The players in the sweeping fraud lawsuit filed by Community Memorial Hospital once presented a united front: the longtime volunteer trustees, the former administrator they considered their personal friend, the accounting firm that had reviewed the books for close to 25 years, the law firm that advised the hospital during a bruising battle with physicians.

Now that unity has been shattered, as officials of the nonprofit Ventura hospital are claiming an elaborate coverup by trusted advisers and alleging fraud by former CEO Michael Bakst. The board contracted the accounting firm to investigate Bakst but is now alleging that the firm concealed its findings under pressure from the hospital's attorney. The hospital didn't learn until years later about the litany of financial problems that could cost $5 million, including $1.52 million paid in federal fines, officials say.

Now a battle is erupting over who did what when.

Defendants deny allegations

Records in the lawsuit, filed earlier this month, indicate accountant Ronald Camp eliminated some negative findings from the final report and never cited hundreds of thousands of dollars in questionable spending shown in supplementary work documents. Officials say then-hospital attorney Peter Goldenring pressured the accountant to leave out the final report's negative findings. The lawyer also represented Bakst in long divorce proceedings, fueling allegations and denials about a conflict of interest.

All of the defendants deny all allegations. Goldenring's Ventura law firm provided documents showing the full findings from the financial report were shared with Gary Wolfe, then vice chairman of the hospital board. An accountant's personal memo says Wolfe told him the board didn't want the findings included in the written report.

James Prosser, Goldenring's law partner, said the document and a second letter on findings that was faxed to Wolfe shows the board knew everything.

"How can you say the person you're told to communicate with doesn't suffice as notice to the board?" Prosser asked.

Wolfe said he doesn't remember receiving the faxed letter and was never told the full details of Bakst's spending. He never agreed the findings should be communicated only orally, he said.

Alleged financial misconduct

Although the former CEO who ran the nonprofit hospital for nearly 25 years is not named as a defendant in the lawsuit, the war of legal documents revolves around his alleged financial misconduct.

Bakst was dismissed in October 2003 after a power struggle with physicians and not because of the financial improprieties alleged in the lawsuit. Board members say they only discovered the depth of the problems after Bakst left.

"He was spending money that didn't belong to him and using it for his own personal purposes and for personal political gain," hospital attorney George Newhouse said, adding Bakst was currying favor with the board, employees and physicians.

"A hospital is a charity that exists to serve the community and the residents of Ventura County. That money should be used to buy imaging machines, operating rooms and serve the people of Ventura," he said. "When you are head of a corporation and spending corporate assets for your own use, that's not just misuse, that's fraud, particularly when records are asserting that personal expenditure is for public purpose."

Lawyer Michael Amir said Bakst won't be interviewed. He denied his client committed fraud, saying all his purchases were made on behalf of the hospital and were reviewed and approved by the board.

"I'm disappointed that Community Memorial Hospital continues to disparage Mike Bakst's name and reputation through its lawsuit and now its attorneys," he said.

The hospital paid the federal government $1.52 million late last year to settle allegations that it violated laws governing preferential treatment for doctors, including interest-free loans and gifts. The alleged violations over nearly 10 years were committed under Bakst's tenure, but his settlement agreement precludes a lawsuit against him, hospital CEO Gary Wilde said.

Wilde estimates that cleaning up the entire problem could cost the hospital $5 million in fines, accounting investigations and legal fees.

Amir won't say whether Bakst has been contacted by federal authorities.

'It's not to be vindictive'

Wolfe said the board decided to sue to protect the assets of the hospital.

"It's to recoup the money," he said. "It's not to be vindictive."

At issue in the lawsuit is the information deleted from a review the hospital commissioned from its longtime accounting firm.

Six years ago, the board asked Bartlett, Pringle & Wolf of Santa Barbara to investigate rumors that Bakst was engaged in offshore gambling and skimming hospital contracts, Wolfe said. No evidence of that was found, he said.

Bakst was indignant and welcomed the investigation, which was authorized in an agreement in November 2002. Accountants sent Goldenring, who was representing the hospital, their independent report on Dec. 16, based on a review of records from Jan. 1, 2001, to Oct. 31, 2002.

The accountant reported no inappropriate conduct by Bakst but told Goldenring he would send another letter detailing accounting deficiencies and recommendations. That letter, dated the next day, cited "$28,800 of transactions in which personal expenses were paid and not accounted for properly," and "a significant amount of gifts such as computers, cameras and similar items totaling approximately $110,000 were made during the period reviewed and such gifts are clearly subject to income tax."

Three weeks later, Goldenring wrote to Camp asking him to delete those statements from a letter recommending changes in the hospital's accounting procedures. Camp resisted, saying the findings were "an integral part of the report." He suggested a possible meeting with Wolfe and then-board Chairman Phil Drescher.

Goldenring repeated his objections Feb. 3, and five days later Camp issued a follow-up letter that the hospital calls a "sanitized report."

Hospital officials say they never saw all the findings and did not know about the problems. Had they known, they would have fired Bakst immediately and cleaned up the issues then, the lawsuit says.

'They're simply not true'

Prosser said the findings were deleted only because they didn't fit the context of a report designed to correct accounting processes. He said the omitted findings were presented by the accountant as staff errors and not as misconduct by Bakst.

Hospital officials say accounting records referred to in the lawsuit as working papers show much bigger problems than made it into any of the reports. "The work papers document payments from CMH to Bakst of hundreds of thousands of dollars of expense claims with little or no supporting documentation or receipts," the lawsuit says. The records also reflected thousands of dollars in gifts to physicians and employees, such as a $1,600 camera and a computer system for $7,470.

The gifts should have ignited concerns about Medicare-related laws against kickbacks to physicians, the lawsuit says.

Prosser said Goldenring never saw the working papers. The full findings from the original letter were shared with board leaders, Prosser said.

"Wolfe and Drescher were fully informed," he said.

Camp, who is now retired, not only sent drafts of his findings to Goldenring but also discussed them with the attorney and Wolfe more than once, according to a personal memo dated February 2003.

In a follow-up phone call, Wolfe told him he did not want a more detailed report with specific findings, Camp wrote.

Prosser said the memo came from Camp's accounting firm. Lawyer Randall Dean, who represents Camp and the accounting firm, wouldn't discuss the memo except to say that it could be a focus of court proceedings. He denied all allegations that his clients withheld anything from the board or conspired in a coverup.

"They're simply not true," Dean said, refusing to address any specifics.

'This is very infuriating'

Wolfe angrily denied that he wanted to keep the findings out of the report. He acknowledged being told some of the findings by phone, but said the memo bore little relationship to the call. He complained the law firm never should have made it public.

"This is very infuriating they would try to piecemeal it in the press, rather than court, where it can all come out properly," he said.

Wolfe said Camp should have contacted Phil Drescher, then-chairman of the board, or Harry Maynard, the longtime finance chairman.

But in the memo, Camp says Wolfe told him he was going to talk to Drescher. The former chairman did not return telephone calls Friday.

Prosser said it was not the first time Wolfe had been warned. He provided a letter outlining the deletions being suggested and a cover sheet showing it was faxed to Wolfe. The trustee did not recall receiving it.

Wolfe said the accountants didn't pursue questionable financial activity that would have uncovered some of the loans to physicians. The loans surfaced when Chief Financial Officer David Glyer raised concerns in 2004, according to the lawsuit.

Hospital officials say they did not know the full findings of the investigation until 2007, when the accountants turned over their complete files, including the working papers.

Dean said all the allegations in the lawsuit are untrue. Prosser said Goldenring's role in financial matters was limited to the 2002 review. When Glyer voiced his concerns about the loans, Goldenring sent a letter to legal specialists asking them to explore troubling aspects of the financing.

Prosser contended the hospital is using some facts and carefully hiding others.

"There's the whole rest of the story they're not telling," he said.

The hospital lawsuit details the alleged conflict of interest surrounding Goldenring's representation of both Bakst and the hospital board. A state rule says lawyers shall not represent clients whose interests conflict except with their informed written consent. The lawsuit says the hospital did not know that Goldenring was representing Bakst. That representation did not end until May 2006, according to court records.

Prosser said the divorce was completed the year before the investigation was launched though follow-up work continued.

"It was known by board members," he said. "It was openly talked about by Dr. Bakst. It wasn't anything that anyone expressed any concern about."

He acknowledged, however, there was no written disclosure.

Legal ethicist Diane Karpman said Prosser can also argue the divorce work and representation of the hospital board are totally unrelated.

"You could argue that it's apples and oranges," she said.

Although he was unfamiliar with the hospital case, University of Southern California legal ethics Professor Greg Keating said representing clients with conflicting interests is a dangerous practice that can jeopardize attorney-client confidentiality. He said such conflicts rarely emerge at large corporations.

"It appears to emerge in circumstances when the CEO sort of dominates the company and has so much power that no one says no," he said.

A certain level of trust

Such relationships were not uncommon at Community Memorial Hospital. Wolfe, now chair of the hospital board, did personal accounting work for Bakst. Prosser said another board member testified as an expert witness in Bakst's divorce case.

"Everybody on the board considered him a personal friend," Wolfe said. "He was a very likeable guy."

Wolfe says his years-long preparation of Bakst's income tax returns was not a conflict of interest with his position on the board. He does not believe the relationship affected his view of Bakst's management.

"I've been over and over that," he said. "You get a level of trust when you have worked with somebody for a long time. I do feel a sense of betrayal. It hurts. A board has to have a certain level of trust with a CEO."

The lawsuit lists expenses for which Bakst was allegedly reimbursed, such as $7,500 in automobile repairs, plus gifts to physicians and employees such as cameras, computer, liquor and jewelry.

Physicians said they thought the gifts were from Bakst personally and not from hospital funds.

"I worked for Dr. Bakst for 10 years," said Dr. Richard Reisman, medical director of the hospital's network of outpatient clinics. "Over that time, we became friends, and on occasion he gave me a birthday present."

There are some in the medical community who welcome the lawsuit as a way to push misconduct onto a stage where it will receive public scrutiny. Others want the drama to end.

"I see it as an obstacle to a healing process that I thought would have been completed," said John Keats, a doctor on staff at the hospital. "I think it's time for the medical community to move beyond these issues."