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CNN NEWSROOM

Rehab Racket in California; Landmark Case for Gay Rights; Flossie Now a Tropical Depression; Ortiz May Testify Against Hernandez.

Aired July 30, 2013 - 11:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


(BEGIN VIDEOTAPE)

JOY JARFORS, FORMER SUPERVISOR, DRUG MEDI-CAL: It's bad. It was real bad. I left state service about three years ago. And we would have one provider that would bill over a million dollars in one year that we believed was 100 percent questionable billing.

DREW GRIFFIN, CNN INVESTIGATIVE CORRESPONDENT (voice-over): And that one provider was no isolated instance. And over and over, we found examples of fraud. Not hidden fraud. This was happening in plain sight. For example, George Ilouno.

19 year old Darshaye Miles was just 14 when she went to his rehab center, along with her mother and three sisters. It's against the law to pay drug rehab clients but that apparently didn't stop Ilouno. Miles said he paid her and other clients $5 each time they signed in for group counseling, all so he could charge Medi-Cal between $28 and $61 per signature.

DARSHAYE MILES, REHAB CLIENT: At first, I didn't know what the legal -- I didn't know nothing about it. I just thought it was a thing you were supposed to get paid, going there, until people were like, Georgia, you've got to -- don't speak out loud about the money.

GRIFFIN: What did she do with the $5 given to her by the drug rehab center? She bought drugs.

MILES: We were just going to get the money to buy weed. So my whole thing is, like, you all were paying us to get high.

GRIFFIN: The day after our interview, the state charged Ilouno and three of his employees at G.B. Medical with grand theft in connection with more than 2,000 phony bills for rehab dating back to 2009. He's pled not guilty, but record shows your tax dollars still paid him even after he was arrested and out on bail.

Ilouno's attorney blamed the billing practices on counselors and employees who were not well supervised. The attorney says Ilouno was a certified counselor himself who was allowed to bill Medicaid.

Despite that, the clinic voluntary shut down July 1st, without explanation.

CNN and the Center for Investigative Reporting reviewed thousands of records in California's Drug Medi-Cal program, including program audits. We analyzed patient billings, even watched clinics under cover to see who was getting treatment and who wasn't. The result? We found in the last two fiscal years, half of the nearly $186 million spent for Drug Medi-Cal, about $94 million, went to clinics showing questionable practices or signs of fraud.

Case in point? The man with the cigar, a convicted felon named Alexander Ferdman.

MARSHALL BOAT (ph), LEAD INVESTIGATOR: Ferdman was the organizer.

Marshall Boat (ph) was the lead investigator who helped prosecute Alexander Ferdman back in 2000 for running a Texas-based crime syndicate that staged car crashes, ripping off big insurance companies.

BOAT (ph): He listed his occupation as a driver of an ice cream truck.

GRIFFIN: Ferdman pled guilty to organized crime and was sentenced to seven years in a Texas prison. He served just one year, was let out early for good behavior, and ended up in California.

Even though felons are barred from running Drug Medi-Cal centers, Ferdman soon opened a rehab clinic called Able Family Support. Taxpayer-funded drug rehab has been easy money for Alexander Ferdman. Despite his organized crime conviction in Texas, his California Drug Medi-Cal contract is now worth about $2 million a year. His salary? $180,000. Even after a 2011 review by Los Angeles County found evidence of what it considers to be fraudulent practices at his clinic, Ferdman was allowed to expand.

(on camera): Drew Griffin with CNN.

(CROSSTALK)

GRIFFIN: How are you doing? I'd like to ask you some questions about your business?

ALEXANDER FERDMAN, OPENED QUESTIONABLE REHAB CLINIC: I really don't have time right now.

GRIFFIN: Can you explain, how can a guy with a record like you be operating a drug rehab clinic in California? You've been convicted of a major car crash scheme in Texas.

FERDMAN: I was convicted, but it's not what it seems. That's first of all. And second, whatever happened 50 years ago, what relevance does it have to today?

GRIFFIN: Does the county know about your record?

FERDMAN: They probably do. I don't know.

GRIFFIN (voice-over): What happened in Texas, Ferdman told us, should stay in Texas. FERDMAN: As I was facing 99 years, I chose a pick up a smaller sentence without -- because I could have a much worse. But there was no fraud and there was no record of it in any way.

(CROSSTALK)

FERDMAN: It's a very long story.

(CROSSTALK)

GRIFFIN: It's a huge case in Houston, Texas. State-wide, actually.

FERDMAN: Yeah. That's what they tried to bill it, but -- and that's why they pursued it. But it wasn't what it seemed and what they said it was.

GRIFFIN: Could you tell me how you left Texas and decided to come here to get into the business?

FERDMAN: I don't want to talk about it right now. So

GRIFFIN (voice-over): With such apparent widespread fraud in the program, former supervisor Joy Jarfors says it's not just taxpayers who are being cheated.

JARFORS: I'm not the employees any more that I have to look at this everyday, but I'm a taxpayer that knows this is going on, and it angers me. And there's story after story after story about Medicaid dollars being cut from people who need the services.

(END VIDEOTAPE)

JOHN BERMAN, CNN ANCHOR: That's our Drew Griffin reporting.

This investigation is already getting attention. We have confirmed that Alexander Ferdman is one of 16 clinic operator who is temporarily suspended by the state of California. His clinic shut down last week. The investigation continues tonight as Drew uncovers teens being labeled with fake addictions. Remember, each signature at the rehab equals taxpayer dollars.

Watch "Rehab Racket" tonight on "A.C. 360." It's at 8:00 eastern time. And you can always reach out to CNN's investigative unit by going to CNN.com/investigate.

Other news, A gay woman in Kentucky could get the death penalty if convicted of killing a man she says was trying to rape her. Her wife could be sent to jail for not testifying.

(BEGIN VIDEO CLIP)

GENEVA CASE, SEEKING SPOUSAL PRIVILEGE IN CASE: You would go to jail rather than testify.

ACCUSED OF MURDER: I'm not saying I would go to jail, but I want to get it across that this is -- this should be -- we should all be equal.

(END VIDEO CLIP)

BERMAN: Up next, how this case could be a landmark decision for same- sex civil unions in this country.

(COMMERCIAL BREAK)

BERMAN: Today in Kentucky, a landmark case for gay rights will be front and center. There is a hearing in Louisville and it's up to a judge to decide if a woman will be forced to testify against her wife in an upcoming murder trial.

CNN's John Zarrella explains that the stakes are incredibly high.

(BEGIN VIDEOTAPE)

JOHN ZARRELLA, CNN CORRESPONDENT (voice-over): Prosecutors say Bobbi Jo Clary is a killer. It was nearly two years ago. Clary says it was self-defense, claiming she was being raped, fought back with a hammer, and killed the man she says was attacking here. If convicted, Clary could be sentenced to death by lethal injection.

Prosecutors say the only other person that knows the truth is Geneva Case, and she's not talking.

(on camera): Why is it that you don't want to testify?

CASE: Because I have the right -- our relationship is our relationship. I feel I should be equal to everybody else. We should be the same. I should be the same as you. And I love her. And I think that we should have the same opportunity as anybody else out here.

ZARRELLA: Case is involving spousal privilege, commonly used in court cases to protect spouses from testifying against each other. Case talked exclusively with CNN, but would not discuss what she knows about the killing. She says she and Clary were separated at the time, but it was just a spat.

(on camera): So you still love Bobbi Jo?

CASE: Yes, I do, very much.

ZARRELLA: Even after all this?

CASE: Even after all this. I'll always love her.

ZARRELLA: The two women entered into a civil union in Vermont a decade ago. But the problem is this isn't Vermont. It's Kentucky. Here, same-sex marriage is constitutionally banned.

Prosecutors would not talk with us before the hearing, but in a court filing, they wrote, quote, "The husband/wife privilege which protects spousal testimony and marital communications is not applicable in this case because the marriage of Bobbi Jo Clary and Geneva Case is not a marriage in Kentucky.

They are asking the court to order Case to testify. If she refuses --

(on camera): You can go to jail?

CASE: No. I'm not.

ZARRELLA: It doesn't bother you? You'd go to jail rather than testify?

CASE: I'm not going to say I will go to jail, but I want to get it across that this is -- this should be -- we should all be equal.

ZARRELLA (voice-over): Experts say the Supreme Court ruling that California's Prop 8, banning same-sex marriage was illegal, doesn't change things in Kentucky. But attorneys representing Case and Clary say it opens a pathway.

LIDDELL VAUGHN, ATTORNEY: I think it helps us. The way it helps is it shows that our federal level, especially at the Supreme Court level, is willing to take a hard look at issues that affect the social makeup of our society.

ZARRELLA: Case told detectives during an interview two years ago that Clary admitted the killing, but said it was self-defense. Case told detectives that she saw her spouse clean blood out of the dead man's car. If Geneva Case doesn't testify, her interview with police may ultimately be her only words on record in court.

John Zarrella, CNN, Louisville, Kentucky.

(END VIDEOTAPE)

BERMAN: Bobbi Jo Clary's trial is supposed to start one month from today.

Let's talk about this. I want to bring back in defense attorney, Midwin Charles, and criminal defense attorney, Heather Hansen.

First of all, Midwin, what can the judge do here since same-sex marriage is not recognized in Kentucky?

MIDWIN CHARLES, DEFENSE ATTORNEY: I think this case is very straightforward. I think the judge is probably going to demand that this woman testify. If same-sex marriage is not legal in Kentucky, I don't understand how she can invoke marital privilege here. It almost seems as though this argument is not at the proper venue. This is more a legislative argue, something they should take to lawmakers in Kentucky. This is a criminal case, and criminal cases require courts and judges to follow existing law, not law that they want to have that assists them in a defense. So I think this judge is going to require that this woman testify. If she doesn't testify, she'll probably be held in contempt of court.

BERMAN: This falls right in between this sort of gray area in these Supreme Court cases that were decided this summer between the overturn of DOMA and Prop 8. We have the full overturn of DOMA but only partial action or inaction on Prop 8, which now makes gay marriage effectively legal in California but doesn't say what should happen in other states.

Heather, how do you think this case in Kentucky might affect other couples across the nation, or will it?

HEATHER HANSEN, CRIMINAL DEFENSE ATTORNEY: Well, John, it will if Case ultimately decides to bring this to the Supreme Court. If she's forced to testify -- she said in that interview with you guys last night that she doesn't like the idea of going to jail, and who does? I think if she's forced to testify, she could then bring this case to the Supreme Court.

Now I agree with Midwin that the law seems straightforward, although, in Maryland, a similar case happened and the judge there actually recognized the spouse privilege even though there is no same-sex marriage in Maryland. So this opens a Pandora's Box and hits the exact the exact gray area that you were talking about, John, where the Supreme Court has left a gap that has to be filled. And this case may be the case to fill it.

BERMAN: Anthony Kennedy, Midwin, seemed to be begging someone to fill in that gap, someone to bring a case to the supreme court, so it could be that what's at issue today would not be an issue a year or two down the line.

CHARLES: Exactly. A case like this is a prime example of why the United States Supreme Court exists. They exist to give clarity to laws that are different in different states, so everyone can pretty much understand, how do we make sure we don't have all this gray area, that things are a little bit more black and white, so that judges, courts know how to following and implement laws. So hopefully, this might be one of those cases to do that. Because spousal privileges and same-sex marriages trigger issues such as child custody, divorce, estate planning, so a case like this I think is a watershed moment, I think, for us.

BERMAN: Same-sex marriage, of course, legal in Maryland, several other states, not in Kentucky. This trial begins one month from today.

Midwin Charles, Heather Hansen, thank you both so much.

We want to go to some live pictures from Kansas right now. Explosions rock a local biofuel business sending flames shooting into the air. Firefighters, as you can see, on the scene right now, trying to get out in front of these flames. Seem to be having some success. We'll have the latest details on this effort, next.

(COMMERCIAL BREAK)

BERMAN: Flossie is the kind of disruptive visitor that Hawaii would just as soon do without. Now just an area of low pressure, Flossie is expected to move out today after drenching the state with torrential rain and leaving thousands there without power. Our severe weather expert, Chad Meyers, joins us now live from the CNN Center in Atlanta.

How are you, Chad?

CHAD MYERS, AMS METEOROLOGIST: Good. The center of Flossie now traveling over Princeville and Kuani and out to sea, back out to the ocean. The water is cooler. This will eventually die. About a 30- mile per hour wind gusts. It eventually moved from Hilo right over the top of Maui and now Kuani. It did put down some rainfall totals. There was some rain fall with it but this was pretty much -- Flossie was a flop. That's good news. Just very close to the center and now affecting too many spots at this hour. I have to try to say this now -- Kaupo Gap at 5.5 inches of rain or so. And Puu Kukui -- you have to say every single vowel when it comes to that. If I didn't say it, I'm sorry. And if I didn't, I apologize.

BERMAN: That's astounding stuff, Chad Myers. Of course, you called Flossie a flopsy.

(LAUGHTER)

(CROSSTALK)

MYERS: And our floor crew said Flossie would have been better in the '20s because it's a 1920s kind of name.

BERMAN: All right, Chad Myers. Thanks so much.

Here are some other stories we're watching now.

You're looking at live pictures of the Green Energy Products Plant in Kansas. Several explosions there rocked this plant a couple hours ago. As you can see, they are still fighting the fires there. Firefighters from several surrounding cities were called to help battle the blaze. We'll keep you updated throughout the day.

Three former Penn State administrators are back in court today. They're accused of covering up abuses by former assistant coach, Jerry Sandusky. In testimony yesterday, former assistant coach, Mike McQueary said, legendary coach, Joe Paterno, admitted the administration had, quote, "screwed up" on Sandusky.

President Obama is headed for Chattanooga, Tennessee today. This is his next stop in a series of speeches about the economy. One of his top advisers tells CNN the president will propose a so-called grand bargain on jobs. It will include a tax rate cut as well as new job investments.

Just ahead, we're going to talk about the Aaron Hernandez case. The former NFL player is charged with murder. And now a long-time friend may be cutting a deal to testify against him.

(COMMERCIAL BREAK)

BERMAN: A guy who grew up with accused murderer and ex pro football star, Aaron Hernandez, could wind up as a key witness against him. But before Carlos Ortiz testifies, he may try to cut a deal. He isn't talking, but he did appear in court.

Meanwhile, in Bristol, Connecticut, divers continue to search for the weapon connected with the death of Odin Lloyd. Here's Susan Candiotti.

(BEGIN VIDEOTAPE)

SUSAN CANDIOTTI, CNN NATIONAL CORRESPONDENT (voice-over): Carlos Ortiz, appearing rattled and scared in court, by many accounts, he and Aaron Hernandez go way back, same home town, Bristol, Connecticut, same schools. But unlike Hernandez, Ortiz was in and out of jail mainly for drugs and theft. And when Hernandez hit the big time --

(on camera): -- people who knew Ortiz said he would often talk about hanging out when Aaron Hernandez. And when his famous friend would call, Ortiz would go running.

(voice-over): Like the night, prosecutors say, Hernandez texted Ortiz to come to his home with another Bristol buddy, Earnest Wallace on the night Odin Lloyd was murdered. Minutes after Lloyd was gunned down, Hernandez returns home. Prosecutors believe that's Ortiz in the dark jacket, Hernandez in the white shirt. In another photo, prosecutors say the former football player appears to have a gun in one hand.

According to court papers, Ortiz allegedly told police Wallace told him Hernandez was the one who shot Lloyd. Days later, in this video obtained by CNN, Wallace turns himself in in Florida. For now, Ortiz faces only a weapons charge, and pleaded not guilty. But as a repeat offender, a conviction could put him away for at least five years.

JOHN CONNORS, ORTIZ'S ATTORNEY: He's doing as expected in this situation. He's obviously afraid, depressed.

CANDIOTTI: A law enforcement source tells Ortiz is trying to cut a plea deal in return for testifying against Hernandez. But Ortiz would not escape prison.

CNN legal analyst, Paul Callan, says Ortiz may demand witness protection.

PAUL CALLAN, CNN LEGAL ANALYST: He would be shaking in his boots because if he goes into prison as a rat, he will be in physical danger pretty much for the rest of his prison career, maybe he doesn't survive prison.

CANDIOTTI: Ortiz's lawyer will not talk about a plea deal. That might become clearer when a grand jury announces expected indictments in the near future.

Susan Candiotti, CNN, Bristol, Connecticut.

(END VIDEOTAPE)

BERMAN: Thanks for watching, everyone. I'm John Berman. AROUND THE WORLD starts after this quick break.

(COMMERCIAL BREAK)

ANNA COREN, CNN ANCHOR: We are on verdict watch in the case against Bradley Manning. He's the Army private accused of the largest leak of classified information in U.S. history.