DATELINE: June 3, 2009, Chicago
On June 1, 2009, the New York Post reported that AIG was trying to recover a $490 million charitable endowment from the Starr International Foundation. Paul Tharp, AIG Charity Grab: Bids to Claw Back Grants to Pay Bonuses. There couldn’t be a more explosive story: The most hated corporation in America seizing assets from charities to pay its executives larger bonuses. We were so excited. In fact, based on the article, we gave some consideration to filing a report under the IRS whistleblower program, hoping to cash in when the IRS revoked the Starr International Foundation’s tax-exempt status. But we stopped and read the story closer before completing and filing IRS Form 211. To be blunt, the story makes...
The Desktop Guide is Quickly Becoming the Must Have Guide for Nonprofit Executives Jack Siegel knows his way around this backwater...Best of all, he doesn't write like an accountant (in deference to my brothers and sisters a the bar, I avoid adding lawyers to the assessment). His guide is to the point, practical, and readable....Even though the subtitle of this worthy book is Avoiding Trouble While Doing Good, doing good well is the book's operative theme. Some of our readers have followed the link to the Amazon.com Web site, but apparently have not bought the Guide. If they were turned off by the price, they should reconsider. One prominent attorney in the exempt organization field grabbed a review copy of the Guide and couldn't put it down. She has instructed a number of her clients to buy it, pointing out to them that for less than 1/2 hour of her billable time, they receive a lesson (and resource) that tells it like she would like it told. If you are starting a new charity, the Guide could save you thousands of dollars in legal fees by teaching you how to better utilize your legal counsel and framing the issues so you don't spin your wheels at $400 an hour.
Jack Siegel's book, A Desktop Guide for Nonprofit Directors, Officers, and Advisors: Avoiding Trouble While Doing Good, has quickly become the go-to guide for nonprofit executives and advisors. So what are people saying about the Guide? In the October 2007 edition of the The Federal Lawyer, New York lawyer George W. Gowen and nonprofit authority, wrote:
Buy your copy today at Amazon.com, Barnes & Noble, or John Wiley (the publisher).
no sense. It appears to be a journalistic disaster.
In an effort to get to the bottom of the story, we searched both the PACER and New York Court online electronic filing systems to locate the complaint that AIG would have filed to commence the suit. We couldn’t find a relevant lawsuit that included the Starr International Foundation or the Starr Foundation in the case caption. Unfortunately, but not unexpectedly, we found 54 pages of listings naming AIG in the caption, but we weren’t about to take the hours that it would have been necessary to examine all 54 pages of listings.
Now for the problems with the story:
Problem 1: Reporter Tharp refers to the charity as the Starr International Foundation. There is a slight problem here. A search of IRS Publication 78 returns no charity named “Starr International Foundation.” Nor does a search of the GuideStar database. GuideStar has the returns for the Starr Foundation, a Section 501(c)(3) private foundation. This is the endowment that Reporter Tharp apparently is referring to in his article. Such sloppiness might be excusable if AIG existed as a single corporation. It doesn’t. Its corporate structure is byzantine, with dozens if not hundreds of affiliated entities. Any reporter writing about a corporate group as complex as the AIG affiliated groups needs to be very careful when referring to entities. Given AIG’s international presence, a Starr International Foundation could easily be organized and operating in Bermuda, Jersey, or the Cayman Islands.
Problem 2: The article then turns to an offshore corporation formed by Hank Greenberg and known as Starr International Co. It is pejoratively referred to as a piggy bank used to “build up nest eggs and bonuses for retiring [AIG] executives.” After the AIG bonus fiasco of several months ago, we were like a rabid dog after reading that sentence. What scum, using a piggy bank to pay bonuses, particularly “his” piggy bank.
Problem 3: We don’t know the facts or the allegations in the lawsuit. We have contacted AIG to obtain a copy of the complaint so that we can better understand the suit, but based on Tharp’s confused reporting, we suspect that the suit is over what might be characterized as a fraudulent conveyance. The article’s headline strongly suggests that AIG is taking money from a charity. The first paragraph reinforces the headline, when is says AIG “is trying to seize a $490 million charitable endowment—and claw back $27 million is already awarded to New York charities—to pay executive bonuses.”
If someone made unauthorized or illegal transfers of assets to a charitable foundation, AIG or whoever is the appropriate party has every right to seek the return of those assets. AIG may be evil incarnate in the public’s eyes, but it still has rights. If someone breaks into my house, steals my stereo, and donates it to charity, I have the right to recover the stereo from the charity even though widows and impoverished children are enjoying my Bill Cosby CDs. AIG has the same rights as everyone else, although we are unable to say whether its claim is meritorious because we don’t know the facts.
In short there is a complete disconnect between the story’s initial paragraph and what is reported later in the article. Reporter Tharp needed to do a better job of bridging or explaining that disconnect.
Problem 4. Language deeper in the story suggests that the foundation was set up to reward AIG or Starr International Co. employees. We can’t tell who the employees work for because Reporter Tharp “uses" the term company without being clear about which company he is referring to, but here is what Tharp says:
AIG says it has the right to seize the stock because Greenberg set up the company specifically for company employees. The insurer says in a legal filing that it needs the foundation's money "for the exclusive purpose of being distributed to AIG employees in the future."
To suggest that a charitable foundation has existed to pay bonuses to the employees of a for-profit entity without more detail indicates a reporter who knows nothing about charitable or tax law. It is highly unlikely (inconceivable) that the foundation would have ever received tax-exempt status if its mission was to reward to AIG employees. It is almost embarrassing to have explain why, but for those who don’t know the most fundamental law governing tax-exempt entities, the structure would never work because of the private benefit doctrine. Even more fundamentally, the foundation would have lacked a qualifying charitable purpose. Nor would the York Attorney General tolerate charitable assets being diverted to reward insurance executives.
We refuse to apologize to Reporter Tharp for being so snarky. Normally we aren’t, but he obviously was infatuated with the possibility of starting yet another firestorm over AIG bonuses. The problem: In the rush to make headlines, Reporter Tharp forgot to check the facts and circumstances. This was a botched story and the Post owes AIG both an apology and a correction. In fact, the entire story needs to be rewritten so that the truth is known.
For the record, this is the response we received from AIG when we contact them:
Thanks for calling. The Post has its facts wrong. AIG isn’t trying to take anything from charities. It is seeking to recover from SICO more than $4 billion in value that belongs to AIG shareholders and American taxpayers. Instead of using transparent tactics to delay and confuse, Maurice “Hank” Greenberg should return the value he took inappropriately or defend his case in open court, for all to see and hear.
On June 15th Mr Greenberg will finally have explain in open court why he caused Starr International Company, Inc. (“SICO”) to abscond with 290 million shares of AIG stock after he was forced out of the company for his refusal to cooperate with an accounting investigation.
From 1970 to Greenberg’s ouster in 2005, SICO was the compensation trust for AIG’s employees. The evidence at the trial will show that during his tenure as AIG’s CEO, Greenberg personally and repeatedly promised that SICO’s AIG shares would always be used only for the purpose of compensating current and future AIG employees. Yet Greenberg took the shares when he left AIG amid accounting scandals that marked the beginning of AIG’s downfall. AIG is asking the court to put those shares back into the hands of a reliable trustee who will put the shares to work for AIG and American taxpayers.
Now, with the trial only days away, Greenberg is trying to convince the world that SICO is a charity. SICO certainly wasn’t a charity before this lawsuit began. In fact, SICO only donated 0.005% of its worth. Only after AIG brought this action did SICO suddenly and cynically show charitable tendencies. Mr. Greenberg is dressing up SICO in a veneer of philanthropy just like a defendant who buys a new suit for the courtroom.
In another desperate maneuver, Greenberg has made an 11th hour call to cancel the public trial and move the dispute into a private “binding arbitration”, knowing full well that all the time and expense of preparing for trial will be wasted and that starting an arbitration process will likely result in years of delay and even more expense.
| THE FOREGOING IS NOT AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. IF LEGAL ADVICE IS REQUIRED, THE NONPROFIT OR OTHER PARTY IN QUESTION SHOULD SEEK THE ADVICE OF QUALIFIED LEGAL COUNSEL.
If you liked this post, please visit http://www.charitygovernance.com for a description of our training and consulting services. You will also want to acquire a copy of Jack Siegel's book, A Desktop Guide for Nonprofit Directors, Officers, and Advisors: Avoiding Trouble While Doing Good." Copyright 2009, Charity Governance Consulting LLC. All Rights Reserved. You may not copy any portion of this post to a computer "clipboard" for re-posting anywhere or e-mailing, or otherwise reproduce this post. If you want others to review this post, you may provide them with a link to this web blog. Any use of the material or ideas in this post by reporters or other publishers shall make reference to Jack Siegel, author of "A Guide for Non-Profit Directors, Officers and Advisors: Avoiding Trouble While Doing Good" and this web blog. For additional information call 773-325-2124 |
