SHEPHERDSVILLE, Ky. (WDRB) – When attorney Shelley Alvey took over as Bullitt County Master Commissioner in December 2019, she had an immediate crisis on her hands.
The previous commissioner, John Schmidt, was missing – as was money from the commissioner’s office, whose duties include conducting sales of foreclosed property for circuit courts.
Alvey said she was told by a state auditor that Schmidt had “misappropriated” the funds.
“I call it stealing,” she said in an interview. “The state never did anything by way of criminal charges that I am aware of. … People have known about this for a very long time. What’s the hold up?”
In fact, numerous audits of Schmidt’s office documented missing money -- $67,000 in 2005, for example – while a 2011 audit included an agreement that Schmidt would reimburse $52,000 to the master commissioner account. Two years later, an audit found $30,000 that was improperly withdrawn and noted no resolution to the missing funds from 2005.
Schmidt was quietly removed from his court-appointed position in 2019. Since then, two lawsuits filed in Bullitt Circuit Court claim he stole more than $400,000 from estates he was managing.
And in 2021, a state commission that oversees court conduct found that Schmidt was guilty of misconduct and had misappropriated $81,000 in proceeds from a foreclosed property.
The litany of audits and other findings raises questions about why Schmidt hasn’t faced criminal charges or how he kept a job controlling state funds for decades.
Public officials did not respond to requests for comment for this story, declined comment or failed to directly answer questions about why Schmidt was able to remain in his role.
Schmidt and his attorneys did not respond to messages seeking comment.
For decades, Schmidt “was lining his own pockets with money that belonged either to his clients or the state of Kentucky,” said attorney Laura Landenwhich, who represents the beneficiaries of the estate of Leo Gaston, a Shepherdsville furniture store owner who died in 1990.
Schmidt, who was managing the trust, is accused in an ongoing lawsuit of stealing nearly $200,000 from the Gaston estate.
“I would like to see some accountability,” Landenwhich said. “The big picture of how much money he was stealing … and the people who enabled him to continue to do that is all very murky. … This was fraud on a huge scale.”
‘Lot of questions’
John Schmidt was ordered by Bullitt Circuit Court to step down as trial commissioner on December 10, 2019.
On that same day, it was reported that Schmidt had gone missing, and that the then-63-year-old may be in need of “life-sustaining” medication.
In a memo, Donna Copeland, an auditor for the state Administrative Office of the Courts, wrote that she received a call the following day that Schmidt had “left a note and disappeared and that a new master commissioner had been appointed.”
The Bullitt County Sheriff’s office reported in late December that Schmidt had been found, but provided no details.
A photo circulated by the Bullitt County Sheriff's Office when Schmidt went missing.
Just a few months later, the last state audit during Schmidt’s tenure found he had misappropriated funds – including the $81,000 - and had directed payments to the wrong accounts, among other issues.
The auditors with the state Administrative Office of the Courts referred the case to the Kentucky Attorney’s General’s office, records show. The office did not comment on whether an investigation was opened.
The audit also recommended that Schmidt reimburse $81,000 from personal funds to the proper account. Schmidt did not respond to auditors.
But Schmidt’s wife wrote a check for that amount to the Bullitt County Master Commissioner’s office repaying the money, according to documents obtained by WDRB.
Landenwhich, the attorney suing Schmidt, said she is “disgusted by the way Mr. Schmidt’s conduct was allowed to continue for so long” and that he continues to go unpunished.
Schmidt still has his law license, though it is “inactive,” because he has a mental or physical condition that impairs his ability, according to the Kentucky Bar Association.
State court officials were repeatedly told of problems with Schmidt’s office over several years.
Sharon Woodrum, manager of the auditing department for the state Administrative Office of the Courts, wrote a letter to Bullitt Circuit Court Judge Rodney Burress in March 2016 noting several unresolved issues – including $67,000 in missing funds from 2005 and two unauthorized withdrawals of $30,000 in 2014.
“I’ve got a lot of questions as to why in the actual hell this has been allowed to go on,” said Alvey, the mater commissioner who took over for Schmidt. She recently stepped down from the job and is a prosecutor with the Bullitt County Attorney’s office.
Burress, a long-time Bullitt Circuit Court judge, did not respond to a request for comment.
A spokeswoman for the Administrative Office of the Courts, Jamie Neal, initially said the annual audits “in general, contain the information you have requested.”
On Tuesday, Neal responded that it is not atypical for audits to find that a master commissioner has not followed proper accounting or administrative procedures.
"This is not necessarily a cause for concern and is not automatically indicative of criminal or nefarious conduct" said said in an email.
She also said most "discrepancies identified over the course of Mr. Schmidt’s appointment were able to be reconciled and any large discrepancy was corrected."
As for the $81,000 missing money, Neal said "the AOC quickly identified the shortage of funds as an inexcusable misappropriation" and referred the case to law enforcement.
Records obtained by WDRB show that state court officials met with the Louisville Metro Police Department’s Public Corruption Task Force and an FBI agent in 2020 about Schmidt.
An LMPD spokeswoman said she could not comment if a case was pending but that the FBI would have jurisdiction over the Schmidt case.
An FBI spokesman said he could neither confirm not deny there was an ongoing investigation into Schmidt.
Larry Gatson, whose family is involved in the lawsuit against Schmidt, said “it seems like a cover up to me.
“It’s a good-old buddy system in Bullitt County and they all know each other.”
'Not a one-time event'
Schmidt had been master commissioner in Bullitt County since the 1990s. A master commissioner assists circuit courts, in part, by conducting sales of foreclosed property to satisfy liens, mortgages or claims of ownership.
In addition to being master commissioner, Schmidt was also a court-appointed manager for estates where there was no will or family administrator.
“So, he was doing both of those roles and had access to lots of money,” Landenwhich said. From 2014 to 2019, Schmidt stole varying amounts from the Gaston estate, while concealing bank records from the family, she said. Checks were made out to Schmidt or his law firm, according to records in the lawsuit.
“Trouble started when we started asking where the money was going to,” said Larry Gaston, Leo’s son, in an interview. “He would never give us any statements.”
Another lawsuit filed against Schmidt in 2021, claiming he had transferred $240,500 from someone’s estate to himself, was settled last fall. The settlement is not a public record.
Landenwhich said she asked the Kentucky Bar Association for any complaints filed against Schmidt, but the bar refused.
Since he had been removed as master commissioner by the Bullitt Circuit Court, and changed his status as an attorney to inactive, the harshest discipline the judicial conduct commission could hand down was a public reprimand.
In its July 2021 ruling, the commission noted it would have removed Schmidt from his position of master commissioner.
“The violations in this case are more serious than reflected in the limited penalty of a public reprimand,” according to the ruling.
The commission found that Schmidt had altered the endorsement stamps on two checks and deposited them to an account not affiliated with the commissioner’s office.
In addition, Schmidt had failed to deposit state funds in the proper account for more than two dozen foreclosures in 2018 and 2019, according to the commission, which cited a state audit to support its findings.
“He had possession of the money, but had not paid out the costs as per court order,” Copeland, the state Administrative Office of the Courts auditor, testified to the commission in June 2021, according to video of the hearing.
Copeland said she requested bank statements from Schmidt for 2018 and 2019 but he did not provide them. Her manager contacted Schmidt and then a Bullitt Circuit Court judge, and the documents still weren’t provided.
“This was not just a one-time event,” Jeffrey Mando, an attorney for the judicial conduct commission said at the hearing. “This was a repetitive, ongoing practice.”
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