Thursday, May 14, 2015

Carter: Tipping the Scales in Favor of Charitable Bequests: A Critique

Elizabeth CarterElizabeth Carter (LSU) has published Tipping the Scales in Favor of Charitable Bequests: A Critique, 34 Pace Law Review 983 (2014).  Here is the abstract:

The public policy favoring testamentary bequests to charities is well established in the law. However, that public policy can, and does, conflict with other equally well-founded public policies. When confronted with this conflict, courts are often dismissive or even hostile towards the parties seeking to challenge a testamentary bequest to a charity. I argue that the policy favoring charitable giving has gone too far and has, in some instances, undermined other important public policies. Specifically, courts and legislators have strengthened the charitable bequest policy without giving enough consideration to other, equally important public policies. This problem is not new. History shows that similar policy conflicts have arisen periodically since late antiquity, if not earlier. The parameters of the problem, however, are somewhat new. The governing law, available technologies, and familial relationships have certainly evolved since the time of late antiquity. This article examines how the public policy favoring charitable bequests conflicts with various aspects of the equally important public policies of testamentary freedom and family protection.

Part II considers the competing public policies of testamentary freedom, family protection, and charitable bequests, as well as the existing legal doctrines aimed at furthering these policies. Part III examines the social and legal origins of charitable bequests and the periodic attempts to balance charitable bequests with other important policy considerations. Part IV examines the role of the non-profit sector in America today. Specifically, Part IV considers the size and scope of the nonprofit industry, the legal and economic benefits the nonprofit industry enjoys, and the manner in which nonprofits solicit charitable bequests. Part V illustrates how the current law fails to strike the appropriate balance between the competing policies, as the current law is too favorable to charities and reform is needed. Part VI concludes.

Hat Tip: TaxProf Blog.

Lloyd Mayer

May 14, 2015 | Permalink | Comments (0) | TrackBack (0)

Fei et al.: Are PILOTS Property Taxes for Nonprofits?

Fan Fei (Michigan Economics), James Hines Jr. (Michigan), and Jill Horwitz (UCLA) have posted Are PILOTs Property Taxes for Nonprofits?.  Here is the abstract:

Nonprofit charitable organizations are exempt from most taxes, including local property taxes, but U.S. cities and towns increasingly request that nonprofits make payments in lieu of taxes (known as PILOTs). Strictly speaking, PILOTs are voluntary, though nonprofits may feel pressure to make them, particularly in high-tax communities. Evidence from Massachusetts indicates that PILOT rates, measured as ratios of PILOTs to the value of local tax-exempt property, are higher in towns with higher property tax rates: a one percent higher property tax rate is associated with a 0.2 percent higher PILOT rate. PILOTs appear to discourage nonprofit activity: a one percent higher PILOT rate is associated with 0.8 percent reduced real property ownership by local nonprofits, 0.2 percent reduced total assets, and 0.2 percent lower revenues of local nonprofits. These patterns are consistent with voluntary PILOTs acting in a manner similar to low-rate, compulsory real estate taxes.

Lloyd Mayer

May 14, 2015 in Publications – Articles | Permalink | Comments (1) | TrackBack (0)

Foohey: Secured Credit in Religious Institutions' Reorganizations

Pamela FooheyPamela Foohey (Indiana University Maurer School of Law) has published Secured Credit in Religious Institutions' Reorganizations, 2015 University of Illinois Law Review Slip Opinions 51.  Here is the abstract from the SSRN posting:

Scholars increasingly assume that most businesses enter Chapter 11 with a high percentage of secured debt, which leads to a high percentage of cases ending in the sale of the debtor’s assets under section 363 of the Bankruptcy Code rather than with confirmation of a reorganization plan. However, evidence and discussions about “the end of bankruptcy” center on secured creditors’ role in the reorganizations of very large corporations. The few analyses of cross-sections of Chapter 11 proceedings suggest that secured creditor control is not nearly as omnipresent as asserted and that 363 sales are not as dominant as assumed.

This Essay adds original empirical evidence to the debate by highlighting how one subset of debtors — religious organizations — whose main creditors typically are secured lenders have used the reorganization process. By focusing on 363 sales and other indices of creditor control, plan proposal and confirmation rates, recoveries to creditors, and post-bankruptcy survival rates, this Essay establishes that the traditional negotiated Chapter 11 case is alive and thriving among these debtors. The data suggest that these cases preserved significant value for secured creditors, while distributing value to unsecured creditors. The results show that further empirical examinations of secured creditors’ role in Chapter 11 cases may yield insights that diverge from current understandings of how creditor control impacts modern reorganization, and what that control means for reforms of Chapter 11.

Lloyd Mayer

May 14, 2015 in Publications – Articles | Permalink | Comments (0) | TrackBack (0)

Frye: Social Technology & the Origins of Popular Philanthropy

Brian FryeBrian Frye (Kentucky) has posted Social Technology & the Origins of Popular Philanthropy.  Here is the abstract:

The prevailing theory of charity law holds that the charitable contribution deduction is justified because it solves market and government failures in charitable goods by compensating for free riding on charitable contributions. This article argues that many market and government failures in charitable goods are actually caused by transaction costs, and that social technology can solve those market and government failures by reducing transaction costs. Specifically, it shows that in the early 20th century, the social technology of charity chain letters solved market and government failures in charitable contributions and facilitated the emergence of popular philanthropy.

Lloyd Mayer

May 14, 2015 in Publications – Articles | Permalink | Comments (0) | TrackBack (0)

Galle: Law and the Problem of Restricted-Spending Philanthropy

Brian GalleBrian Galle (Georgetown) has posted Pay It Forward? Law and the Problem of Restricted-Spending Philanthropy, 2016 Washington University Law Review (forthcoming).  Here is the abstract:

American foundations and other philanthropic giving entities hold about $1 trillion in investment assets, and that figure continues to grow every year. Even as urgent contemporary needs go unmet, philanthropic organizations spend only a tiny fraction of their wealth each year, mostly due to restrictive terms in contracts between donors and firms limiting the rate at which donations can be distributed. Law has played a critical role in underwriting and encouraging this build-up of philanthropic wealth. For instance, contributors can typically take a full tax deduction for the value of their contribution today, no matter when the foundation spends their money, and pay no tax on the investment earnings the organization reaps in the meantime. 

What, if anything, justifies public support for “restricted spending” charity? This Article offers the first comprehensive assessment of that question, and supplies original empirical evidence on several key aspects of it. I argue that restricted spending sacrifices crucial information, introduces unnecessary agency costs, and on average transfers funds to times when they are less useful. While there is a place for large and long-lived philanthropic organizations in American society, that role does not require public support for restricted spending. As long as foundations can demonstrate their value to new donors, they will continue to thrive. I therefore set out a series of policy recommendations aimed at better reconciling nonprofit law and the principles that justify it. 

I support my claims with new evidence drawn from a data set of over 200,000 firm-year observations of private foundations. For example, I find that foundations earn about twice as much money per year as in earlier studies funded by foundation-industry lobbyists, and that they are growing three times faster than those earlier studies suggest. This finding implies that law could require a much higher annual “payout” from foundations. I also find that new laws introduced in about a dozen states since 2006 have significantly slowed foundation spending in the enacting states. And I offer simulations of several policy proposals for making foundations more effective at fighting recessions.

Lloyd Mayer

May 14, 2015 in Publications – Articles | Permalink | Comments (0) | TrackBack (0)

Hackney: An Examination of the IRS Tea Party Affair

Philip HackneyPhilip Hackney (LSU) has posted Should the IRS Never 'Target' Taxpayers? An Examination of the IRS Tea Party Affair, 49 Valparaiso University Law Review (forthcoming 2015).  Here is the abstract:

In 2013, the Treasury Inspector General for Tax Administration faulted the Internal Revenue Service for the appearance of impartiality because it used names and policy positions such as “Tea Party” and conservative ideology to pick applications for tax-exempt status for greater scrutiny. The Inspector General's review came after members of Congress accused the Service of "targeting" conservative organizations. This Article finds the Inspector General's claim lacks a firm foundation. The use of names to select organizations for closer review fits well within the discretionary space that both Congress and courts provide to the Service to collect revenue. However, a narrower legal and ethical claim is supportable: where an enforcement choice impinges on a fundamental constitutional right the Service should exercise a higher degree of care to ensure that its screening choices do not appear biased in an unconstitutional manner. Thus, this review finds the Inspector General's primary claim regarding it being inappropriate to use names to screen applications to be incorrect. However, it finds that the Service violated an ethical norm because it failed to bring a high level of care to a matter that at least impinged on a fundamental Constitutional right. The Article recommends that the Service continue using names to screen applications for tax-exempt status. However, the Article suggests the Service implement procedures to document an unbiased process when evaluating applications that raise questions of a fundamental Constitutional nature.

Lloyd Mayer

May 14, 2015 | Permalink | Comments (0) | TrackBack (0)

Murray & Martin: The Blossoming of Public Benefit Institutions (Australia)

Ian murray
F MartinIan Murray (University of Western Australia) and Fiona Martin (UNSW Australia Business School) have published The Blossoming of Public Benefit Institutions - From 'Direct' Provides to Global Networks, 40(1) Alternative Law Journal (2015).  Here is the abstract:

Public benevolent institutions (‘PBIs’) form a class of not-for-profit (‘NFP’) entities that is entitled to various taxation concessions. The PBI concept was originally adopted in order to deliver selected tax benefits to a narrower group of NFPs than charities, given the wide legal meaning of ‘charitable’. As well as being eligible for income tax exemption like charities, PBIs can be deductible gift recipients (‘DGR’), which means that donors may be able to claim a tax deduction, and are entitled to fringe benefits tax (‘FBT’) exemptions, enabling more attractive employee remuneration packages. For decades, the Australian Taxation Office (‘ATO’) has insisted that PBIs must not only have purposes focused, narrowly, on the relief of poverty, sickness, destitution or helplessness, but that they must also directly provide relief to those suffering from such poverty, sickness, destitution or helplessness. The recent Full Federal Court decision of Commissioner of Taxation v Hunger Project Australia (‘Hunger Project’) clearly states that there is no such ‘direct’ requirement. The development is relevant for a range of state and federal taxes and is expected to have a large impact on federal revenue. This is due to the fact that the primary tax concessions relating to PBIs, the FBT exemption and DGR status, are currently in excess of $2 billion. The ‘cost’ of those concessions will likely increase with the broadening of the classes of entities that fall into the PBI category.

Lloyd Mayer

May 14, 2015 in International, Publications – Articles | Permalink | Comments (0) | TrackBack (0)

Newman: Contributions to College Athletic Booster Clubs

Joel NewmanJoel Newman (Wake Forest) has posted Contributions to College Athletic Booster Clubs, LEXIS Federal Tax Journal Quarterly (March 2015).  Here is the abstract:

Not all transfers of value to qualified charitable organizations are deductible. When you buy a book from the college bookstore, your payment is not a contribution; you got what you paid for. If you give $300 to your local public radio station, and they give you a tote bag, you’ve made a charitable contribution, but you have to subtract the value of the tote bag from your deductible amount.

What if you make a substantial payment — say $2,000 — to a major college’s athletic booster club, knowing that, by virtue of that payment, you gain the right to purchase otherwise unavailable tickets to that school’s football games? Surely, the entire $2,000 should not be deductible. The deduction should be $2,000 minus the fair market value of the rights obtained. Congress says that the deduction should be 80 percent of the contributed amount, or $1,600, no matter which booster club it is. Is that fair? This essay will describe how we got to that 80 percent, and what we might do about it. Specifically, the essay describes how the secondary ticket market brokers, such as StubHub and Ticketmaster, could be used to value the rights obtained.

Lloyd Mayer

May 14, 2015 in Publications – Articles | Permalink | Comments (0) | TrackBack (0)

Pessôa &Trezza: Main Problems with Taxation of Civil Society Organizations in Brazil

Leonel Cesarino Pessôa and Valeria Maria Trezza (both Getulio Vargas Foundation) have posted Main Problems with the Taxation of Civil Society Organizations in Brazil: Certifications and Impact on Payroll.  Here is the abstract:

The objective of this paper is to identify and analyze the main problems in the taxation — regarding both taxes themselves and compliance costs of taxation — of civil society organizations in Brazil. This study is qualitative descriptive research. A multiple case study with 26 organizations was performed. The results show that the problems mainly affect organizations with lower revenue and that do not work in the areas of education, health or social care. The main problems involve the taxation of the payroll and the difficulties related to obtaining and maintaining certifications. The study concludes with suggestions for the improvement of the regulatory framework.

Lloyd Mayer

May 14, 2015 in International, Publications – Articles | Permalink | Comments (0) | TrackBack (0)

Robinson: Religious Interest Groups in the Legislative Process

Zoe RobinsonZoë Robinson (DePaul) has published Lobbying in the Shadows: Religious Interest Groups in the Legislative Process, 64 Emory Law Journal 1041 (2015).  Here is the abstract:

The advent of the new religious institutionalism has brought the relationship between religion and the state to the fore once again. Yet, for all the talk of the appropriateness of religion–state interactions, scholars have yet to examine how it functions. This Article analyzes the critical, yet usually invisible, role of “religious interest groups”—lobby groups representing religious institutions or individuals—in shaping federal legislation. In recent years, religious interest groups have come to dominate political discourse. Groups such as Priests for Life, Friends Committee on National Legislation, Women’s Christian Temperance Union, and American Jewish Congress have entered the political fray to lobby for legislative change that is reflective of specific religious values. These religious interest groups collectively spend over $350 million every year attempting to entrench religious values into the law. These groups have become the primary mechanism for religious involvement in federal politics, but, surprisingly, the place and role of these groups has yet to be examined by legal scholars.

This Article shows that the key features of religious interest groups reflect significant tensions within the emerging project of religious institutionalism. In developing this claim, this Article identifies two benefits claimed to result from religious involvement in politics—protecting religious liberty and enhancing democratic participation—and demonstrates that in fact these benefits are unlikely to result from religious interest group politicking. Instead, the pursuit of religiously bound interests as a legislative end results in the religious interest being pursued as an end in and of itself, consequently imposing significant costs on the values of religious liberty and democracy. Ultimately, this Article claims that when considering the place of religion in the political process, it is incumbent on scholars to consider both the institutional design question of how religious participation in politics is operationalized, as well as take into account both the costs and benefits of that involvement.

Lloyd Mayer

May 14, 2015 in Publications – Articles | Permalink | Comments (0) | TrackBack (0)

Simon: Contradictions in CSO Regulation in China

Karla SimonKarla Simon (International Center for Charity Sector Law) has written a blog post for Alliance Magazine highlighting the tensions between China's Foreign NGO Law and its most recent draft Charity Law.  Here is the first paragraph:

Contradictions exist because of the Foreign NGO Law and its intersection with the more recently available draft Charity Law released by the government, which I have been invited to comment on. The Charity Law draft is extremely supportive of philanthropy, while the Foreign NGO Law is repressive towards foreign NGOs that provide funding to domestic organizations carrying out certain types of activity, such as rights advocacy. The draft Charity Law requires the government to do many things to foster charity, even going so far as to encourage schools to educate the young about the subject (this is China, after all!).

Lloyd Mayer

May 14, 2015 in International | Permalink | Comments (0) | TrackBack (0)

Sugin: Replacing Media Oversight with Advance Rulings for Nonprofit Fiduciaries

Linda suginLinda Sugin (Fordham) has published Strengthening Charity Law: Replacing Media Oversight with Advance Rulings for Nonprofit Fiduciaries, 89 Tulane Law Review 869 (2015).  Here is the abstract:

This Article considers three urgent challenges facing the charitable community and its state regulators: too little fiduciary duty law for nonprofits, the rise of media enforcement of wrongdoing in charities, and an inherent tension in the state’s dual role as enforcer and protector of the nonprofit sector. It analyzes whether the scarcity of law is really a problem by comparing nonprofit organizations with business organizations and concludes that charities lack the selfenforcement mechanisms of businesses and therefore need more government guidance. It evaluates whether the media has made governmental supervision obsolete and expresses skepticism about the press displacing state oversight. The solution presented, an advance-ruling procedure for fiduciary duty questions, proposes that states shift their focus from better enforcement against wrongdoers ex post to better charity governance ex ante by devoting more attention and resources to assisting well-meaning charity directors in carrying out their fiduciary obligations.

Lloyd Mayer

May 14, 2015 in Publications – Articles | Permalink | Comments (0) | TrackBack (0)

Tyler et al.: Advancing the Design and Usefulness of Hybrid Vehicles for Social Business Ventures

John_tylerAnthony LuppinoJohn Tyler (Ewing Marion Kauffman Foundation), Evan Absher, Kathleen Garman, and Anthony Luppino (University of Missouri-Kansas City School of Law), have published Producing Better Mileage: Advance the Design and Usefulness of Hybrid Vehicles for Social Business Ventures, 33 Quinnipiac Law Review 235 (2015).  Here is the abstract from the SSRN posting of the article:

Since 2008 approximately half of the states in the U.S. have enacted statutes permitting “hybrid” business forms that blend aspects of traditional for-profit ventures with characteristics normally associated with traditional non-profit entities. This article analyzes theoretical, academic, practical, legal, and regulatory questions regarding the extent to which the existing hybrids are suited to achieving social purposes objectives, including in comparison to modified traditional forms of business organization. Finding the current fleet of hybrids an innovative, useful start, but with need to evolve, this article proposes statutory language (set forth in a detailed appendix, and summarized in the article text), and regulatory policies, including in the areas of general oversight, tax, and securities regulation, for a next iteration of hybrid — a “Social Primacy Company” designed to provide more clarity in the marketplace for socially-conscious investors.

Lloyd Mayer

May 14, 2015 in Publications – Articles | Permalink | Comments (0) | TrackBack (0)

Wilson: Incorporating LLCs into Section 4943

Elaine Waterhouse WilsonFellow blogger Elaine Waterhouse Wilson (West Virginia) has posted Better Late than Never: Incorporating LLCs into Section 4943, Akron Law Review (forthcoming).  Here is the abstract:

How much should charity and business intersect? Recent trends point toward a growing entanglement between the for-profit and nonprofit sectors, as evidenced by the growth of the social enterprise movement. The issue of the entanglement of business and charity is, however, not new; it was one of the primary concerns behind the enactment of the private foundation excise taxes in 1969, including the excess business holding excise tax of Code Section 4943. 

While Code Section 4943 has changed little since its original enactment, the business and investment world has changed substantially, specifically including the introduction and growth of the LLC as a business entity. This Article looks at the current treatment of LLCs under Code Section 4943 and considers various options for incorporating LLCs into the statutory framework. It then evaluates these options in light of the original concerns about the interaction between business and charity voiced in the debate over the 1969 excise taxes and echoed today in the evaluation of social enterprise as a viable means of accomplishing charitable goals. The article concludes with a recommendation for change to Code Section 4943 that would incorporate LLCs specifically, provides administrative clarity, minimize the possibility of abuse, and allowing for modern investment practices and innovation.

Lloyd Mayer

May 14, 2015 in Publications – Articles | Permalink | Comments (0) | TrackBack (0)

Nonprofit and Voluntary Sector Quarterly April 2015 Issue

NVSQ April 2015Here is the Table of Contents for the April 2015 issue of the Nonprofit and Voluntary Sector Quarterly:

Articles

  • Matthew L. Sanders, 

    Being Nonprofit-Like in a Market Economy: Understanding the Mission-Market Tension in Nonprofit Organizing

  •  

    Thomas Adam and Gabriele Lingelbach, The Place of Foundations and Endowments in German History: A Historical-Statistical Approach
  • Robert J. Chaskin and David Micah Greenberg, 

    Between Public and Private Action: Neighborhood Organizations and Local Governance

  • Kellie C. Liket and Karen Maas, 

    Nonprofit Organizational Effectiveness: Analysis of Best Practices

  • Michaela Neumayr, Ulrike Schneider, and Michael Meyer, 

    Public Funding and Its Impact on Nonprofit Advocacy

  • Gordon Liu, Chris Chapleo, Wai Wai Ko, and Isaac K. Ngugi, 

    The Role of Internal Branding in Nonprofit Brand Management: An Empirical Investigation

  • Avner Ben-Ner and Ting Ren, 

    Comparing Workplace Organization Design Based on Form of Ownership:Nonprofit, For-Profit, and Local Government

  • Sheila M. Cannon and Gemma Donnelly-Cox, 

    Surviving the Peace: Organizational Responses to Deinstitutionalization of Irish Peacebuilding

  • María José Sanzo, Luis I. Álvarez, Marta Rey, and Nuria García, 

    Business–Nonprofit Partnerships: Do Their Effects Extend Beyond the Charitable Donor-Recipient Model?

     

Book Reviews

  • Shilpa C. Damle, 

    Book Review: Foundations of the American century: The Ford, Carnegie and Rockefeller Foundations in the rise of American power by I. Parmar

  • Susan M. Chambré, 

    Book Review: Nonprofits & advocacy: Engaging community and government in an era of retrenchment by R. J. Pekkanen, S. R. Smith, and Y. Tsujinaka (Eds.)

  • Theresa Anasti, 

    Book Review: Sex work politics: From protest to service provision by S. Majic

Lloyd Mayer

 

May 14, 2015 in Publications – Articles | Permalink | Comments (0) | TrackBack (0)

NY AG Attempts to Head Off Financial Troubles at Cooper Union (College)

Cooper UnionIn an apparent pro-active effort to engage with a charitable nonprofit before it collapses, the Wall Street Journal and the NY Times report that Attorney General Eric T. Schneiderman has sent inquiries to board members of the Cooper Union for the Advance of Science and Art, asking about management of the college's endowment and transactions relating to the Chrysler Building, the land under which the college owns.  The attention comes at least in part because of the college's decision in 2014 to begin charging undergraduate tuition, allegedly in order to avoid insolvency.  The ongoing investigation has threatened the tenure of the college's president, although his position may already been at risk given apparent tensions between him and the board chairman.  According to these various news reports, the potential issues center around possible financial mismanagement, including a failure to sufficient diversity investment holdings and questionable loan terms related to a new building, and lack of transparency, including with respect to regulators.  Stay tuned.

Lloyd Mayer

May 14, 2015 in In the News, State – Executive | Permalink | Comments (0) | TrackBack (0)

Politically Motivated Audits - in Canada?

Canada-revenue-agencyThere has been a drumbeat of allegations in Canada that the Canada Revenue Agency is targeting left-leaning charities for special scrutiny with respect to their alleged political activity.  The latest group to make this assertion is Sierra Club Canada Foundation, which according to a CBCNews report expected auditors to arrive at its offices this week to look for evidence of political activity exceeding the permitted 10 percent level for Canadian charities.  Concerns about such audits began in 2012, when 60 political audits of charities began that allegedly disproportionately hit environmental and other left-leaning charities.  In 2014 the National Post reported that more than 400 academics had demanded the end of a CRA audit focused on the left-leaning Canadian Centre for Policy Alternatives, and last month CBCNews reported on a Steelworkers charity protesting being subject to a similar audit (hat tip: David Herzig).

According to the various press reports, the National Revenue Minister has repeatedly denied any bias in audit selection, stating that CRA officials make such decisions independently of political appointees.  As in the United States, CRA is not able to comment on specific audits because of tax law confidentiality rules.  A left-leaning think tank has called for an independent probe, however, asserting that right-leaning charities with apparent political involvement appear to have escaped scrutiny (see also CBCNews report).  There does not appear to be an investigative body, such as the Treasury Inspector General for Tax Administration in the U.S., that is well positioned to engage in such a probe, however (Canadian readers, please correct me if I am wrong on this point).

Lloyd Mayer

May 14, 2015 in In the News, International | Permalink | Comments (0) | TrackBack (0)

Furor Over Shift of Funds from Libraries to Jazz Orchestra in New Orleans

New Orleans Public Library FoundationThe Daily Beast reports that questions and outrage are swirling around the transfer of $863,000 from the New Orleans Public Library Foundation to the Peoples Health Jazz Market, a new $10 million home for the acclaimed New Orleans Jazz Orchestra.  The transfer allegedly came about because of the efforts of the orchestra's CEO and the orchestra's musical leader.  The CEO served on the Foundation's board and eventually became its board chair, while the musical leader also served on the board and then was given discretion in 2012 over the Foundation's spending by the board.  Both the CEO and musical leader are paid salaries by the orchestra.  Since the story broke the orchestra CEO has resigned from the Foundation's board, the orchestra has pledged to return the funds at issue to the Foundation, and New Orlean's Mayor Mitch Landrieu has met with the boards of both groups and demanded changes at the Foundation.

Lloyd Mayer

May 14, 2015 in In the News | Permalink | Comments (0) | TrackBack (0)

Internal Review Foreshadowed Clinton Foundation's Current Troubles

Clinton FoundationIn August 2013, the NY Times reported that lawyers from Simpson Thacher & Bartlett had interviewed Clinton Foundation executives and former employees over a two-week period, interviews which "had led the lawyers to some unsettling conclusions."  According to the article, concerns included the foundation's relationship with a consulting firm founded by a one-time personal assistant to Bill Clinton and for which Mr. Clinton had worked as a paid advisor, its aggressive fundraising and lack of financial stability, and tensions between old political hands and professional staff.  It was also a time of transition for the Foundation, particularly with Chelsea Clinton emerging as a leader (and now a defender of it).  And of course all of these developments occurred with an increasing anticipation of Mrs. Clinton's expected 2016 presidential bid.

Additional Coverage: Clinton Family Foundation Raises Big Money and Big Questions (Washington Post/AP); If Clinton Is Elected, Family Foundation Could Face Changes (Washington Post/AP); previous stories.

Lloyd Mayer

May 14, 2015 in In the News | Permalink | Comments (0) | TrackBack (0)

NY AG Requires $1 Million Settlement and Resignation of Foundation Trustees

Perley-fund-logoLate last month, New York Attorney General Eric T. Schneiderman announced that current and former trustees of the Victor E. Perley Fund had agreed to completely reconstitute the board of the organization and to pay over $1 million to settle claims against them.  The settlement is contained in an Assurance of Discontinuance approved by the AG and the Fund's current trustees.  The Fund presents a case study of fiduciary duty failures; what is perhaps most notable is that the financial penalty fell heaviest on the trustees who appear to have only failed their duty of care as a news report indicates the trustees who personally benefitted from many of the transactions at issue lacked both insurance and any significant assets.

The AG found that starting in 2009 the Fund's board failed in its basic governance responsibilities, permitting not only a substantial shift in the Fund's purposes but also a series of improper transactions with the Fund's new leader.  More specifically, the Fund changed its focus from making grants to help needy children to sponsoring a children's choir (a choir the Fund is now barred from supporting under the settlement).  The Fund also purchased a million-dollar Southhampton house in which the new leader, a long-time trustee, lived in exchange for no or below-market rent, and paid the new leader tens of thousands of dollars a year for fundraising and marketing services even though the Fund did little fundraising and received few contributions.  During this time the board rarely met and, when it did, provided minimal oversight with respect to budgets, investments, and even such basic tasks as circulating and approving minutes.  The end result was a loss of almost the entire $3.7 million investment portfolio, except for the house, through risky investments managed by another of the trustees and from at least two of which he collected payments.  While the board terminated the new leader's employment with the Fund after the AG investigation began, the trustees agreed to collectively pay over a $1 million to the AG's office, which will be transferred to the Fund (less costs), and to be replaced by trustees acceptable to the AG's office.  The trustee who managed the investments has also agreed to be banned for life from service as a fiduciary for a charity formed or operating in New York, with the other trustees accepted a three-year ban subject to them completing a fiduciary duty course (the new leader committed suicide in 2013 according to news reports).  No word yet on possible federal excise taxes, but the Fund is a private foundation so presumably those will follow.

Coverage: Crain's New York Business; N.Y. Daily News.

Lloyd Mayer

May 14, 2015 | Permalink | Comments (0) | TrackBack (0)