WHAT, ME WORRY? YOU BET: THE KING FOUNDATION WINS A JURY VERDICT AGAINST FORMER OFFICERS

On Friday, June 11, 2004, a Texas jury delivered a stunning verdict, bringing the two-week trial of two foundation officials to a dramatic conclusion..  The suit was brought by the Texas Attorney General and the Foundation’s new board of directors against Carl Yeckel and Thomas Vett, former officers of the Dallas-based Carl B. and Florence E. King Foundation.  The Attorney General claimed that the compensation and expense reimbursements paid to these two individuals were excessive.  The jury

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agreed, deciding Yeckel and Vett should repay over $7.5 million to the Foundation.  The jury then slapped the two with  $14 million in punitive damages.

Executives of non-profits, particularly private foundations, should view this decision as an important milestone.  Over the last several years, a number of private foundations have received criticism about what some view as excessive compensation and perks.  You can expect other state charity officials to be inspired by the King Foundation decision.  As just one example, the Boston Globe, in reporting on the King Foundation verdict, added the following to mix:

The abuses at the King Foundation were detailed in a Globe Spotlight series last year, which also revealed that Paul C. Cabot Jr. of Needham had been taking more than $1 million in annual pay from his family foundation, whose assets had dwindled to less than $5 million by last year. Massachusetts Attorney General Thomas F. Reilly is investigating the Cabot trust. (our emphasis)

From Beth Healy, Ex-Officers Ordered to Pay $14m in Texas Charity Fraud, June 15, 2004 Boston Globe

We do not know the specific circumstances surrounding the Cabot trust.  Mr. Cabot may have a legitimate basis for his salary.  What is significant to us is the fact that the Massachusetts Attorney General is willing to investigate. 

The facts in executive compensation cases make for eye-catching headlines, particularly when the salaries and perks are large.  Those headlines makes these cases particularly appealing to state attorneys general, most of whom are elected officials.

A word to the wise:  If you want to keep your large salary, make sure an independent board approves it after full and fair disclosure.  Even then, you had better be able to justify the salary through comparables from other similarly-situated non-profits and demonstrated and documented work on your part.  Don’t forget the New York State Attorney General has a bigger fish (Richard Grasso) on the line (waiting trial in a civil suit).  In short, there is a growing willingness to investigate and prosecute.

THE FOREGOING IS NOT AND SHOULD NOT BE TAKEN AS LEGAL ADVICE.  IF LEGAL ADVICE IS REQUIRED, THE NON-PROFIT OR OTHER PARTY IN QUESTION SHOULD SEEK THE ADVICE OF QUALIFIED LEGAL COUNSEL.