Editor's note: This is the first of a three-part series examining a $1million city loan to a Your Black Muslim Bakery affiliate that was never repaid.

It was a noble cause: Train welfare recipients as home health aides and put them to work caring for homebound sick and elderly clients.

A decade ago, while Your Black Muslim Bakery founder Yusuf Bey enjoyed unwavering support and adulation from black businesses and politicians, his spiritually adopted son, Nedir Bey, pressured and shamed city leaders into giving him a $1.1 million loan to help finance the promise of black entrepreneurial independence.

But the venture, E.M. Health Services, swiftly collapsed. The failure of CEO Nedir Bey to repay a dime of the loan made headlines at the time and prompted most to assume the company's demise was caused by a combination of poor business decisions, bureaucratic hurdles and simple bad luck.

But was it?

City officials overlooked flaws in the company's business plans and relented to black community leaders who insisted they award the loan, according to interviews, documents and other correspondence reviewed by the Chauncey Bailey Project.

The loan was granted to Nedir Bey despite his well-publicized arrest for the torture and kidnapping of a man two years earlier. Bey pleaded no contest to one felony count of false imprisonment and was sentenced to three years' probation.

In awarding the loan to Nedir Bey, nearly every elected official lauded the accomplishments of Yusuf Bey in turning around the lives of troubled young men. Yet dozens of those men had armed themselves during a standoff with police two years earlier. And a few years later, Yusuf Bey himself would be accused of raping and fathering children with young girls who were placed in his care.

And the Chauncey Bailey Project has learned that in late 1999 and early 2000, the FBI investigated E.

Chauncey Bailey 1949-2007
Stories and related media on the slaying of Chauncey Bailey and subsequent investigation.
Audio: Reporters interviewed police brass about the investigation into Chauncey Bailey's murder and Your Black Muslim Bakery.
M. Health Services' loan and Nedir Bey, although it's not clear how the probe was resolved.

In the wake of reported real estate and welfare fraud allegedly committed by the wives and children of Yusuf Bey _ as well as the August arrest of a bakery member accused of the Aug. 2 shooting death of Bailey, the editor of the Oakland Post _ a deeper review of the E.M. Health Services loan reveals several questionable expenses that suggest an internal pattern of cronyism that enriched nearly every facet of the bakery empire's inner circle including:

-Tens of thousands of dollars in consulting fees paid to companies controlled by Nedir Bey and his wife, Rosemarie Boothe-Bey, as well as other bakery insiders.

-Thousands of dollars in security fees paid to yet another company controlled by Your Black Muslim Bakery and thousands more in advertising fees paid to Universal Distributors, a company operated by associates of the bakery.

-$20,000 paid to the administrator of an Oakland home health company who had urged the city to award the loan to E.M. Health Services.

-Top-end salaries paid to Nedir Bey and his wife, Rosemarie Boothe, as well as to two of the Muslim wives of bakery patriarch Yusuf Bey who are accused of receiving fraudulent welfare payments at the time, and a second woman with whom Nedir Bey fathered children. Other bakery insiders filled the company's payroll.

-15-day loans made to E.M. Health by Nedir Bey and other bakery associates that were repaid with hefty loan fees.

The beginnings

On April 30, 1996, the Oakland City Council awarded E.M. Health conditional approval for a $1.1million federal loan to establish a training program for home health aides.

According to loan documents and internal memos, the city approved that loan despite flaws in the company's business plan and no discernible collateral or equity to back up the debt.

The money was part of a $44 million pot — half loan, half grant — awarded to the city by the federal Department of Housing and Urban Development to fund start-up ventures or help expand existing businesses in three distressed areas of Oakland with high unemployment rates. The federal money was supposed to create jobs, and it was intended for borrowers who could not qualify for conventional loans.

E.M. Health's share of that pot — through the leadership of then-bakery lieutenant Nedir Bey — would further Yusuf Bey's efforts to empower poor black residents and ex-cons by giving them training and job opportunities at various bakery outlets and private security companies affiliated with the patriarch's expanding empire.

The loan proceeds were supposed to be used for start-up costs to recruit workers and patients, establish the home health training program and provide ongoing operating expenses.

The company never lived up to its promise. Ten years have passed and still not a cent has been repaid. The equipment pledged to secure the proceeds never surfaced. The promised jobs for low-income residents, as well as the promised services for sick and elderly clients, evaporated. The Oakland city attorney sued to recoup the debt, plus interest, but the city's finance department has not been able to collect.

Nedir Bey, whose last listed occupation is business development consultant, would not answer questions about the business operations or why the company failed to take hold, saying that was "in the past." In a brief telephone conversation, Bey said there were other Oakland businesses that defaulted on city loans and he asked if they were receiving the same level of scrutiny. Bey remains in Oakland but says he is no longer affiliated with the bakery.

Former bakery associate and businessman Ali Saleem Bey has spent the last several months trying to save the heavily indebted bakery enterprise from liquidation. Saleem Bey said he hasn't spoken to Nedir Bey in years, but he defended E.M. Health's efforts to provide job training and services to poor Oakland residents.

Saleem Bey, reached by phone, said the city subjected the business to undue scrutiny compared with others seeking public money. That scrutiny also led to the company being underfunded, Saleem Bey said, and contributed to its demise.

"We really felt we were sabotaged by the city, ..." said Saleem Bey, who worked alongside other bakery associates to help launch the business.

"Politically, they never wanted to give us the money ... and when it came time to work with us and make it go, they made it as hard as possible," Saleem Bey said. "They wanted to wag their fingers at us."

But the only thing that remains today from the ashes of E.M. Health is a considerable outstanding debt to taxpayers — a debt that could have been much larger.

Big plans, big loan requests

The Qiyamah Corp., E.M. Health's nonprofit parent company, first filed state business registration papers in October 1993. The nonprofit organization was formed to expand the bakery's community work and job training programs, and it wasn't long before bakery members sought the city's help in financing a new home health care venture.

Nedir Bey originally approached the city in approximately 1994 for a $3.4million loan to buy an apartment building on 24th Street in North Oakland. That would be used, he said at the time, as a base for his home health care program.

The building purchase didn't qualify for HUD funds, and over time it was dropped from the plan. The loan request was whittled down to the $1.1 million, which was conditionally awarded to Qiyamah's for-profit subsidiary, E.M. Health.

The company promised to create 32 full-time jobs, more than half of which would be filled by residents of West Oakland, East Oakland or San Antonio/Fruitvale — the three economically depressed areas targeted by HUD.

The company also promised to train 120 low-income residents and welfare recipients as home health workers, who would in turn provide services to Medicare and MediCal patients and other clients who were privately insured. According to E.M. Health's business plan accepted by the city, insurance reimbursements would be more than sufficient to repay the loan. It might have worked if Nedir Bey had started small.

Instead, he purchased expensive office furniture and loaded the payroll with bakery insiders, most of whom had no health care experience, while spending little initially on actual medical supplies, according to loan documents.

Bill Claggett, the former director of Oakland's Community and Economic Development Agency who inherited the E.M. loan in late 1997, said he couldn't believe the city gave the company "a dime," let alone $1.1 million.

"They didn't know what they were doing," Claggett said. "The cost per person served was much higher than any other similar business. It was clear (Bey) didn't have the kind of staffing he needed for that operation."

E.M. Health opened its doors on July 10, 1996, in an office storefront on Grand Avenue. That first year's tax return posted income of $6,007 and a loss of $437,802. It spent $85,886 on consultants, $10,600 on security and only $5,708 for medical supplies. It survived almost exclusively on the city loan.

The list of employees included Nedir Bey's wife, Rosemarie Boothe; and another woman, Kathy Leviege, with whom he has two children; family associate Janet Bey; and Madeeah Bey and Farieda Bey, two wives of bakery patriarch Yusuf Bey who are alleged to have received illegal welfare payments at the time, according to civil depositions taken recently in an unrelated case.

Within three months of receiving start-up funds from the city, Nedir Bey was on track to earn $108,000 a year, a figure that was out of line with what similar agencies in the Bay Area paid their CEOs, according to a spring 1997 memo in the city's loan files.

Quarterly wage reports filed with the state show that Nedir Bey's wife earned $47,000 as the assistant administrator, and Yusuf Bey's wives — whose occupations were listed as marketing director and LVN/outreach coordinator — earned nearly $60,000 each, the same as Janet Bey, a registered public health nurse. Other than Janet Bey, none of the women had nursing degrees or related licenses, according to a review of state documents. Saleem Bey said it should not seem suspicious that members of the bakery's extended family ended up on E.M. Health's payroll. He said they worked many different jobs to help support the bakery empire and to further Yusuf Bey's edict to be self-reliant.

He said they also worked alongside Nedir Bey to try and make the enterprise a success. To infer otherwise would be a mistake.

"It behooved the organization to be successful, so it wasn't as if everybody was just eyeing this money and they wanted to steal a million," Saleem Bey said. "If the business plan was successful, by this time it would have created 10 times that amount of money and created many jobs."

Even so, the city's loan staff requested that the compensation for E.M.'s three top executives be reduced by 20 percent, a move Nedir Bey protested in a memo to city officials.

Other questionable expenses

There were other missteps and invoices that city officials questioned before the city received the HUD proceeds, including a lease on a Cadillac and reimbursements to a security company controlled by the bakery.

One city staffer flagged the vehicle lease, $64,000 in consulting contracts, and thousands budgeted for security as ineligible uses of the federal funds. "Staff is exploring options for recovering these costs," reads one memo from April 1, 1997.

That same year, in addition to their salaries, E.M. Health paid approximately $40,000 in consulting fees and service payments to Nedir Bey and relatives either directly or through companies that he and other associates of the bakery controlled, according to records on file with the city of Oakland.

Bakery associates also made 15-day loans to E.M. Health to cover operating expenses and charged substantial interest fees in return. Nedir Bey earned a $750 fee for a $9,000 loan he made to the company, and Ali Saleem Bey charged $1,000 interest for a $13,750 loan. Time after time, city staff questioned the invoices E.M. Health submitted for reimbursement, asking for more details or supporting documentation. But the money was never withheld for long.

MediaNews investigative reporters Thomas Peele and Josh Richman, KQED reporter Judy Campbell and freelance radio reporter Bob Butler contributed to this report. Cecily Burt is a MediaNews staff writer. G.W. Schulz is a staff writer at the San Francisco Bay Guardian.