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Former Baltimore Behavioral Health CEO sentenced to two years in prison

Clutching his hands and fighting back tears, William "Kris" Hathaway apologized in court Friday for his role in the financial collapse of a Baltimore nonprofit that treated drug addicts and people with mental health problems.

"This is a challenge for me," Hathaway, 52, said to the packed chamber at U.S. District Court in Baltimore. "I cannot apologize enough, but I am truly sorry."

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Hathaway, who was CEO of Baltimore Behavioral Health, pleaded guilty to diverting nearly $3.5 million withheld for employee taxes and $53,000 from a pension plan from 2009 to 2011. U.S. District Judge Richard D. Bennett sentenced Hathaway to two years in federal prison followed by six months under house arrest.

Hathaway also was ordered to pay all unpaid taxes to the IRS and the state.

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Bennett acknowledged Hathaway's remorse, but he said Hathaway's actions continued for years. As Baltimore Behavioral Health struggled, Hathaway could have worked out payments with the IRS or quit the nonprofit, Bennett said.

"This went on for a long period of time," Bennett said.

Baltimore Behavioral Health eventually went bankrupt and was sold.

A Baltimore Sun investigation in 2010 found that the organization, which was funded primarily by government reimbursements, funneled drug addicts into costly mental health treatment programs when their main problem was addiction.

The nonprofit's top executives were all members of Hathaway's family, and the organization's board of directors also included relatives, The Sun reported. It made payments to a company owned by Hathaway's mother.

The organization's financial picture worsened when the state reduced reimbursements and sought repayment of some of its grants.

Hathaway diverted the tax and pension withholdings to keep the organization running, his attorney said Friday.

"This was a misguided attempt to keep a company operating," Public Defender Douglas Miller said.

Hathaway eventually was fired from Baltimore Behavioral Health. He found work with Howard County government but was fired from that job after he pleaded guilty in federal court in March, his attorney said.

Outside of receiving his salary, Miller said, Hathaway didn't benefit personally from diverting the tax and pension money. He argued for a sentence of probation.

"This is not somebody who needs to be in prison," Miller said.

Miller said his client handled the organization's books, but he was working under the thumb of his mother and stepfather, who called the shots at Baltimore Behavioral Health. They were not charged.

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Miller called two former employees and a former board member to testify in an attempt to show that Hathaway wasn't greedy or out for personal gain.

But Hathaway was the one who manipulated books and failed to pay taxes, said Martin J. Clarke, assistant U.S. attorney. Clarke estimated that Hathaway made false QuickBooks entries 63 times and failed to file 11 quarterly tax payments.

"No one else was at the keyboard all those times," Clarke said.

Sentencing guidelines recommended between 30 and 37 months in prison. Prosecutors asked for 37 months.

Bennett said it was important to send Hathaway to prison to punish him and to send a message to other business owners or nonprofit leaders who might consider similar actions.

Bennett said it didn't matter whether Hathaway's motive was personal greed or an altruistic desire to keep the treatment center running. What he did was illegal, and particularly egregious for a nonprofit that was supposed to help people battling addiction.

Bennett recommended that Hathaway serve his time at a minimum-security prison in Cumberland. He'll be allowed to report in January.

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