Friday, June 27, 2008

Texas AG Sues Nonprofit and its Leaders for Alleged Misuse of Funds

The Dallas Morning News reports that the State of Texas has filed a lawsuit relating to alleged misuse of charitable funds.  According to the Attorney General Greg Abbott's press release, the suit is against People Against Drugs Affordable Housing, Inc., its founders, and three of its directors for alleged violations of the Texas Nonprofit Corporation Act.  The AG's complaint asserts that the charity's primary asset and source of revenue is an apartment complex it acquired in 1993 and that it operates in a manner indistinguishable from a for-profit business.  The complaint further alleges that the charity, under the sole direction of its founder and Executive Director Gene Christensen but with the knowledge of the three directors, used those revenues to (1) operate a NASCAR truck racing team, (2) pay Mr. Christensen annual compensation approaching $200,000 a year plus benefits in exchange for negligible services, and (3) pay for numerous personal expenses of Mr. Christensen, and (4) make no-interest loans to Mr. Christensen and to Mr. Christensen's election campaign for public office.  The AG is seeking the appointment of a temporary receiver for the charity and the replacement of all of its officers and directors.

While the accusations against People Against Drugs and its officers are sadly not unique in the charitable world, what is perhaps surprising is that the charity appears to have operated for almost 15 years "under the radar," thereby allowing the purported abuses to continue for many years.  Perhaps for this reason, the AG is seeking not only to have a receiver take control of the charity and to hold the primary beneficiary - the Executive Director - personally liable, but also, in a relatively unusual step, to hold the three directors personally liable as well.  It will be interesting to see, if the allegations are proven, whether the directors will in fact receive a penalty beyond removal and embarrassment.

LHM

http://lawprofessors.typepad.com/nonprofit/2008/06/texas-ag-sues-n.html

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