PHILLIPSBURG, NJ — The New Jersey Office of the State Comptroller has filed a lawsuit against the owners of two Garden State nursing homes, accusing them of orchestrating a years-long scheme to divert approximately $92 million in Medicaid funds intended for resident care while conditions at their facilities deteriorated into what investigators described as dangerous neglect, according to reporting by Skilled Nursing News and NJ.com.
The lawsuit targets New York-based operators Daryl Hagler and Kenneth Rozenberg, along with family members and business associates, alleging they funneled roughly 70 percent of $134.8 million in Medicaid payments away from Hammonton Center for Rehabilitation and Healthcare and Deptford Center for Rehabilitation and Healthcare between 2019 and mid-2024, as reported by NJ Urban News. The state is seeking nearly $124 million in combined restitution, disgorgement of overpayments, civil penalties, and damages.
According to the comptroller's court filing, the defendants manipulated financial and compliance reports and concealed true ownership structures by embedding family members throughout a web of related entities as owners, officers, and principals. The alleged scheme involved routing Medicaid dollars to at least nine related companies through artificially inflated rent payments, excessive intercompany loans, and undisclosed management fees, as reported by NJ1015. Hammonton's annual rent was reportedly doubled from $1.1 million to $2.2 million, while Deptford's climbed to $2.3 million through refinancing arrangements, according to NJ Urban News. Cost reports submitted to the state allegedly claimed only $882,666 in related-party transactions when actual transfers totaled $92 million.
Acting State Comptroller Kevin Walsh condemned the alleged conduct in a statement reported by NJ Urban News: "Vulnerable people suffered unnecessarily because the owners decided to put the money in their pockets instead of paying for the staff to care for them."
Documented Harm and Staffing Failures
The consequences for residents were severe, according to a December 2025 state Comptroller's investigative report. Investigators documented more than 3,400 emergency police calls to the two facilities during the five-year period reviewed, as reported by NJ1015. The facilities allegedly failed to meet minimum staffing requirements on 144 of 146 days examined by investigators.
Among the most disturbing findings, according to NJ1015: two residents were sexually assaulted at Hammonton Center, and one resident at Deptford Center died after choking when staff fed them solid food instead of the pureed diet their care plan required. In another incident, a wheelchair-bound amputee was reportedly discharged to a motel that was not wheelchair-accessible and was later abandoned at a social services office.
Both Hagler and Rozenberg invoked their Fifth Amendment rights and declined to provide testimony during the investigation, according to NJ1015. The pair also have ties to 46 nursing homes across four states, as reported by NJ.com, and previously settled a similar $83 million Medicaid fraud case in New York for $45 million in 2024 involving their 31-facility portfolio, according to NJ1015.
CMS Inspection History
The lawsuit highlights a broader pattern of regulatory concern surrounding facilities connected to these owners. Both Hammonton Center and Deptford Center — each with 240 beds — were designated as "special focus facilities" by the Centers for Medicare & Medicaid Services on multiple occasions, according to NJ Urban News. That designation is reserved for the nation's worst-performing nursing homes and triggers enhanced federal oversight.
CMS records for Lopatcong Center, another New Jersey facility linked to this ownership network, illustrate the kind of operational deficiencies regulators have flagged across these operators' properties. Lopatcong Center, a 153-bed for-profit facility in Phillipsburg, currently holds an overall CMS rating of 3 out of 5 stars but scores just 2 out of 5 on both its health inspection and staffing ratings. The facility has accumulated 32 deficiencies across seven inspections on record.
During its most recent CMS inspection in February 2024, Lopatcong Center was cited for multiple care-related deficiencies, including failure to develop and implement policies to prevent abuse, neglect, and theft — a finding classified at Severity Level E, indicating a pattern of noncompliance. Additional citations included failures to ensure accurate resident assessments, to develop complete and measurable care plans, and to prepare care plans within the required seven-day timeframe following comprehensive assessments. The facility was also cited for failing to properly notify residents about their Medicaid and Medicare coverage and potential financial liability for uncovered services.
These deficiency patterns — particularly around abuse prevention policies and care planning — mirror the systemic failures alleged in the comptroller's lawsuit against the Hammonton and Deptford facilities.
Ownership & Operations
The case represents part of a broader enforcement push against nursing home Medicaid fraud in New Jersey. According to Skilled Nursing News, the state also recently terminated Medicaid funding for South Jersey Extended Care, another troubled facility that had been placed under receivership and was denied a proposed ownership change due to high fraud risk.
Federal regulations require that Medicaid funds be used for the direct care and benefit of nursing home residents. The alleged scale of diversion in this case — with Klein Family Enterprises and Rozenberg personally receiving $27.8 million in direct payouts according to NJ Urban News — underscores ongoing concerns about private equity and for-profit ownership structures in the long-term care industry, where financial complexity can obscure how taxpayer healthcare dollars are actually spent.
Hagler and Rozenberg's network of 46 facilities across multiple states, as reported by NJ.com, raises questions about whether similar financial practices may have been employed at their other properties.
Resources for Families
Families with loved ones in New Jersey nursing homes who have concerns about care quality, suspected neglect, or financial irregularities have several avenues for reporting and assistance.
The New Jersey Long-Term Care Ombudsman can be reached at 1-877-582-6995. Ombudsman advocates investigate complaints, help resolve concerns, and can provide information about residents' rights under federal and state law.
The National Long-Term Care Ombudsman Resource Center maintains a hotline at 1-800-677-1116 and provides additional information at [ltcombudsman.org](https://ltcombudsman.org).
Suspected Medicaid fraud can also be reported to the New Jersey Office of the State Comptroller's Medicaid Fraud Division. Federal law protects whistleblowers who report suspected fraud from retaliation. Families should document any concerns in writing, including dates, times, and the names of staff members involved, and request copies of their loved one's care plan and inspection reports, which are public records available through the CMS Care Compare website.
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