How Sequel wins business from California

There’s no doubt that Sequel Youth & Family Services is committed to making money. The company was once so profitable that it came close to joining the NASDAQ in 2017. 

But since its inception, Sequel has relied on an array of nonprofit affiliates for a crucial role in its operations, according to an APM Reports-led investigation of the company. These nonprofits allow Sequel to care for kids from one of its most important clients: the state of California. 

That’s because California law requires that any facilities housing children from the state be “operated on a nonprofit basis only.” In 2016, the last year for which data is publicly available, California was one Sequel’s most lucrative clients, according to company documents.  

California law also requires the nonprofits to have independent boards. But many of the members of the boards overseeing Sequel’s facilities in Wyoming and Utah have ties to the company, its founders or executives, the APM Reports investigation found. 

The Wyoming nonprofit, Normative Services Inc., pre-dates Sequel. It was founded in 1990 by Julia and Ray George, a married couple. In 2003, the Georges were preparing to retire and chose Sequel to take over the facility. Under the arrangement, the nonprofit would continue to own the property and hold the license to run a treatment center there, but Sequel would staff and operate the business. More than 90 percent of the nonprofit’s revenue is passed through to Sequel.

At the same time Sequel took over, the board got three new members who lived far from Wyoming. Lowell Lines, a banker from Iowa who previously served on the nonprofit board for Sequel’s Clarinda Academy, confirmed to APM Reports that Sequel founder Jay Ripley personally asked him to serve on the Wyoming board. Two other members — Joel Smith and Vernon Kalkman — had served as executives at Youth Services International, a forerunner to Sequel, just as Ripley had.  

In the years before they retired from the Wyoming nonprofit, the Georges took home a massive pay increase, drawing attention from the local press. The couple went from earning a combined $166,860 in 1999 to $2,050,538 in 2002. The IRS would later allege “two former officers and directors” of Normative Services Inc. had received improper payments that year and forced them to return $237,942 plus interest to the non-profit. Tax documents do not identify the officers and directors, but tax records indicate that the Georges were the only ones earning that much money. The federal government also took issue with the terms of a loan the nonprofit awarded to Sequel and forced it to start charging interest. Ray George died this year. Julia George did not return a call seeking comment. 

In 2017, a high-ranking Sequel executive named Steve Laidacker joined the Wyoming board.  

Laidacker, Smith, Kalkman and Lines accounted for four of the six directors listed in the Normative Services Inc.’s most recent filing with the IRS, meaning they held the power to decide whether to renew or terminate Sequel’s contract, which brought in $5.8 million that year.  

Asked about this arrangement, California’s Department of Social Services noted that Laidacker no longer serves on the board, according to the minutes of a meeting from April. State licensing rules allow paid employees to serve on nonprofit boards so long as a majority of members are unpaid and are not blood relatives of someone who is. 

“There is no legal prohibition against a for-profit corporation or limited liability company being affiliated with a non-profit company,” Scott Murray, a spokesman for the California Department of Social Services, wrote in response to questions from APM Reports. He declined to make department staff available for an interview. 

Government agencies in California paid Sequel more than $17 million in 2016, according to a company presentation to investors. California was Sequel’s third largest revenue source, even though the company has no operations there. California currently has 52 kids at Sequel treatment centers. The company did not address its relationship to the nonprofits in its response to written questions from APM Reports. 

Its Utah nonprofit, CARE Youth Corporation, was incorporated by a lawyer from Iowa in 2016, just five months before Sequel acquired four facilities there.  

The nonprofit had three initial board members, including Rick and Ginger Hill, a married couple from St. Petersburg, Florida. The Hills live some 2,000 miles from Utah. But their house was only 500 feet down the street from one then-owned by John Stupak, Sequel’s CEO at the time who later became chairman of its board. In a brief interview with APM Reports, Ginger Hill said she became involved in the nonprofit “through some friends.” Stupak’s wife, Ginny, is friends with Ginger Hill on Facebook, according to a profile no longer visible to the public. 

The Utah board now also includes Sequel’s former comptroller, a Minnesota-based accountant named Claire Richards, and the former education director of one of its Iowa facilities, Jeremy Hilbert. Richards did not return calls seeking comment. Hilbert declined to answer questions about his work with the nonprofit out of loyalty to Sequel. 

“During my time there it was a really great experience, and I feel like their name has really gotten drug through the mud,” Hilbert said. “I don’t want to contribute to anything negative surrounding them at all, because they really helped me grow as a person.”