October 2014

STATES

CALIFORNIA

The governor recently signed into law A.B. 2077, a provision which provides that, “Monies in the fund, upon appropriation by the legislature, shall be used by the attorney general to enforce the registration and reporting provisions.”  (Comment: This bill was the subject of some controversy.  The argument being that when enforcement is funded from the proceeds of enforcement that it can lead to the abuse of prosecution discretion).

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The ALS Association, the recipient of $150 million from the “Ice Bucket Challenge,” has made the first announcement of a broad initiative to fund research to help find a cure, or at least combat ALS.  (Comment: Few charities have ever been faced with the pleasant situation that the ALS Association has experienced when it unexpectedly becomes the beneficiary of a nationwide phenomena from fundraising).

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The San Jose Mercury News reported that the Apple employee matching gift program has raised $50 million so far, and now the program is going to be expanded to its overseas locations as well.

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The San Francisco Chronicle reported that the Koret Foundation has been sued by the founder’s widow alleging that the board chairman used $500 million of the Foundation’s resources to promote himself and his political agenda.  The lawsuit states that the Foundation’s mission was to help the poor, and that the spending has gone beyond the mission and has been approved by a “rubber stamp board.”  The story only gets better.  The Foundation filed a counterclaim seeking to remove the founder’s window who has a lifetime appointment on the eight-member board, alleging incompetence and breach of duty.  

CONNECTICUT

A Milford area resident was sentenced to ten years in prison for stealing $237,000 from two civic clubs and the Milford Chapter of Special Olympics.  Restitution was ordered with the sentence being suspended after three years served.

DELAWARE

A third world relief organization used the name and likeness of the chairman of the board of directors in its fundraising appeals.  The organization continued to use the name and likeness of the individual, even after removing him from his position.  The individual sued in Chancery Court, and what is unusual here is that the individual chose to sue the directors individually rather than the organization.  The Chancery Court ruled that he had no claim against the individual board members since they did not personally benefit or profit.  (Comment: One is left to wonder if the result might have been different had the plaintiff chosen to sue the organization.  Even then, the individual would have had to give notice and be able to demonstrate some degree of loss.  Whenever a charity uses the name or likeness of an individual in fundraising activities there should be a process by which formal approval is given, and the individual retains the right, upon reasonable notice, to revoke the authority to use his/her name or likeness).

FLORIDA

A new law that has gone into effect contains a “quirk,” creating some degree of uncertainty.  The law would seem to require that a charity located in Florida, but which engages in solicitation activities other than in the State of Florida would still have to register with the state.  (Comment: These type of provisions create a “cloak conflict of law.”  In this case the statute would seem to say that a Florida-based organization that does not solicit in the state, but makes a telephone call to a supporter in another state from its office in Florida would still have to register.  This is so even though the law in the state where the solicitation is received may be materially different from the requirements imposed under the new Florida law).

ILLINOIS

According to the Chicago Sun Times, a top aid to former Mayor Daley was sentenced to five years probation for stealing nearly $100,000 from charities he led.  The defendant admitted that he cashed scores of checks from donors and kept some of the money. 

LOUISIANA

An audit of a New Orleans foundation reported that only $5.3 million of the more than $19 million in federal funds it received are accounted for.  The foundation was charged with overseeing construction contracts and other activities to help build the city after Hurricane Katrina. 

MAINE

The Bangor Daily News reported that during an emergency court hearing a judge approved having liens placed on the properties and bank accounts of an individual accused of stealing $3.8 million from a local charity.  The liens were sought by the charity in an attempt to recover the assets which it alleges were misappropriated. 

MASSACHUSETTS

A recent decision by the Supreme Judicial Court found a trustee in breach of its fiduciary duty by failing to invest assets in a prudent manner.  The funds were apparently invested in fixed income assets for more than fifty years.   The trustee failed to follow the advice of the bank, and certainly was not in compliance with the Uniform Management of Institutional Funds Act.  (Woodward School for Girls v. The City of Quincy, SJC-11390).  (Comment: Normally, institutional funds are divided by a formula which include allocations to securities, fixed income and cash.  Depending on market conditions, the allocations to securities can be anywhere from 50% to 70%, and for fixed income anywhere from 30% to 40%, and for cash anywhere from 5% to 15%). 

MINNESOTA

State officials raided a Minneapolis-based charity, closing down the office and seizing books and records.  Community Action of Minneapolis has been the subject of concern after a state conducted audit showed a series of irregularities.  Employees, in large part, left and board members turned in resignations.  The organization provides Minneapolis residents with energy assistance.

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According to a report by NBC Sports, once again an athlete’s charity is not doing what it is supposed to do. This time it is the All Day Foundation formed by Adrian Peterson, who has his own personal issues.  In this case, reports filed by the organization indicate disbursements to organizations which, according to NBC, the charities claim they never received the grants listed.  There is also some concern over the use of the Foundation’s credit card for activities other than those that are charitable.  

MISSOURI

A lawsuit has been filed over the 2012 St. Louis Rock n’ Roll Marathon (which is held across the country) by a professor at the St. Louis University School of Law.  The essence of the lawsuit, which is a class action claim, is for minimum wage to be paid to volunteers who, the lawsuit claims, were misled into believing the beneficiaries of the marathon were charities, when in fact it was a for-profit company, Competitor Group, Inc.  (Comment: This is a most interesting lawsuit that is worth following).

NEVADA

The Chronicle of Philanthropy conducted a study on the changing trend of philanthropy in the city of Las Vegas.  Traditionally, local charities have relied upon the largess of gamblers and casinos, but saw that support eroded substantially from the onset of the recession that occurred.  The study noted that giving actually rose in 2012 by 2.7%, and it attributed the rise to the change of focus.  More people are giving smaller gifts to local institutions than ever before.  The study goes on to quote authorities who believe that the real estate collapse forced a certain segment of the population to set down roots to ride out the effects of the recession, and in doing so became a bigger part of the community. 

NEW HAMPSHIRE

The state has amended its games of chance provision.

NEW JERSEY

A.B. 3668 has been has been introduced that would amend the New Jersey charitable solicitation law by increasing the threshold of gross revenue amounts received by charitable organizations that file their annual financial reporting requirements with the Office of the Attorney General. Charities that receive more than $1 million must file with its annual report a financial statement which has been audited by an independent certified public accountant.  (The prior threshold had been $500,000).

NEW YORK

The New York Marathon has taken steps to reduce the number of charitable participants who are there to raise money for various organizations.  Only 12% of the runners who enter the lottery gained admission this year.  The marathon has also decreased its roster of charitable partners from 320 to 290.  

NORTH CAROLINA

Scarlette Gardner is no longer an attorney with the Charitable Solicitation Licensing Division of the Secretary of State’s Office.  The new attorney in this position is Verlyn C. Porte. 

NORTH DAKOTA

The Chronicle of Philanthropy detailed a dilemma in this state  as a result of the influx of people in need, to a state that lacks the infrastructure of a developed charitable community. The article appeared in the October 9, 2014 issue, and talked about one of the solutions, to-wit: to pay for the bus fare to send homeless people to another jurisdiction.   The article said that the state had fewer foundations than any other state and, likewise, the amount of foundation assets was the lowest

OHIO 

In Athens, Ohio, a state court judge distributed more than $6 million to 226 Ohio-based charities in late September.   In large part, the funds represent unclaimed funds from a class action settlement, which allows the court to apply what is called the “cy press doctrine” to distribute funds that remain for beneficial use.  More than 2,000 applied to receive funds.  The bulk of the charities to receive an award are located in northeastern Ohio.  (Comment: One would only hope that other judges in future cases will take the same path on unclaimed funds).  

PENNSYLVANIA

A well known broadcaster in Philadelphia pled guilty to a fraud scheme involving 200 victims and at least $317,000.  The scheme involved a travel package that was allegedly sold to raise money for charity.

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Proving once again that politicians and charities should not mix, the Daily News in Philadelphia asserted in an article that between 2001 and 2012, nonprofits founded or supported by Congressman Chaka Fattah have paid out at least $5.8 million to his associates, including political operatives, ex staffers and their relatives.  According to the report, three of the people who had ties to the organization have subsequently been convicted of federal crimes.

SOUTH CAROLINA

The Office of the Secretary announced an assessment of a fine of over $1 million on a telefunding company for what the Secretary of State described as “numerous violations.”  However, this announcement does not constitute a judicial determination.  The telefunding company can deny the allegations and force the Office of the Secretary of State to go to court to prove same.  

TENNESSEE

Supporters to the 4th Amendment of the State Constitution are concerned that voters might not understand its purpose.  The amendment was proposed to add veteran groups that are IRC § 501(c)(19) organizations to the list of groups that are allowed to hold annual charitable gambling fundraisers.  Even with the exemption, individual fundraising events must be approved on an individual basis by a two-third majority in both Houses of the legislature.  Charitable gambling events are restricted to activities such as raffles and certain authorized games.  Bingo is not one of the authorized games as a result of a long history of abuse in the 1980s. 

TEXAS

A shooting competition sponsored by Remington raised nearly $1.2 million for military charities.  The event was held at the Cypress Valley Shooting Preserve, which is located north of Austin.  

 VERMONT

Our office recently represented a telefunding agency to resolve allegations of misrepresentation in the state.  The allegations, which were denied, were based on the use of pronouns such as “we” and “us.”  In settling the matter, the agency agreed to discontinue the use of such words.