Swindling the Poor in Mississippi

We at Ethics Unwrapped often say that most white-collar criminals don’t begin by getting up one morning and saying to themselves: “Today’s the day I start my life of crime.” But some do. Witness the Mississippi welfare scandal chronicled in the new book Mississippi Swindle: Brett Favre and the Welfare Scandal that Shocked America by Shad White.

Mary McCarthy wrote that we are all the heroes of our own stories, and Shad White, State Auditor of the State of Mississippi, is certainly the hero of this book he has penned. In his recounting, Mr. White and his spunky band of state bureaucrats are always courageously on the side of good. And, as it happens, the details he provides–supplemented by newspaper reporting, grand jury indictments, and multiple guilty pleas–do a lot to indicate that this self-appointed hero status is well deserved.

In hindsight it appears that John Davis, director of the Mississippi Department of Human Services (DHS) just up and decided to help himself and his cronies to enough federal taxpayer dollars that were supposed to fund the Temporary Assistance for Needy Families (TANF) (also known as “welfare”) program to create the largest public fraud case in state history.

Davis was supposed to spend every single TANF dollar on needy families, but tens of millions went elsewhere. Much of the money went to Ted DiBiase and his sons Ted, Jr. and Brett. Ted, Sr. had been a professional wrestler and morphed into an inspirational speaker on the southern evangelical circuit. Ted, Sr. was paid to hold revival style meetings and wrestling events that he may or may not have actually held. Brett, a seemingly very close friend of Davis, received almost $100,000 per year to be DHS’s “Direction of Transformational Change,” whatever that was. Davis sent $160,000 of TANF money to fund Brett’s treatment for drug addiction at a fancy Malibu treatment center. Other TANF money paid for travel by Davis and Brett, as well as strippers for Brett.

Much more money was siphoned off to Nancy New and her sons Zach and Jess. Nancy formed a nonprofit she called the Mississippi Community Education Center (MCEC). Millions of TANF dollars went to MCEC. Very little of it was used to help the poor. Most of it went to help the News family with other businesses and various ventures they had going on. From 2016 to 2019, MCEC received $900,000 in private donations and $58 million from grants, mostly from DHS.

As White writes, “The News and Davis treated TANF like their own piggy bank, spending as they saw fit.” (p. 31) In 2017, the state spent $90M in TANF fund, but only $10M went to poor people who had applied for the funds. Much more paid for new homes, cars, computers, and other items for the News. As White writes:

When you strip away the complexity, their scheme was simple: pay to play. John Davis gave the News tens of millions of dollars of welfare money. In exchange, they had to do what John wanted with it. Sometimes that meant helping John’s friends and family. They were able to do this by running the money through the News’ nonprofit, where there was far less oversight than the oversight on the state agency. All that was left was to lie on some official documents about how the money was spent.

The psychological concept of incrementalism seems to apply here. It’s the old slippery slope. As White writes: “When the News realized that no one was watching the money, it was easy to also decide to treat the slush fund as their own.” (p. 180)

Additional funds went to other powerful people in the state. Football Hall of Famer and Mississippi icon Brett Favre had played football at the University of Southern Mississippi (USM) and his daughter was playing volleyball there. Favre promised USM officials he would raise the money for a new volleyball facility, but he wanted as much help as he could get. Davis and Nancy New funneled $5 million of TANF funds to help Favre out.

Furthermore, Favre had invested in Prevacus, a company founded by Dr. Jacob Vanlandingham who was marketing a new concussion treatment that supposedly could reduce brain inflammation after a blow to the head. Davis and New, with Favre’s encouragement, funneled $2 million of TANF funds to Prevacus.

This is just a taste of the fraudulent scheme. White accurately asserts that the Mississippi Swindle neatly fits into Donald Cressey’s “Fraud Triangle”:

First, is opportunity. Because Davis headed DHS and could control the flow of money from beginning to end, he could steal with near impunity. Davis instructed DHS employees not to monitor MCEC. Davis had cowed his staff into submission, creating a network of complicity of the sort that makes large and long-standing scandals possible. Our Ethics Unwrapped colleague Dr. Minette Drumwright and her co-author Dr. Peggy Cunningham have written extensively about such networks, and White accurately concludes that we have one here:

Ultimately, the DHS case is not just a story about fraud, though. It’s about power. It’s about how power is accumulated through building networks, through maintaining secrecy, and, most important, through the use of lots of money. It’s about how power is leveraged and how it can be used at the expense of the unsuspecting public. It’s a story about greed, yes, but it’s ultimately a story about how the greedy are empowered by the complacency of those around them. (p. 231)

Second, is motivation. Fraudsters often have financial pressure on them that motivates the theft. Here, the News family was living, and living high on the hog, off the TANF funds. Also, a simple desire to be rich, influential or powerful can easily provide the motivation for fraud.
Third, is rationalization. Even the worst of people mostly like to think of themselves as good folks and therefore attempt to rationalize their wrongdoing. Nancy New had a reputation far and wide for helping the state and doing good things. People who admired and praised her did not realize whose money she was using to do these good things. As White observes: “Once a rationalization that insidious plants itself in your brain, you can make and live with all sorts of immoral decisions. (p. 61)

A second rationalization New used was selective social comparison, arguing that others had misspent money even worse than MCEC had. As White writes: “No murderer was ever acquitted with the defense of, ‘Well, sure, I killed the guy, but plenty of other people have committed murder, too.’” Juries might not be convinced by this rationalization, but New herself may have been.

Many, though not all, of the wrongdoers involved in this huge scandal have been punished and some (but far from all) of the stolen funds have been retrieved. It’s probably too much to hope that public fraud has been eliminated in Mississippi, but at least a blow has been struck.

Resources

Vikas Anand et al., “Business as Usual: The Acceptance and Perpetuation of Corruption in Organizations,” Academy of Management Executive 18:2: 39-53 (2004).

Donald Cressey, “The Respectable Criminal,” Criminologica 3(1): 13-16 (1965).

Peggy Cunningham & Minette Drumwright, “R. Kelly Was Aided by a Network of Complicity—Common in Workplace Abuse—that Enabled Crimes to Go on for Decades,” The Conversation, originally published Sept. 28, 2021 and updated June 30, 0222, at https://theconversation.com/r-kelly-was-aided-by-a-network-of-complicity-common-in-workplace-abuse-that-enabled-crimes-to-go-on-for-decades-168809.

Peggy Cunningham, Minette Drumwright & Kenneth William Foster, “Networks of Complicity: Social Networks and Sex Harassment,” Equity, Diversity & Inclusion 40(4): 392-409 (2021).

Neil MacFarquhar, “Mississippi Welfare Scandal Spreads Well Beyond Brett Favre,” New York Times, Sept. 22, 2022, updated June 21, 2023, at https://www.nytimes.com/2022/09/22/us/brett-favre-welfare-mississippi.html.

Emily Pettus, “Mississippi is Still Trying to Get Brett Favre to Repay Nearly $730,000 in Welfare Funds that He Used on a Volleyball Arena,” Fortune, Feb. 6, 2024, at https://fortune.com/2024/02/06/mississippi-bret-favre-welfare-volleyball-court-730000/.

Shad White, Mississippi Swindle: Brett Favre and the Welfare Scandal that Shocked America (2024).