This story has been updated to include a quote from FJC.
Yisroel Schulman, former president and attorney-in-charge for New York Legal Assistance Group (NYLAG) reached an agreement with the office of New York Attorney General Eric Schneiderman this week over allegations of breached fiduciary duties.
Schulman, as part of the settlement, has admitted to numerous breaches of fiduciary duties and has agreed to pay $150,000 to NYLAG, an organization that provides civil legal services for those unable to pay a private attorney. He will be prohibited from serving as director or an officer of a nonprofit in the state for the next five years, according to a press release from Schneiderman’s office.
The investigation and related complaint described transgressions dating back to at least 1998 and through at least 2013 in which Schulman diverted approximately $2.3 million from NYLAG to concealed NYLAG donor-advised funds (DAFs) as well as unrelated, individual DAFs. Schulman reportedly transferred $1.7 million back to NYLAG in a manner intended to hide his previous actions.
Schulman opened over a dozen DAFs and similar accounts at FJC: A Foundation of Philanthropic Funds. Schulman also admitted that he caused funds granted by FJC to benefit him personally without informing FJC. By transferring assets to FJC DAFs, reporting was minimized, leading to misleading annual reports filed with the state’s Charities Bureau.
By January of 2015, following the receipt of federal grand jury subpoena and internal investigation by NYLAG, Schulman had not yet replaced $800,000 in diverted funds and unrealized potential interest.
The diversion toward DAFs to hold organizational funds, as opposed to a bank or investment account, violates duties to safeguard assets because when donors contribute funds to accounts they give up legal ownership of them, unlike a traditional investment, according to the release. DAFS are also not subject to regulatory oversight such as anti-money laundering.
In addition to personal financial benefits, Schulman reportedly inflated his social reputation by appearing to be a larger benefactor than he otherwise could have been using his own personal funds.
“Officers have a responsibility to the charities they serve and the donors who entrust them with their contributions,” said Schneiderman. “Today we’re making clear that there are consequences when charities are used as personal slush funds.”
Both NYLAG and FJC cooperated with the investigation and have adopted related internal reforms. NYLAG has hired a new president, new CFO, and modified internal policies. FJC has agreed to cease offering DAFs and similar accounts to charities for investment purposes and heighten monitoring of DAFs, among other reforms for at least the next three years.
“We applaud the actions of Attorney General Schneiderman in detecting and stopping the fraud perpetrated on FJC,” said a FJC spokesperson via email. “We were pleased to assist in the investigation and look forward to continuing to work closely with the Attorney General and his Charities Bureau to ensure the integrity of the nonprofit sector and the protection of charitable assets in the State of New York.”