Law & Order: Nonprofit Officials Enter Guilty Pleas

It’s three years’ probation and home confinement for a former nonprofit official. Steven F. Harvin, 53, of New Haven, Conn., was sentenced in federal district court in Hartford (Conn.) to serve 60 days of probation in home confinement for stealing almost $33,000 from Zezzo House Corp.

It is a federal case because of funding from the U.S. Department of Housing and Urban Development (HUD) program. The money are earmarked to benefit low-income people with HIV/AIDS.

Harvin was also ordered to perform 50 hours of community service. He was president of as Zezzo House Corp. from August 2015 to September 2016. Harvin waived his right to be indicted and pleaded guilty to one count of theft.

Investigators alleged that during eight months ending in August 2016, Harvin embezzled nearly $33,000 of the $70,722 that Zezzo received from HUD’s Housing Opportunities for Persons with AIDS (HOPWA) program. He used cash withdrawals to spend on ineligible Zezzo House expenses and diverted Section 8 checks for his personal use.

Meanwhile in suburban Chicago, a Lombard, Ill., woman who operated a charity for veterans pled guilty to diverting donations for her personal use. That use included vet (as in veterinarian) bills for her dog.

Patricia Olshefski, 61, reportedly pleaded guilty last week to a felony charge of using charitable funds for personal use and was sentenced to 170 days in the county jail, according to court records.

She had been in county lock-up since her arrest in May and was thus released. She has two years of probation.

Her husband, Todd, is awaiting trial in the case. They ran the charity Veterans Christian Network, but authorities said the couple had been using donations for personal expenses.

Common Cause Asks DoJ To Investigate Kobach

Common Cause has filed a complaint with the Federal Election Commission (FEC) and asked the federal Department of Justice (DoJ) to examine the fundraising practices of Kris Kobach, the former Kansas secretary of state now running for U.S. Senate.

Via the complaint, Common Cause seeks an investigation of Kobach, Kobach for Senate, and We Build The Wall, Inc. The filing alleges violations of federal election law which prohibits corporate contributions to federal campaigns, spending “soft money” in connection with an election, and the lack of a “paid for by” disclaimer on direct mail.

The nonprofit acknowledged in its DoJ request that the FEC has civil jurisdiction that the DoJ can prosecute “knowing and willful” violations of federal campaign finance laws.

The guts of the complaint is a report in The Daily Beast that Kobach “sent a fundraising appeal to an email list maintained by We Build The Wall, a 501(c)(4) social welfare organization of which Kobach is on the advisory board and serves as general counsel. The email includes links back to the Kobach for Senate website and fundraising link.

The complaint seeks three causes of action: that a contribution was thus made to the campaign, that “soft money” was used in connection with the email, and the lack of a “paid for by” acknowledgement.

Here’s a link to the complaint

California Sues Troop Charity With Political Ties

The California Attorney General’s Office has filed suit against another charity, claiming donors were misled and unauthorized pictures and quotes of veterans were used to seek donations, with the charitable gifts used to support political campaigns.

California Attorney General Xavier Becerra filed suit against Move America Forward (MAF) in Sacramento County Superior Court. Established in 2004 and based in Sacramento, Calif., MAF is described by it leaders as the “nation’s largest grassroots pro-troop organization dedicated to support the brave men and women” of the Armed Forces. The principal mission, according to the group’s website, is to provide military troop and K-9 care packages with letters from Americans to troops deployed in combat areas around the world.

The lawsuit alleges that MAF’s marketing practices misled donors about its affiliations and charitable outreach and used pictures and quotes of veterans without permission while seeking donations. The suit also alleges that MAF “plagiarized images, quotes and information from other organizations to mislead donors and falsely inflate its effectiveness in executing its mission.”

The charity also violated Internal Revenue Service (IRS) rules by supporting a political action committee (PAC) and using charitable donations to support at least two political campaigns, Becerra alleges in the lawsuit. MAF “improperly shared resources by providing free office space” for the PACs Move America Forward PAC and the Tea Party Express. It also used charitable assets to support two political campaigns endorsed by those PACs. Charities are prohibited from candidate electioneering and their lobbying capabilities are strictly limited, under U.S. Treasury rules.

Directors Salvatore Russo and Shawn Callahan operated separate for-profit entities that charged fees for services provided to MAF and did not comply with the state’s Corporation Code guidelines for self-dealing transactions, according to Becerra, with Russo’s companies paid an estimated $1.818 million for the transactions.

Becerra’s lawsuit seeks to remove Russo and Callahan as directors of MAF and ban them from operating charities and from soliciting donations in California. The AG’s office said it would pursue further penalties, as well.

There are only two other directors listed on MAF’s most recent federal tax form for the year ending 2017: Chairman Melanie Morgan, at an average 25 hours per week, and Howard Kaloogian, at an average five hours per week. Callahan is listed as executive director, earning compensation of $67,500 for an average 40 hours per week. Russo also is identified as “chief strategist” at an average of 24 hours per week but no compensation is listed. In addition, the lawsuit identified Russo as co-founder and chief strategist of Tea Party Express, and Kaloogian as chairman.

For the fiscal year ending 2017, MAF reported total revenue and expenses of almost $3 million, with net assets of just less than $300,000, according to its IRS Form 900, filed in November 2018.

MAF indicates on the tax form’s section titled “Business Transactions Involving Interested Persons” that Russo is president and director of Russo March + Associates, Inc., a political marketing and consulting firm, which received payment for strategic consulting and management services of $69,000 for 2017. Tax forms indicated payments made of $70,000 in 2016, $70,259 in 2015 and $100,000 in 2014. The lawsuit also identifies Callahan as an employee of the firm and claims that MAF did not disclose financial relationships it had with Frontline Strategies and DonationSafe, two companies that Callahan operated from 2009 to 2013 and from 2011 to 2014, respectively.

Another allegation in the lawsuit contends that Russo owned and operated The Campaign Store, which transferred deposits to MAF’s bank account and charging fees from 7.55 percent to 10.06 percent to transfer remaining funds to MAF’s bank account, but “did not have any employees and did not add any value to the transactions.” It stopped reporting its self-dealing transactions in 2011 and between 2008 and 2014, MAF paid The Campaign Store almost $500,000 in bank service charges, according to the complaint, significantly higher than the 2.2 percent plus $0.30 per transaction fees charged by PayPal.

In a response posted on its website, MAF described itself as “one of America’s major and most successful pro-troop charities” and called the lawsuit “in keeping with the disgraceful effort of far-left politicians to attack every conservative they can.” The organization claims it was the subject of two IRS audits after it criticized Sen. Dick Durbin (D-Ill.), who then requested the IRS audit the organization.

Former Administrator Accused Of Embezzlement

A former payroll administrator of a North Carolina nonprofit was charged on Friday with embezzling more than $200,000 via prepaid debit cards and using the money for her personal benefit.

Susan Watson, 41, of Gastonia, N.C., was charged with wire fraud, which carries a maximum prison sentence of 20 years and $250,000 fine. She was employed as a payroll administrator in July 2015 in the Charlotte, N.C. office of the North and South Carolina Division of a nonprofit, according to a press release from Andrew Murray, U.S. Attorney for the Western District of North Carolina, who only identified the nonprofit in court papers as Company A.

Employees of Company A received their paychecks through pre-paid debit cards, direct deposit and by check. As payroll administrator, Watson knew which employees were paid by prepaid debit card and which employees were paid by direct deposit and check. She also was responsible for providing payroll information to the nonprofit’s payroll processor and used the information to load the employees’ prepaid debit cards by drawing funds from the nonprofit’s bank account, according to authorities.

From 2015 through November 2018, Watson reportedly used her position to obtain Personal Identification Numbers (PINs) from current and former employees to create fake prepaid debit cards in their names. The indictment alleges that Watson loaded funds onto the prepaid debit cards by logging in and accessing the payroll processors’ dedicated web portal to transmit and submit payroll information. She used the cards for her personal benefit, including to make cash withdrawals through ATMs, according to authorities.

Charity’s Ship Carrying Migrants Seized

Authorities in Italy have reportedly arrested the captain of the Dutch-flagged Sea-Watch 3 vessel, owned by the German charity Sea-Watch, after it rammed a military vessel and docked in the port of Lampedusa without authorization. The vessel was reportedly carrying African migrants who had been rescued at sea. The stand-off had lasted 16 days.

Carola Rakete, 31, captain of the Sea-Watch 3, was arrested Saturday morning amid heavy police presence in the port of Lampedusa. Rakete reportedly told authorities said she had no choice but to enter the port because the situation of the migrants on board was very tense and she feared they would inflict self-harm.

Some 200,000 people donated a total of at least €550,000 in less than 24 hours on the crowdfunding platform Leetchi for the captain’s bail and support. Italian authorities had refused to allow Sea-Watch 3 entry into Lampedusa since it rescued 53 migrants on an inflatable raft off the coast of Libya on June 12. Authorities in Malta had also refused port entry to the Sea-Watch 3.

Italian Interior Minister Matteo Salvini had told media that he wanted the arrest of any unlawful person who even put at risk Italian law and order officials, a fine for Sea-Watch, and seizure of the ship.

Some 40 African migrants were still on board when the vessel entered the port Saturday morning. It was not immediate know if the migrants would be allowed off the ship.

For more on this, go here.

NPO Executive’s Suicide Tied To Financial Improprieties

The New Hampshire Department of Justice (DoJ) Charitable Trusts Unit has issued a report tying financial issues at two nonprofits to the suicide of the executive in charge of both organizations.

Donald Guillemette, former CEO and president of CareGivers Inc., was found dead Sept. 16, 2018 after the state DoJ issued at least one subpoena for organizational records. Guillemette also controlled the finances of the nonprofit Danny’s Team.

Guillemette was found hanged in the Horse Hill Nature Preserve in Merrimack, N.H. Police said it appeared he had been dead for several days. He was reported missing five days earlier.

CareGivers was acquired by New Hampshire Catholic Charities this past November and Danny’s Team is being dissolved, according to the report. Regarding CareGivers, the organization had not filed annual reports to the state for 2015, 2016 and 2017.

According to the result of the state investigation, only Guillemette opened the mail and accessed accounts to make transactions and review monthly statements. Members of the board of directors received some reports that documents were not properly scrutinized.

During a search at CareGivers, according to the report, investigators found unopened invoices and financial paperwork tied to Danny’s Team, of which he also had control.

A forensic audit found Guillemette had used tens of thousands of dollars for personal expenses, including paying $16,615 to Rivier University where he was a graduate student. The board of directors did not authorize a tuition reimbursement arrangement.

It is alleged that Guillemette also created a false email account for at least one board member and is suspected of forging that person’s signature to a document and sending it via that fraudulent email account.

You can read the full report here.

Theft Results In Probated Sentence

A former nonprofit executive was ordered to pay $128,900.80 in restitution and fees after pleading guilty to third degree felony theft from the San Angelo Emergency Corps. Clinton Cory Pelzel, 41, stole more than $100,00 from the organization across five years.

The theft was discovered in 2016 and is just now being adjudicated. Pelzel spent the money on personal expenses while he was treasurer of the organization. The cash had been donated to the organization, according to arrest reports.

According to prosecutors, Pelzel was fired from a security-system firm when it was found a doctor’s note he handed in was forged. When cleaning out his desk, another employee found suspicious bank statements. Those documents were given to a manager at the business. Those documents included photocopies of checks and documents that appeared altered, payee information and dollar amounts, according to prosecutors.

Pelzel received five years deferred adjudication, which means he’ll not have a conviction on his record so long as he complies with terms of the deal. That deal includes not to handling money for any business and not serving on any board or holding any office in any fiduciary capacity. He could have been sentenced to up to 10 years in prison and fined $10,000.

The thefts occurred between January 2011 and December 2015 while Pelzel was treasurer of the organization. According to gosanangelo.com, the website of the San Angelo Standard-Times, 391st Judicial District Court Judge Brad Goodwin asked him where the money is now and Pelzel responded that he didn’t have it.

Foundation Exec Pleads Guilty To Fraud

A former accountant of the Saint Luke Foundation in Kansas City, Mo., has pleaded guilty to fraud for stealing a half million dollars during more than a decade of swindling. The foundation is an arm of the St. Luke’s Hospital and Health System.

Kathleen Frederico, 51, faces 20 years in prison without parole after pleading guilty to wire fraud in federal District Court for the Western District of Missouri. She allegedly spent the money, the two related schemes, on online pharmacy purchases, shopping, travel and general expenses. Prosecutors charged that the thefts occurred between June 2013 and March 2017. She was fired 11 months later.

Frederico admitted in court to making unauthorized checks payable to herself and creating fake invoices to hide the theft. She also created unauthorized checks with which she paid her credit card bill and relatives.

The thefts totaled $557,675, according to prosecutors.

The foundation released a statement after the pleading. “Results of an independent forensic audit commissioned by Saint Luke’s Foundation leadership in 2018 revealed potential financial misconduct by a former Foundation employee. These findings were reported promptly to the appropriate authorities. While their investigation got underway, we partnered with auditors and forensic accounting experts to ensure best practices in financial management and oversight were firmly in place. Today, we extend our gratitude to law enforcement for their support and diligent efforts on our behalf, and thank them for the successful resolution of this case.”

AGs Get $1.8 Million Settlement, Charity Leader Banned

Complaints filed by the Federal Trade Commission (FTC) and state charity regulators in six states – California, Florida, Maryland, Minnesota, Ohio and Oregon – have yielded a $1.8 million settlement against a sham veteran charity.

Regulators filed a 78-page complaint last summer in U.S. District Court for the Middle District of Florida, Orlando Division against Help the Vets, Inc. (HTV), in conjunction with “Operation Donate With Honor,” aimed at cracking down on dubious veteran charities.

    Orlando, Fla.-based HTV raised $20 million over three years, operating under difference names, including:

  • American Disabled Veterans Foundation;
  • Military Families of America;
  • Veterans Emergency Blood Bank; and,
  • Veterans Fighting Breast Cancer.

Neil G. “Paul” Paulson, Sr., was the only employee and president of HTV until 2016. He unsuccessfully challenged incumbent Orlando Mayor Buddy Dyer in 2015 and briefly ran for state Agriculture Commissioner in 2017.

California Attorney General Xavier Becerra announced the settlement on Friday. Earlier in the week, Becerra announced a lawsuit against Aid for Starving Children, a Santa Rosa, Calif.-based charity that he alleged overvalued Gifts In Kind (GIK) donations.

The court approved a permanent injunction in November, securing a $20.4 million judgment. HTV and Paulson were ordered to pay more than $1.8 million. In addition, the court approved distribution of $911,906.37 each to two legitimate veteran charities: the Injured Marine Semper Fi Fund in Quantico, Va., and Hope for the Warriors in Springfield, Va.

State charity regulators alleged that HTV “misled donors about the good their charitable donations would accomplish, and prevent millions of dollars from going to legitimate charities that do help wounded and disabled veterans.” Under the settlement, Paulson and HTV will be banned from soliciting charitable contributions and also bans Paulson from charity management and oversight of charitable assets.

The complaint charged that Help the Vets improperly inflated how much it spent on programs. The charity reported spending $12 million on a family retreat program that distributed time-share vouchers based on their supposed fair market value, even though HTV paid nothing for the vouchers and virtually no veterans used them.

California AG Continues Targeting Gifts In Kind

The California Attorney General’s Office filed another lawsuit against a charity that officials claim has overvalued donated pharmaceuticals.

In a complaint filed Wednesday in California Superior Court of Sonoma County, Attorney General Xavier Becerra claimed that Santa Rosa-based Aid For Starving Children made misrepresentations in its charitable solicitations and in reports filed with his office. It is also alleged that directors breached their fiduciary duty.

Listed as defendants are the charity’s directors: Chairman Dr. Monte Wilson of Georgia, Joseph Spiccia of Georgia, Warren Hays of Sonoma County, secretary/treasurer Jeffrey Baughman of Ohio, and Chief Financial Officer Wendy Swezy of Sonoma County. Also named as defendants are Lane Phillips and Paul Kelley. The lawsuit notes that Wilson also has a consulting contract with Aid for Starving Children, and Spiccia “had, and may continue to have,” a mail order contract with the charity.

Wilson has served as director since at least 2012 and is listed as president, at an average 10 hours per week and reportable compensation of $30,000, according to the organization’s Internal Revenue Service (IRS) Form 990 for the year ending April 2018. On Schedule L, “Transactions with Interested Persons,” indicates Wilson was compensated $30,000 for “professional fees for services.” Swezy is listed at an average 20 hours per week, with compensation of $29,578, in the position since at least May 2017. Spiccia and Phillips had served on the board since at least 2012 though May 2017 while Baughman and Hays have served since 2012 to the present, according to the suit. Kelley has been on the board since at least May 2017.

Aid for Starving Children was founded in 1981 as The American/African Education Foundation before changing its name in 1989 to American/African Self-Help Foundation, and again in 1999 to African American Self-Help Foundation. The charity took its current name in 2011, according to the court filing.

The charity reported total revenue of $14.4 million, with $12.2 million of that in the form for donated drugs and medical supplies. The lawsuit alleges that Aid for Starving Children used donations of commonly prescribed drugs in the United States unrelated to hungry children, including drugs to treat high cholesterol and post-menopausal women, to boost its revenue significantly. Donated pharmaceuticals that are restricted for use overseas can be valued based on U.S. prices, according to Generally Accepted Accounting Principles (GAAP), an issue that’s come up in the nonprofit sector over the years.

Aid for Starving Children claimed approximately $105 million in revenue between May 2011 and April 2018, with roughly $97.4 million (93 percent) of that in reported value of Gifts In Kind (GIK), according to the lawsuit. Of the remaining $7.4 million in cash revenue, the charity paid $6.2 million in salaries, consulting contracts and fundraising expenses, the lawsuit stated, leaving $1.2 million for programs. The $97 million in GIK “consists almost exclusively of purported donations of pharmaceuticals it received from third parties” which the organization then distributed outside the United States.

As part of its GIK program, Aid for Starving Children does not receive drug shipments directly from pharmaceutical manufacturers, according to the suit. “Drugs are generally ‘donated’” to the charity by another nonprofit, without “any documentation to establish how the donor nonprofit came into possession of the drugs, or whether that donor had proper ownership of the drugs before they were ‘donated.’”

Aid for Starving Children worked with Charity Services International (CSI). The now-defunct Fort Mill, S.C.-based for-profit company would locate a shipment of donated goods, match it with a client charity, then ship them overseas in their client’s name, in exchange for a “procurement fee.”

CSI has been mentioned in previous GIK lawsuits and settlements but not named as a defendant, just as in this case, including the historic Cancer Fund of America in 2015 and a $25 million settlement with the New York Attorney General in 2014 involving a charity called Disabled Veterans National Foundation. An undated message on its website indicates that it closed: “After nearly a decade of providing dedicated logistics to the non-profit sector, Charity Services International is shutting its doors. To all of our clients, past and present, thank you for your custom. It was a pleasure to serve you and we wish you all the best for the future.”

Aid for Starving Children was alerted in March 2012 by the IRS that its GIK program had “certain deficiencies” as far back as 2006 and 2007 but records don’t demonstrate that it followed recommended actions, according to the lawsuit. World Help, a charity which revised its finances after realizing GIK overvaluations, donated drugs to the organization in 2013 but informed Aid for Starving Children that it could not document proper ownership of shipments.

Without some of the questionable GIK drug donations, the lawsuit claims that the charity’s fundraising ratios over the past several years would be more like 2 to 6 percent, instead of the 25 to 65 percent it boasted in Combined Federal Campaign (CFC) materials. The AG’s lawsuit also includes examples of what it calls misleading mail solicitations.

The California Attorney General has been active when it comes to charity GIK programs. In January, Becerra announced a $410,000 settlement with Giving Children Hope over misleading reports involving GIK valuations and three other charities have defended cease-and-desist orders over their valuations for more than a year.

Becerra recently sponsored legislation, introduced by Assemblywoman Monique Limón, that would require charities operating in California to consider donor restrictions when valuing GIK, such as pharmaceuticals restricted for use overseas that would be valued as overseas prices and not U.S. prices. The measure, A.B. 1181, passed the Assembly and was assigned to the Senate Judiciary Committee.