Thursday, May 16, 2019
New Jersey is the latest state to compel disclosure of significant donors in the wake of the federal government's decision to eliminate reporting to the IRS by tax-exempt organizations (other than 501(c)(3)s) of their significant donors. NJ Attorney General Gurbir S. Grewal and the NJ Division of Consumer Affairs announced a new rule earlier this week that will require both charities and social welfare organizations that have to file annual reports with the Division's Charities Registration Section to include the identities of contributors who have given $5,000 or more during the year. (Like a number of states, New Jersey apparently defines "charitable organization" broadly for state registration purposes, so as to encompass not only Internal Revenue Code section 501(c)(3) organizations but also Internal Revenue Code section 501(c)(4) social welfare organizations.) According to statements accompanying the new rule, the donor information will not be subject to public disclosure. This announcement was in the wake of New Jersey and New York suing the federal government for failing to comply with Freedom of Information Act requests submitted by those states relating to that earlier decision, and New Jersey joining a lawsuit brought by Montana challenging the decision.
Interestingly, however, last week New Jersey's governor vetoed a bill (S1500) that would have compelled donor disclosure by organizations engaged in independent political expenditures, among other measures. Governor Philip D. Murphy's 20-page explanation raised both constitutional concerns with the legislation as enacted and policy concerns that the bill did not go far enough in certain respects. The constitutional concerns included ones relating to the bill's application to legislative and regulatory advocacy, not just election-related expenditures. The policy concerns includes ones related to a failure to extend pay-to-play disclosures and to require certain disclosures from recipients of economic development subsidies.
In other disclosure news, the U.S. Court of Appeals for the Ninth Circuit rejected petitions fo rehearing en banc of the earlier three-judge panel decision in Americans for Prosperity Foundation v. Becerra, turning away an as applied challenge to the California Attorney General's requiring that the foundation provide a copy of its Form 990 Schedule B (which identifies significant donors) to that office. The rejection is notable because it was over a lengthy dissent by five judges, to which the three judges on the initial panel responded.
I think it can be safely predicted that in this era of "dark money" we will continue to see state level compelled disclosure developments, and litigation in response, for the foreseeable future.
Wednesday, May 15, 2019
Details continue to emerge about the ongoing crisis at the National Rifle Association and government investigations are just starting to build up steam, so it is way too early to try to comprehensively identify nonprofit law lessons arising from this situation. That said, here are two early takes.
Boards Matter (Eventually). The NRA has a huge Board of Directors, with more than 70 members. While presumably its members are strong supporters of the NRA's agenda, they also have a legal role that gives them both access to information and credibility when making criticisms. While details about the NRA's recent problems emerged in a mid-April New Yorker story, they were given added visibility when they became the apparent basis for a leadership challenge by a faction of board members, including then-President Oliver North. That challenge failed, as did apparently earlier, quieter attempts by board members to rein in possibly problematic behavior, as explored in the New Yorker story. But that may not be the end, as the N.Y. Times reported yesterday that board member and former congressman Allen B. West has now publicly called for NRA Chief Executive Officer and Executive Vice President Wayne La Pierre to resign. One of the many board members may also have been the source of recently leaked internal memos that support many of the concerns now coming to light.
Success Does Not Excuse All Wrongdoing. Wayne LaPierre has been with the NRA since 1977, and been its head since 1991, during which time he has led the NRA to increasing prominence and influence. But despite that success, he now appears vulnerable. Indeed, in an apparent pattern that many who work with nonprofits will recognize, that success and long tenure may have led him to engage in the very transactions that could prove to be his undoing. For example, while far from the most significant questionable transaction financially or probably legally, his alleged spending of more than $200,000 for wardrobe purchases charged to an NRA vendor is, if true, a classic example of an unnecessary, self-inflicted wound (and possible excess benefit transaction for federal tax purposes). For the rank-and-file NRA member, paying him over a million dollars in compensation annually presumably can be justified by the organization's success; but then he should buy his own clothes (and who spends over $200,000 on clothes?).
With the continuing New York Attorney General, congressional, and possibly Internal Revenue Service interest, we will hopefully learn much more about how the crisis developed in the coming months. And of course this is on top of previous congressional interest in alleged Russian ties to the NRA in the time leading up to the 2016 election.
Following up on previous coverage in this space, Baltimore Mayor Catherine Pugh's nonprofit-related problems led to her resignation earlier this month in the wake of FBI and IRS agents raiding her homes and mayoral office. The issue that led to her downfall: alleged self-dealing, arising from the $500,000 purchase of a book she wrote by a nonprofit on the board of which she sat. Additional coverage: Baltimore Sun (which broke the original story); CNN; Washington Post.
Other Nonprofit Scandals You May Have Missed: $37 Million Class Action Settlement; "Sham" Police Charities
In a story that appeared to attract very little attention, Gospel for Asia settled a federal class action lawsuit brought against it for $37 million (!) according to a report in a Canadian news outlet. According to that report, the charity - now known as GFA World - "had been accused of diverting donations intended for India's poor to build a lavish headquarters in Texas, personal residences, and purchase for-profit businesses, including a rubber plantation and a professional soccer team." The charity also agreed to remove the wife of the charity's founder from the board of directors, and to add the lead plaintiff in the suit to the board. It is not clear whether the Canada Revenue Agency, the Internal Revenue Service, or any other government agencies are investigating. According to a report in Christianity Today, Gospel for Asia helped found the Evangelical Council for Financial Accountability, but was expelled from that organization in 2015 "after ECFA concluded that GFA misled donors, mismanaged resources, had an ineffective board, and violated most of the accountability group’s core standards." Gospel for Asia did not acknowledge any wrongdoing as part of the settlement, as it noted in a related press release.
In other news, states continue to pursue and shut down alleged "sham" police charities. In Missouri, the St. Louis Post-Dispatch reports that the Federal Trade Commission and Missouri Attorney General Eric Schmitt forced the Disabled Police and Sheriffs Foundation Inc. to shutdown after raising close to $10 million, almost all of which went to fundraising costs or the organization's executive director. The charity and the executive director did not admit to any wrongdoing, however. And in Maryland, the Baltimore Sun reports that a retired Baltimore police sergeant "has agreed to cease soliciting money for a police charity [CopStress] that the Maryland Attorney General’s Office says misled the public about its operations." The retired police officer involved contested the accusations, however, saying he was only agreeing to shut the charity down after collecting minimal donations because otherwise he faced a $30,000 fine.
Friday, March 29, 2019
Proving that issues with politicians and nonprofits are truly bipartisan (and not limited to President Trump), the dust continues to fly over various financial transactions involving Baltimore Mayor Catherine Pugh (a Democrat), her inaugural committee, and the University of Maryland Medical System. According to media reports, the Mayor, who was then a UMMS board member, had a $500,000 deal with UMMS to purchase her self-published children's books, a deal that she now says was a "regrettable mistake" and for which she has apologized. (Washington Post; WBAL-TV) She also resigned from the UMMS Board of Directors after the deal came to light.
The possible legal troubles do not stop there, however. According to reports last week, the Mayor's inaugural committee failed to file its required IRS annual information returns (Form 990). In addition, UMMS failed to report on its returns that it gave $20,000 to that committee. UMMS is taking the position that the payment was not a grant, which it would have had to report, because it received in return 28 tickets to inaugural events. It made this argument even though in an earlier filing it had reported a contribution to support the inauguration of another public official.
As the Washington Post details, the end of the Mueller investigation is far from the end of law enforcement actions relating to President Trump. Among those investigations are several tied to nonprofit organizations, specifically the continuing litigation in New York relating to the Trump Foundation and investigations into the President's inaugural committee.
Turning first to the inaugural committee, in late February the District of Columbia Attorney General's office subpoenaed the committee for documents relating to its finances according to several media reports (CNN; NY Times; Politico; Wall Street Journal; Washington Post). This followed subpoenas on the same topic from the New Jersey Attorney General's Office and from the U.S. Attorney's Office for the South District of New York, both earlier that month. The latter subpoena identified a number of possible federal crimes under investigation, including conspiracy against the United States, mail and wire fraud, money laundering, and accepting contributions from foreign nations and straw donors. The DC and NJ subpoenas are more focused on nonprofit-related matters, such as possible private benefit and whether the committee complied with laws relating to soliciting contributions.
As for the Trump Foundation litigation in New York, Courthouse News Service reports that New York Attorney General Letitia James requested judgment against the Foundation, Donald J. Trump, Donald J. Trump Jr., Ivanka Trump, and Eric F. Trump for $2.8 million in restitution and $5.6 million in penalties, as well as injunctive relief. The filing, technically a Reply Memorandum of Law in Further Support of the Verified Petition, argues that the evidence provided by the Attorney General has not been challenged by the respondents or countered by any admissible evidence provided by them, and that it demonstrates breach of fiduciary duties, wasting of charitable assets, and improper use of the foundation for political purposes. Hat tip: Nonprofit Quarterly.
Friday, February 8, 2019
Pennsylvania Attorney General Josh Shapiro announced yesterday that he is seeking to modify consent decrees governing the relationship between the University of Pittsburgh Medical Center (UPMC) and Highmark (a health insurer and health care provider), with the support of Highmark's leadership. According to the AG "UPMC is not fulfilling its obligation as a public charity." More specifically, in the petition his office filed he is asking the Commonwealth Court to:
- Enable open and affordable access to UPMC’s health care services and products through negotiated contracts with any health plan;
- Require last, best-offer arbitration – commonly known as “baseball arbitration” – when contract negotiations between insurers and providers fail; and
- Protect against UPMC’s unjust enrichment by prohibiting excessive and unreasonable billing practices inconsistent with its status as a non-profit charity providing healthcare to the public.
Alleged violations of UPMC's charitable obligations include "[w]ithholding access to doctors for patients in Williamsport, Pennsylvania whose employers have contracts with a competing health plan" and "[r]efusing to negotiate reasonable payment terms with self-insured employers, resulting in UPMC's unjust enrichment through excess reimbursements for the value of its services."
Thursday, February 7, 2019
California Attorney General Xavier Becerra recently announced that his office had settled a case it had brought against charity Giving Children Hope alleging that the charity had overvalued in-kind donations it had received in order to inflate the value of the contributions it received and therefore its claimed direct aid. Here is the AG's description of what the charity did:
Giving Children Hope provides international assistance in the form of food, clothing, and medical supplies. The Attorney General’s investigation revealed that between July 1, 2012 and June 30, 2016, GCH inaccurately claimed, in its public financial reporting and on its website, that 99 percent of all contributions provided direct aid. This was misleading and the result of deceptive reporting of Gift-in-Kind donations. GCH created two subsidiaries, Giving Hope International and International Clinic Aid, which purchased pharmaceuticals from a wholesaler in the Netherlands for less than $225,000. The two subsidiaries then donated the same pharmaceuticals to GCH. GCH reported the total value for these pharmaceuticals as being over $34.9 million using U.S. prices of drugs rather than the actual purchase price paid by its affiliated charity. GCH should not have reported $34.9 million in revenue and donations when the pharmaceuticals cost less than $225,000. Also since GCH failed to submit any documentation showing that the pharmaceuticals were, in fact, distributed in furtherance of Giving Children Hope’s charitable purpose, the actual value for those pharmaceuticals should have been zero.
For previous coverage of the California AG's other enforcement actions in this area, see this earlier blog post.
Wednesday, December 19, 2018
I previously mentioned California Attorney General Xavier Becerra's cease and desist orders against three charities for allegedly overvaluing donated pharmaceuticals they received. Now Jim Ulvog, CPA at the Nonprofit Update blog has obtained the numerous and lengthy court filings in this case and begun reviewing them. So far he has posted some preliminary thoughts and also some details relating to discovery disputes. Apparently the three defendant charities have seriously lawyered up (ten attorneys named so far) and also hired impressive (and presumably expensive) expert witnesses. At last report (on December 4th), the case was in its sixth day of hearings out of fifteen scheduled days before an Administrative Law Judge. It will be interesting to see if it results in a public decision or instead a set of quiet settlements, with both sides claiming victory.
This year’s Pennies for Charity report includes data from the 964 fundraising campaigns conducted all or in part in 2017 by professional fundraisers in New York. The campaigns raised over $1 billion. Key findings include:
• Over $372 million (31%) of funds raised were paid to fundraisers to cover the costs of conducting the charitable campaigns. Charities received $812+ million overall.
• In 313 campaigns (32%), charities retained less than 50% of funds raised.
• In 156 campaigns (16%), fundraising expenses exceeded charitable revenue. In 2017, this loss totaled over $10 million dollars.
The New York AG's office also provides a database with detailed information for campaigns, searchable by charity or fundraiser name.
Saturday, September 29, 2018
The long-planned Single Portal for state charity registration just went live for the first two pilot states, Connecticut and Georgia. A second cohort of at least five states is expected to join them by January 2019, according to the website's FAQs. The site is operated by the Multistate Registration and Filing Portal, Inc., which is described as a section 501(c)(3) organization that is also an instrumentality of government formed by state charity officials. I assume not coincidentally, the site went live just before this year's National Association of Attorneys General/National Associate of State Charity Officials conference in Baltimore, scheduled for October 1st thru 3rd. The agenda for Monday, which is open to the public, is available here.
Friday, July 6, 2018
The news cycle may have moved on from the New York Attorney General's lengthy Petition against the Donald J. Trump Foundation and Donald, Donald Jr., Invanka, and Eric Trump, but the legal cycle continues. It is therefore worth considering what is the most important question that Petition raises - did now President Trump break any criminal laws through his Foundation?
First, a mea culpa is owed. When I first, very quickly (and in the Newark airport on my smart phone, which is not a great way to review legal documents), read the Petition and related materials, I missed the not-so-subtle hints that the AG included suggesting that the answer to this question is yes. As way of explanation but not excuse, this was in part because I did not then know that she generally lacka authority to bring criminal charges herself. But more importantly, in my quick read I missed both the occasional "willful" or "willful and knowing" language - particularly with respect to the alleged use of the Foundation to benefit his campaign - and, most damning, the copying of officials at the U.S. Department of Justice Criminal Division's Public Integrity Section on the FEC referral letter. So I apologize for anyone I talked to in the hours after the petition became public for not catching those hints.
But of course the fact that New York AG thinks they may have been one or more violations of criminal law does not necessarily make it so, even assuming the accuracy of the facts she alleges. There has already been a debate among tax scholars regarding whether those facts justify referral for a criminal investigation by the IRS - see Phil Hackney in the NY Times (yes) and Brian Galle in Medium (maybe, but probably not). I lean more toward Brian's side of this debate, with the kicker being that all of the funds distributed by the Foundation went to charities even if those contributions actually benefitted Mr. Trump, his business interests, or his campaign (with the exception of one $25,000 political organization donation in 2013, which plausibly was an inadvertent error and the false reporting of which could not be pinned on Mr. Trump by the AG). People who have been prosecuted (successfully) for using charitable assets for their own benefit, including former Representatives Corrinne Brown, Chakah Fatah, and Steve Stockman, have usually actually spent charitable funds on personal expenses or given it to their businesses or campaigns. And criminal prosecutions for false statements on annual information returns (the Form 990, or here the Form 990-PF) have tended to focus on not reporting material support for terrorist organizations and similar matters.
As the AG's copying of the DOJ Criminal Division indicates, the alleged illegal in-kind donation by the Foundation to the Trump campaign in violation of federal election law is probably the more likely candidate for a criminal charge. But election law experts contacted by N.Y. Times reporter Kenneth Vogel could not agree on whether any federal investigators would pursue such a charge, even assuming impartial consideration by career DOJ attorneys. And as noted in that article, ignorance might be a good defense here, "willful and knowing" language notwithstanding.
Perhaps the most intriguing suggestion to date is the one by David Cay Johnston in the N.Y. Times two days ago. He suggested that either the bringing of criminal charges - state or federal - or even civil tax charges - again, state or federal - against Mr. Trump, including ones based on the NY AG's allegations, could force the public disclosure of Mr. Trump's personal income tax returns (remember those?). Given the range of government officials who could pursue some such charges, it will be interesting to see if any of them take up this suggestion.
Thursday, July 5, 2018
States Continue to Chip Away at Donor Anonymity for Politically Active Nonprofits (Missouri and Washington)
With the nonprofit created by now former Governor Eric Greitens very much in the news, the Missouri Ethics Commission (MEC) issued an advisory opinion clarifying that nonprofits are considered "committees" and so subject to registration and public reporting of donor requirements under Missouri law if they receive more than a nominal amount for the primary or incidental purpose of influencing or attempting to influence voters with respect to an election to public office or a ballot measure. Perhaps as importantly, the MEC's opinion also notes that the use of a nonprofit to attempt to conceal the actual source of a contribution to a candidate committee or other (political) committee is prohibited. See also St. Louis Post-Dispatch.
In Washington, the legislature passed and the governor signed the DISCLOSE Act of 2018. The legislation, which will not be effective until January 1, 2019, creates a new category of entities required to register and publicly report their significant donors known as "incidental committees." Such committees are any nonprofit organization that is not a political committee but that makes political contributions or expenditures above a $25,000 annual threshold directly or indirectly through a political committee. The donor disclosure provision only applies to the top ten donors in a calendar year who give, in the aggregate $10,000 or more.
For example, Nebraska's Attorney General just released a detailed report and filed a consent judgment against Goodwill Industries, Inc. and Goodwill Speciality Services, Inc. in Omaha. The report explains how the AG's investigation, triggered by a series of newspaper articles, found that the two organizations had shifted away from their nonprofit mission toward retail sales, paid excessive executive compensation, and had boards that failed to provide appropriate oversight (while also concluding that transactions with board member affiliated companies were fair to the nonprofits). The consent judgment commits the nonprofits, now under new leadership, to a variety of remedial actions including adopting new governance policies relating to conflicts of interest and nepotism, ending certain business relationships and practices, and making a variety of other governance changes. For additional information, see Press Release; Omaha World-Herald.
Taking a broader look at charity oversight, Seven Days in Vermont reports that while that state only has a single assistant attorney general to oversee the more than 6,000 tax-exempt nonprofits in that state, neighboring New Hampshire has a staff of eight to oversee its 10,000 nonprofits. The report also contrasts the differing filing and governance requirements of the two states, with New Hampshire requiring registration, annual financial reports, and the adoption of a conflict of interest policy, while Vermont does not impose any of these requirements. The report suggests that delays in investigating reported problems with certain charities in Vermont may be attributable to this lack of requirements and staff. Hat tip: Nonprofit Quarterly.
Finally and probably not surprisingly, New York has been particularly active in recent months. I will get to the Donald J. Trump Foundation in a separate post, but even setting aside that high-profile case there has been a lot of activity. This includes a settlement with a trustee of the Richenthal Foundation that included $550,000 in restitution and a permanent bar on serving in any fiduciary position with a nonprofit operating in New York, a settlement with the Wounded Warriors Foundation of Orange County relating to fake raffles that required the charity to immediately dissolve and pay $4,200 in restitution, and a lawsuit against the accounting firm that audited a sham cancer charity that was shut down a year ago.
Thursday, May 10, 2018
Continuing the prior post about Congressional warfare against a gay rights organization, today I highlight some of the other examples in which governments in the United States have abused laws providing for incorporation of nonprofits or regulating charitable solicitation.
In 1974 -- some 10 years after the US House's embarrassing spectacle against the Mattachine Society -- the Ohio Supreme Court ruled that the Cincinnati Gay Society had purposes that conflicted with the public policy of Ohio, and thus not allowed to incorporate as a nonprofit. State ex rel. Grant v. Brown, 39 Ohio St.2d 112 (Ohio 1974). Ohio law provided that "A corporation may be formed for any purpose or purposes for which natural persons lawfully may associate themselves." Yet the Court affirmed the denial of incorporation to the Cincinnati Gay Society because the promotion of "homosexuality as a ‘valid life style’" was contrary to public policy. The Court's reasoning was brief:
Although homosexual acts between consenting adults are no longer statutory offenses since the new Criminal Code came into effect, there is still reason for denying the writ. We agree with the Secretary of State that the promotion of homosexuality as a valid life style is contrary to the public policy of the state.
Ohio was not the first (although it may have been one of the last) to deny incorporation to organizations that those in charge didn't like. Prof. Silber has an entire book that documents many of these examples. (New York was one of the worst offenders, because potential organizations had to apply to a judge. Although nothing in the law obviously bestowed discretion, judges reasoned that they wouldn't have been entrusted with the power to approve if it was simply ministerial.)
Throughout time, cities and states have tried to abuse their power over nonprofits. Here are just a few illustrative examples (many can be found in Silber's book):
- In 1896, the a group of Jewish immigrants were denied a nonprofit charter because the meetings would be on Sunday-- the "Lord's day"--"not laudable" & against "public policy."
- Decades later, a home for "unwed mothers" was denied incorporation because it would "benefit immoral women" and perpetuate a "fraud on prospective husbands"
- After being excluded from the whites-only Elks, a predominantly African-American group attempted to incorporate a racially-integrated Elks, but was rejected because it was too similar to the then-existing Elks organization.
- The National Foundation for Diarrheal Diseases wasn't allowed to incorporate because it was unlikely to gain enough donations to succeed.
- Cities have frequently tried to prohibit religious groups such as the Jehovah's Witnesses from operating in their community. E.g., Cantwell v. State of Connecticut, 310 U.S. 296, 300 (1940).
- Several cities attempted to ban soliciting donations that took place outside of the community wide fundraising campaign (community chest or united way). For example, Dayton, Ohio, prohibited the American Cancer Society from soliciting donations in town because the cause had already been adequately covered by the local community chest campaign. American Cancer Soc. v. City of Dayton, 114 N.E.2d 219, 223, 160 Ohio St. 114, 121 (Ohio 1963); see also Adams v. City of Park Ridge, 293 F.2d 585, 586 (7th Cir. 1961) (striking down town's ordinance that prohibited Heart Association from soliciting donations in favor of community chest).
- Los Angeles prohibited The Salvation Army from soliciting donations in town unless it first agreed to transfer control of all funds to a board of trustees who lived in the city. Ex parte Dart, 155 P. 63, 64, 172 Cal. 47, 50–51 (Cal. 1916)
To be sure, things have changed. But, surprisingly, some cities still provide extensive discretion to local authorities to decide which charitable causes are worthy before allowing them to solicit donations, although these laws are likely unconstitutional. For example, until challenged and repealed in 2016, Toledo, Ohio had a law that allowed donations to be solicited only if the City was satisfied that the field is not already covered by another charity, the solicitation “will be beneficial to the people of the City, either collectively or individually" and other requirements. Other cities, like Oakland, California, prohibit charities from soliciting donations if they spend more than a certain percent on fundraising expenses -- a law that was struck down decades ago. Or, Barberton, Ohio, was recently challenged for arresting people who were soliciting donations under a law that only allowed a "recognized charitable or religious group" to ask for donation, despite a nearly identical law being struck down by the Supreme Court in 1976. If you have additional thoughts or ideas on this, let me know: I'm currently researching both the history and the current practices on how cities regulate nonprofits, particularly when it comes to charitable solicitation.
Thursday, May 3, 2018
The National Association of State Charity Officials (NASCO), the Multistate Registration and Filing Portal, Inc. (MRFP), GuideStar, and CityBase (a technology firm) have announced that they are moving ahead with a longstanding plan to develop a single, online portal for charities to use to satisfy the registration and reporting requirements they face in most states. The data collected will not only be available to state regulators, but also (with private information removed) to researchers, policy makers, and the public through GuideStar. CityBase and GuideStar plan to launch an initial prototype this summer, with registration for a few states, with a full launch planned for later in 2018. The hope is to eventually make the portal work for registrations in all 39 states that currently require charities and professional fundraisers to register before raising funds in those states.
Wednesday, May 2, 2018
California: AG Rejects Requests to Reduce Hospital Charity Care Obligations, Targets Overvaluation of Pharmaceutical Donations
California Attorney General Xavier Becerra's office recently addressed two different types of activities relating to charities: the charity care obligations of certain California hospitals, and the valuation of pharmaceutical donations to certain charities.
The charity care issue arose when three California hospitals asked for permission to reduce their existing obligations to provide charity care under agreements entered into with the AG's office when they were participants in a merger or acquisition. The requests were based on changes in the healthcare market, particularly in light of Obamacare. Two of the hospitals are former nonprofit entities that for-profits purchased and now own. Emanuel Medical Center's $3,312,360 charity care obligation (for fiscal year 2016) arose out of a 2014 agreement with the AG relating to its purchase by Doctors Medical Center of Modesto, Inc. See its denial letter. The Mission Community Hospital's $2,424,236 charity care obligation (for fiscal year 2016) arose out of a 2010 agreement with the AG relating to its purchase by Deanco Healthcare LLC. See its denial letter. More details regarding the requests and the AG's consideration of them can be found in reports prepared for the AG's office relating to each request. See EMC Report; MCH Report.
The third hospital is the nonprofit USC Verdugo Hills Hospital, which had a $2,073,564 charity care obligation (for fiscal year 2017) arising out of a 2013 agreement with the AG relating to its purchase by a limited liability company wholly owned by the University of Southern California. See its denial letter. Its situation underlines the fact that such agreements do not only apply to acquisitions by for-profit entities. For more details, see the report prepared for the AG's office.
To make up for missing their required charity care obligations in the fiscal year listed for each of them, the AG is requiring each hospital to make donations to local nonprofits that provide health care services.
The pharmaceutical valuation issue relates to cease and desist orders sent by the AG to three charities: Catholic Medical Mission; Food for the Poor; and MAP International. For each charity, the order alleges that the charity reported inaccurately high valuations for contributed pharmaceuticals, leading both to overstating program to administration/fundraising expense ratios in charitable solicitation materials and, for the latter two charities, inaccurate statements in their federal tax (Form 990) and California (Form RRF-1) filings. The orders direct all three charities to stop including such ratios in their solicitations to California donors, threaten revocation of their charity registration in California, and assess hundreds of thousands of dollars in penalties. A fourth charity, the National Cancer Coalition, dissolved after the AG sought a permanent injunction based on similar issues, according to a report from The Nonprofit Times. The same report notes that the first three charities have issued statements contesting the AG's allegations.
UPDATE: The St. Louis Post-Dispatch reports that a Missouri House committee issued a report on May 2nd relating to the donor list, including evidence that Governor Greitens had signed a confidentiality agreement with Mission Continues, that the Governor had obtained the donor list himself in May 2014, and that the settlement of an ethics complaint relating to the list contained falsehoods. And in a new development, the St. Louis Post-Dispatch also reports that Washington University in St. Louis is investigating whether Governor Greitens misused grant funds received from the University by using a portion of them to compensate a campaign aide.
The Kansas City Star reports that embattled Missouri Governor Eric Greitens has been charged with felony computer tampering, which the newspaper characterizes as "essentially electronic theft," in connection with his campaign obtaining a donor list that belonged to Mission Continues. Mission Continues is a charity founded by Greitens in 2007. Greitens initially denied reports that his campaign had used the donor list to solicit contributions, but later admitted in a consent decree that the list was given to his campaign in March 2015 by his campaign manager. Emails discovered by the St. Louis-Dispatch indicate that Greitens' former assistant had sent the list to the campaign manager and another campaign staff member two months earlier. Greitens released a statement refuting the charges.
Here is the text of the Probable Cause Statement:
DATE: April 20, 2018
I, Anthony Box, knowing that false statements on this form are punishable by law, state that the facts contained herein are true.
1. I have probable cause to believe that Eric Greitens, a WHITE MALE DOB: 4/XX/74 Age: 44, committed one or more criminal offense(s).
Count 1 Tampering With Computer Data To Defraud Or Obtain Property (value $500 Or More) (Class D Felony) RSMO 569.095 ON 4/22/2015 Time: PLACE: City of St. Louis, MO (SCC 569.095-001Y200229)
Or, in the alternative to Count I:
Count 2 Tampering With Computer Data To Defraud Or Obtain Property (value $500 Or More) (Class D Felony) RSMO 569.095 ON 4/22/2015 Time: PLACE: City of St. Louis, MO (SCC 569.095-001Y200229)
2. The facts supporting this belief are as follows:
I learned through an investigation that the defendant, acting with others, took and used data specifically owned by the Mission Continues for the purpose of soliciting funds for his political campaign.
At the direction of the defendant, on April 22, 2015, K.T. disclosed data, specifically a donor list owned by The Mission Continues, to a political fundraiser (the “Fundraiser”) working on behalf of Greitens for Missouri. The defendant directed this disclosure. The President of The Mission Continues explained neither the defendant nor K.T. had permission from The Mission Continues to disclose the donor list to the Fundraiser or to use the donor list for political purposes. The Mission Continues employee handbook and the non-disclosure agreements prohibited the disclosure of the donor list and the retenhat tion of it by anyone not employed by and working on behalf of The Mission Continues. The Mission Continues conflict of interest agreement signed by board members prohibited the personal use of The Mission Continues assets, including the donor list.
The defendant and K.T. knew that the donor list disclosed on April 22, 2015, was taken without the permission of The Mission Continues. The defendant was aware that K.T. retained or used the list without the permission or consent of The Mission Continues and the defendant directed K.T. to send the donor list in an April 22, 2015 email to the Fundraiser.
At the time of the April 22, 2015 disclosure of the donor list, the donor list resided and existed internal to a computer or computer system used by K.T. for the purpose of conducting business on behalf of The Greitens Group and/or Greitens for Missouri, as well as a computer or computer system belonging to the Mission Continues. The defendant and K.T. disclosed the donor list to the Fundraiser for the purpose of obtaining property of five hundred dollars or more.
New York Attorney General Eric T. Schneiderman's Charities Bureau has been busy. Two recent activities are of particular note:
- Charitable Solicitation: Following up on its 2016 closure of a sham veterans charity, the AG's office announced a settlement that closed the charity's telemarketing company, Menacola Marketing, Inc. In the settlement agreement, the company agreed its solicitations on behalf of the veterans charity contained "numerous material misrepresentations," that the company had ignored several "red flags" regarding the professional fundraiser who facilitated its work for the charity, and had "repeatedly made misrepresentations" in filings with the Charities Bureau.
- Fiduciary Duties: Completing its investigation of Yisroel Schulman, the former President and Attorney-in-Charge of the New York Legal Assistance Group, Inc. (NYLAG), the AG's office announced a settlement in which Mr. Schulman admitted violating his fiduciary duties of loyalty, care, and obedience, admitted breaching his duties under the New York version of the Uniform Prudent Management of Institutional Funds Act, agreed to a five-year ban on future service as a director or officer of a nonprofit operating in New York, and agreed to pay $150,000 to NYLAG. In the settlement agreement, Mr. Schulman admitted this his recommendation to NYLAG's Board that it transfer NYLAG's multi-million dollar reserve fund to a donor advised fund at charity FJC was "neither prudent nor consistent with [his] duty to ensure that NYLAG's assets were administered for its benefit," in large part because that transfer surrendered NYLAG's legal ownership and control over those funds. Mr. Schulman also admitted that he also violated his fiduciary duty to safeguard NYLAG's assets when he "lost track" of another account that had received NYLAG charitable funds totalling approximately $600,000. The agreement also provides extensive detail about the a variety of misrepresentations relating to these NYLAG's funds and misuse of NYLAG's funds, including for the personal benefit of Mr. Schulman.
Saturday, November 18, 2017
Officials from Illinois, New York, and other states announced earlier this month that approximately two dozen states have acted to dissolve VietNow National Headquarters, Inc., an Illinois nonprofit corporation. The grounds for the action against the section 501(c)(19) veterans organization was deceptive telemarketing solicitations that mislead potential donors regarding the use of donated funds, including the fact that less than five percent of such funds actually went to charitable programs. If the name looks familiar, it is because this is the organization involved in the 2003 (yes, 2003) Supreme Court of the United States case brought by Illinois against for-profit telemarketers for alleged fraud.
More specifically, the settlement agreement includes provisions requiring VietNow to dissolve and certain of its officers and directors not to ever work for or serve in a fiduciary position with any charitable organization, as well as provision for division of VietNow's few remaining assets. The agreement also notes that a total of 27 states had "expressed interest in VietNow's solicitation activities in their respective states," although only 21 states signed the agreement (and two more states entered into separate agreements with similar terms).