in Bellingham, he says his commercial fishing career was ended by the Exxon Valdez disaster. But, from 1986 to 1988 he was committing bank fraud and money laundering running a construction-hardware wholesaler in Tukwila. 1989 was when that house of cards collapsed and he had to file for bankruptcy. In the course of those proceedings his crimes came to light and he was headed for 41 months in federal prison.

A Cherry Street handover would deliver millions of dollars of assets and more than $300,000 to entities under Mr. Keister’s control. He is already involved in receipt and disbursement of public funds, including a $18,550 grant from Jefferson County and a $169,000 grant from the Washington Department of Commerce, both to Bayside Housing. There are other financial dealings with Jefferson County, including a contract for meals for the homeless/transient camp at the Fairgrounds. The county pays Bayside, but the funds pass through to Inn Properties.

Let’s turn to the allegations (I repeat, allegations) of the whistleblower complaint.

Fraud

In April 2020 Jefferson County awarded $18,550 to Bayside Housing to add an additional ten rooms to their lease with Inn Properties. Those rooms would serve low income individuals who might otherwise be homeless. The whistleblower alleges that all of those rooms paid for by the county were not made available to Bayside clients but were, instead, leased to Inn Properties hotel customers. Nonetheless, Inn Properties continued to charge Bayside for those rooms.

Keister has publicly talked about how Bayside has a waiting list of people needing transitional housing but it lacks the rooms to serve them. The whistleblower alleges that Keister took rooms that should have gone to help those people and instead rented them to higher paying Inn Properties customers. The whistleblower further alleges that Keister kept Bayside case managers and others in the dark about this. Eventually, after a bookkeeper complained about what was going on, he did agree to rebate to Bayside some portion of the lease payments for these rooms but has still overcharged Bayside by tens of thousands of dollars.

It is under Keister’s direction that invoices from Inn Properties are prepared and delivered to Bayside. It is Keister who essentially receives those billings and it is under his direction that Bayside pays Inn Properties.

The whistleblower alleges that Keister is “the only person outside of accounting who sees lease and expense invoices, approves them, and signs checks/transfers money from Bayside to Inn Properties.”

The whistleblower also alleges that Keister has increased the rent charged Bayside by 30% with the approval of Keister’s two partners in Inn Properties who are also trustees of Bayside. As mentioned, one of those men is also Bayside’s secretary/treasurer. Keister’s wife is also a Bayside trustee.

The whistleblower claims that Inn Properties (Keister) opened two accounts at the same financial institution as Bayside, with those accounts having the same online banking profile as Bayside. “Internal online banking transfers could be made between the two entities with no oversight whatsoever, and they were.”

Compromising Bayside’s Tax-Exempt Status and More Conflicts of Interest

Keister saw to it that an employee of Inn Properties was added as a check signer on Bayside’s accounts, according to the whistleblower complaint. “At Gary’s direction, she wrote checks in amounts ranging from $10K to $25K with no invoices to pay against to cover Inn Properties cash shortages.” (This is not likely a permissible transaction for a federal tax-exempt organization–Editor). Lease invoices from Inn Properties to Bayside were used to offset these payments. “The overpayment was so great it took several months of lease invoices to fully apply the overpayments correctly,” according to the complaint.

In December 2020, the whistleblower complaint alleges, the Bayside Board voted to “take over” Inn Properties’ for-profit restaurant and hotel business. (Again, possibly a questionable undertaking for a federal tax-exempt organization whose tax-exempt purpose is not making money in the hospitality industry–Editor).

Possible Abuse of PPP Funding and More Fraud

The Federal Paycheck Protection Program of 2020 loaned funds to businesses to help them keep their employees employed.  The amount loaned was determined by the amount spent on payroll, generally speaking. The whistleblower alleges that Bayside stopped covering Inn Properties cash shortages when a PPP loan was obtained. But, the complaint alleges, the Inn Properties application for the PPP loan included employee time reimbursed by Bayside. “Inn Properties received their PPP loan based on the inclusion of reimbursable payroll expenses and continued to bill Bayside for the covered payroll,” according to the complaint.

Where Does This Go From Here?

The complaint raises other concerns, including questions about relations with local governments. Bayside is becoming increasingly more involved with government funding as, under Keister’s direction, it has expanded its operations beyond providing transitional housing at the Old Alcohol Plant to involvement with homeless camps and tiny homes villages. Keister has stated in a fundraising video released by Bayside that the group is adding permanent housing as one of its focuses. Keister has sought to obtain use of Chimacum Park, the Fairgrounds and other properties in the area.

The AG won’t be talking about its investigation. Keister has stopped responding to our questions.

Perhaps governments that have been paying Bayside will audit those transactions. Perhaps Bayside’s trustees will act. But three of them–Keister’s business partners and his wife–have financial interests in seeing Inn Properties make money off Bayside. Three employees–all of them key people–have already tried and gotten nowhere.

The City of Port Townsend in September 2020 directed its City Manager, John Mauro, to enter exclusive negotiations with Bayside for handover of the Cherry Street Project. He ignored a $1 million cash offer for the project because he had been authorized to talk only with Bayside, which he said was being represented by Gary Keister. The information reported here at Port Townsend Free Press may help inform the city on how to proceed. I emailed Mauro to ask if he had been contacted by the Attorney General’s Office. I also asked if he had been informed of Mr. Keister’s history of conviction for bank fraud and money laundering and how he might be taking that information into account in negotiations. He has not responded.

Bayside is required by the IRS to file an annual return, called a 990. One can study those returns through the Guidestar service. As I wrote in the preceding article, Bayside’s returns showed skyrocketing income that turned out to be a pledge that has never been paid. Yet, that pledge continues to be carried as an asset and makes Bayside look like it is doing much better than it is.

The 990 does report that three of Bayside’s trustees (Verneuil, Eagan and Susan Keister) have financial interests in Inn Properties, though the form does not explain in any way the enmeshed relationship between the for-profit Inn Properties and tax exempt Bayside Housing. The 990 does not disclose the conflict of interest of Bayside’s managing director. It discloses nothing about Gary Keister’s control over Bayside Housing as its “acting” managing director at the same time he is the majority owner and manager of Inn Properties. Bayside’s 990 for the past year should be filed soon, but won’t be publicly available until Guidestar releases it online.