State
CALIFORNIA.
Reuters reported that the attorneys for the Michael Jackson estate have sued two California charities, accusing them of scamming the deceased singer’s fans by using his name and catch phrases to solicit funds. According to the administrators of Jackson’s estate, neither charity has any relationship with him or his family. The lawsuit seeks an injunction against continued use of the phrases.
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Organizers of one of the largest one-day motorcycle charity events in the world announced that it had been cancelled due to poor ticket sales and other financial worries. The motorcycle charity ride was started in 1984 as fundraising event for the Muscular Dystrophy Association and grew to benefit more than a dozen children’s charities generating approximately $1 million per year. Last year, the event attracted 20,000 motorcycle riders.
COLORADO.
Two men who made up charities and causes, such as “Family Support Center,” to solicit for support were sentenced to 16 years in prison. The Colorado Attorney General reported that they raised more than $95,000, which they spent on drugs, alcohol and gambling. They have also been ordered to pay back all the money in restitution.
DISTRICT OF COLUMBIA.
The Washington Post has profiled a popular D.C. comedy fundraising event to which many well known people have donated their time to put on a comedy show. The show is intended to benefit a series of charitable organizations, but the Post reported that the event has made no distributions. Executives with the nonprofit that sponsored the event claim that the beneficiary charities were supposed to sell tickets, and that the expenses were such that there was no surplus income to distribute.
ILLINOIS.
The Chicago Sun Times reported that Patti Blagojevich (the wife of the former governor), has been accused of absconding with a contact list from her previous position with a charity so that she could promote her husband’s new book. (Editorial Note: As we all know, the donor file is perhaps the most valuable asset a charity owns).
MASSACHUSETTS.
The state continues to seek more oversight of nonprofits’ executive compensation. Most recently, it was revealed that the Boston Medical Center paid its chief executive $1.35 million in salary and $3.5 million in deferred compensation in 2008, even though the Center lost millions in the same period. Attorney General Martha Coakley has adopted a new policy that will ask insurers and nonprofit health-related organizations to submit details of top officials’ compensation this year. (Editorial Note: This is still another focus on executive compensation).
MINNESOTA.
The Minnesota Charities Council has announced revisions in its standards. The new standards better recognize the reality of the cost of fundraising. Previously, the standards required that seventy percent of a nonprofit’s expenses must be spent on programs. Under the new standards that figure is reduced to sixty percent if the nonprofit can include a justifiable explanation. The new standards will also include tighter travel and reimbursement policies, and absolutely prohibit loans to board members.
NEBRASKA.
A federal court jury found in favor of a veterans’ organization that sued another organization for unfair competition. (See story under “Major Litigation”).
NEW JERSEY.
The state has filed a lawsuit against Stevens Institute of Technology charging that the college mishandled its endowment and investments. There are also allegations regarding the compensation paid to the president. Further allegations pertain to the use of funds, claiming they were misrepresented by the college. (Editorial Note: This is a particularly interesting case because it is the state not the Internal Revenue Service bringing the claims dealing with compensation. The college has moved to submit the case to confidential arbitration).
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Long-time public safety telefunding agency, Civic Development Group, LLC, advised its clients earlier this month of its intention to close its doors. The company has served the public safety community for more than twenty years, and was frequently the target of regulatory actions.
NEW YORK.
In a case that we handled, a New York appellate court upheld the situs clause in an employment agreement in favor of a charitable organization. The case stemmed from the charity discharging an employee who signed an employment agreement which referenced the situs being where the charity is domiciled. When the employment was terminated, the individual attempted to sue for wrongful discharge filing the case in the state of New York. The lower court dismissed the complaint and the appellate court upheld the dismissal. (Editorial Note: Such things as situs clauses in contracts can be critically important as demonstrated in this case).
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The Office of the Attorney General has issued a series of wide ranging, comprehensive civil investigative demands to telefunders doing business in the state.
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The son of philanthropist, Brooke Astor, was recently convicted of fraud. The fraud perpetrated was to misdirect part of his mother’s $180 million estate away from charitable organizations for his own benefit. The key issue in the trial was whether the son took advantage of his mother’s deteriorating mental state to effect changes. The case is now going back to surrogate court to determine which version of his mother’s Will is to be probated.
NORTH CAROLINA.
The state issued a notice to a prominent charitable organization expressing concern that the multi-state disclosure pertaining to North Carolina does not meet the state’s minimum type requirement. Under the statute, the minimum type requirement must be 9-point type, which makes it disproportionate to any other notice. Such limitations have never been constitutionally challenged.
OHIO.
The Cuyahoga County Probate Court granted the request of the Cleveland Museum of Art to deviate from the original purpose of two funds from the museum’s endowment and two outside trusts in order to complete the museum’s construction project. The funds had been previously designated for the sole purpose of procuring art purchases. (Editorial Note: Restrictive endowments can be a blessing and a curse. In this instance, the museum had to go to court in order to obtain a deviation. The court had to determine whether such action was in the best interests of the continued viability of the museum, which it did.)
PENNSYLVANIA.
A case involving fraud and money laundering is under consideration by the court against a prominent Allentown attorney, who did not dispute claims that some money he donated to a charity was ultimately transferred back to him for his personal and businesses expenses. A decision is expected shortly.
SOUTH CAROLINA.
Carolyn Hatcher, the long-time registrar with the Public Charities Section, Office of the Secretary of State, announced she will be retiring at the end of this year. Her friendliness and southern charm will be missed.
RHODE ISLAND.
An article appeared in a Rhode Island newspaper criticizing police fundraising that included the solicitation of “spas.” The paper noted that many of these facilities were often fronts for illegal prostitution. Records indicate that several telemarketing firms working for law enforcement organizations in the state made these facilities frequent targets of fundraising efforts.
Other
CEO PAY.
According to a study conducted by The Chronicle of Philanthropy, compensation for chief executive officers of charities rose by 7% in 2008. However, the study made it clear that the expectations in 2009 are quite different. In its October 1st edition, the trade publication talked about the number of charitable organizations which have reduced compensation to some of its top executives in recognition of the difficult economic times.
CHARITY REFORM/GRASSLEY SENATE FINANCE COMMITTEE.
Initially, Senator Grassley, the ranking Republican on the Senate Finance Committee, intended to place two amendments on the Health bill before the Committee. These amendments were aimed at what he called “nonprofit reform.” At the last minute, Senator Grassley elected not to include the amendments (perhaps fearing opposition), but in lieu thereof, made a statement about his continuing interest in effecting change. The first amendment proposed would have legitimatized the inquiries of the IRS on the new Form 990 pertaining to governance issues. Some in the community counseled clients not to answer the questions concerning conflict of interest policies and other governance issues on the basis the IRS has no authority to make those inquiries. The other amendment would have deleted the safe harbor provision found in the intermediate sanction provisions of the Internal Revenue Code (§ 4958). The safe harbor provision creates a rebuttable presumption of reasonableness if the board of a charity relies on comparables in setting executive compensation. Senator Grassley believes this provision has been exploited improperly, and points to televangelists and others. The Joint Committee on Taxation made the same recommendation in 2005, but so far the provision remains a part of the Internal Revenue Code. (Editorial Note: You can expect future efforts to remove the provision).
Wounded Warrior Project filed a lawsuit in federal district court in Omaha, Nebraska, against Wounded Warriors, Inc. for unfair competition, unjust enrichment and deceptive grade practices. The defendant organization had set up a website using the URL woundedwarriors.org. The plaintiff discovered a number of incidences of confusion, and attempted to resolve the matter by offering financial assistance to the defendant to help it make changes. When the defendant refused to take any corrective action, the lawsuit was filed in 2007. In 2008 the federal district court entered a preliminary injunction enjoining the defendant from continuing use of its website. When subsequent attempts to settle the suit were unsuccessful the case went to trial on September 21, 2009. During the course of the trial, a forensic expert testified that it was his opinion that $1.265 million had been misdirected as a result of the confusion caused by the defendant’s website. A verdict against the defendant took less than 90 minutes by the jury. The jury awarded Wounded Warrior Project $1.695 million. (Editorial Note: This may be the largest award ever given by a jury to one charity against another based upon unfair competition. It is unusual for one charity to have to sue another charity, and significant efforts to resolve the matter were made by the plaintiff. For more information about the case, contact Errol Copilevitz at: .(JavaScript must be enabled to view this email address).)
NONPROFIT CAMPAIGN SPENDING.
A federal appeals court struck down regulations that limit how nonprofit organizations raise and spend money for political campaigns. The Washington Post reported that the U.S. Court of Appeals for the District of Columbia held that the 2005 campaign regulations are unconstitutional because they inhibit free speech.
UNITED STATES POSTAL SERVICES (USPS).
The financially plagued USPS received an infusion of $4 billion as a congressional appropriation. The Alliance for Nonprofit Mailers reported that while the infusion will help, it is not a solution. Postmaster General Potter has told Congress that eliminating Saturday mail delivery could save the USPS as much as $3.5 billion per year. However, mailers continue to remain opposed to the proposition.
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According to a recent report released by the USPS, volume was down 13.2% compared to the same period in 2008. The USPS continues to reduce personnel and close post offices in order to address the financial strain under which it operates.
UNITED KINGDOM.
The largest fundraising website in the country takes a 5% commission off of every donation pledged. Last year, justgiving.com made, according to published reports, £2.3million profit. Now, a major veterans’ organization, “Help For Heroes,” is urging people to turn their backs on the website and asking supporters to find other websites that do not rely upon commission.