Charity Governance

ATTORNEY GENERAL COAKLEY'S LATEST PROPOSAL COULD DRIVE FOUNDATIONS AND THEIR MONEY OUT OF MASSACHUSETTS

DATELINE:  April 18, 2011, Chicago

Massachusetts Attorney General Martha Coakley took her crusade against director compensation to the next level this past Thursday (April 14), when she released  a letter to officials at Harvard Pilgrim Health Care, Tufts Health Plan, Fallon Community Health Plan and Blue Cross Blue Shield of MA.  The Fallon and Blue Cross boards had already suspended compensatory payments to their board members, but Harvard and Tufts have not.  General Coakley was now issuing her final report regarding director compensation practices at these organizations.

As we have in the past, we will commend General Coakley and her office for making the results of her investigations public.  These releases often set down well-defined markers for members of the nonprofit sector, making it much easier for nonprofits to comply with laws that are often open-ended.  This report, however, is not up to the standards that General Coakley and her staff have set in the past.  We suspect that this is largely because it is results driven.  General Coakley is a politician.  Like all politicians, she can succumb to the madness of crowds.  As a good liberal, General Coakley prefers to blame high health care costs on what she is quick to characterize as greedy providers.  In many instances, we can chalk this sort of rhetoric up to harmless political hot air.  That may not be the case this time.  General Coakley delivers the punch line at the end of her letter:  Her office has proposed legislation...

NOT ALL PUBLICITY IS GOOD, PARTICULARLY WHEN IT COMES TO SEX

DATELINE: May 7, 2010, Chicago

We, like many of the New York Times’ readers, were drawn to Robin Pogrebin’s headline earlier this week:  Tax Break for Erotica? A Museum Favors It  (May 3, 2010).  Any article that begins with a reference to a New York dominatrix in its first sentence is worth a read, even if it doesn’t involve philanthropy.  This article, however, turns out to be a treasure trove, raising an important tax issue.

Although we are frequent visitors to NYC and its museums, we had never heard of...

NICE WORK IF YOU CAN GET IT: THE JUDITH ROTHSCHILD FOUNDATION

DATELINE: March 18, 2010, Chicago

Today’s New York Times carries a front-page story by Kevin Flynn and Robin Pogrebin entitled A Foundation Promotes Art as Well as Its Sole Trustee.  That headline and the story infer scandal.  Sorry, we don’t see it.  An ideal governance structure?  Absolutely not, but we see...

ILLINOIS AND THE BIELFELDT FOUNDATION SETTLE LONGSTANDING LAWSUIT: MONEY TO CHANGE HANDS

DATELINE:  January 19, 2010, Chicago

Illinois Attorney General Lisa Madigan and the defendants in the long simmering dispute involving the Bielfeldt Foundation settled their differences today.  We first wrote about the dispute in 2004 when the lawsuit was filed.

One thing is for sure:  Unlike New Jersey’s current attorney general, General Madigan is...

CALIFORNIA ATTORNEY GENERAL ON THE ATTACK

DATELINE: September 14, 2009, Chicago

The California Attorney General has brought suit against individuals associated with the L.B. Research and Education Foundation (Foundation).  Raja Abdulrahim, UCLA Surgeon Sued for Benefiting From His Own Charity, L.A. Times (Sept. 10, 2009).  Given the allegations in the AG's complaint and the newspaper coverage, we are willing to bet that the IRS will join the fray, if it hasn't already.

The suit names Dr. Gerald D. Buckberg,five others who are or were Foundation officers or directors, and 50 unnamed individuals.  At the heart of the suit are allegations over self-dealing, but the AG has thrown just about everything imaginable at the defendants.  If the facts are anywhere close to the alleged ones, we’d recommend that the defendants...

THOU SHALL NOT INVEST AN ENDOWMENT’S ASSETS BASED ON LOCKER ROOM TALK: SENATOR GRASSLEY SPEAKS

DATELINE: March 12, 2009, Chicago

On Tuesday, Senator Charles Grassley, ranking member of the Senate Finance Committee, spoke at some sort of conference or event sponsored by a Washington, D.C. law firm.  His remarks are up on his Web site and they largely cover ground that Senator Grassley has sown before.  There, however, is...

SENATE FINANCE COMMITTEE IS LATE TO THE GAME: JEOPARDY INVESTMENTS AND THE TURNING TIDE

DATELINE: January 15, 2009, Chicago

Theresa Pattara, an aide to Senator Charles Grassley, told the Chronicle of Philanthropy that Section 4944, pertaining to jeopardy investments by private foundations, might be applicable to foundation managers who authorized the investment of foundation investments with Madoff.  Ben Gose, Senate Aide Says IRS Could Question Board Members Over Madoff Investments (Jan. 14, 2009).  The Senate Finance Committee is a bit late on this one.  We raised this possibility on January 8, 2008, a week ago. 

A word of warning to the directors of family foundations that invested with Madoff.  A month ago, you were viewed as victims of a fraud.  The tide may be changing.  Here we have an influential staff member of the Senate Finance Committee raising the possibility of liability.  Today, the New York Attorney General began poking around, issuing subpoenas to New York charities, among others.  Connecticut’s attorney general also is conducting an investigation into investments by foundations.

Let this be a word of warning to those managing private foundations.  Sloppy investment practices may get you into trouble in the future.  You should be visiting with your counsel now.  As for foundation managers (including directors) of foundations that lost money to Madoff, you should be in talking with your tax counsel about your potential exposure.  Who knows where this is heading.

THE ANSWER IS: THE EXCISE TAX ON JEOPARDY INVESTMENTS; THE QUESTION: WHAT SHOULD SOME FOUNDATIONS THAT INVESTED WITH MADOFF BE WORRIED ABOUT?

DATELINE: January 8, 2009, Chicago

Any lawyer whose law practice focuses on business corporations knows that business corporations effectively subject to different regulatory regimes.  Closely-held corporations are subject to minimal regulation under state business corporation laws.  The owners can select directors, make major decisions, and pay compensation largely as they see fit.  On the other hand, large publicly-traded corporation are subject to lots of regulation and disclosure requirements thanks to federal securities laws.

By and large, state nonprofit laws and regulation of charity do not draw a distinction between private foundations—the equivalent of closely-held business corporations—and the large brand-name charities.   Federal tax law, however, does draw a sharp distinction, but one that is far different than the one drawn between closely-held and publicly-traded business corporations.  Under Chapter 42 of the Internal Revenue Code, private foundations (including family foundations) are subject to far...

SHOULD I STAY, OR SHOULD I GO? NO RESPECT FOR DIRECTORS OR DONORS AT ACORN

Should I stay or should I go now?
If I go there will be trouble
And if I stay it will be double
       The Clash, Should I Stay or Should I Go

DATELINE: June 10, 2008, Chicago

Maude Hurd, the president of ACORN, a nonprofit group, certainly has a warped sense of what is right and what is wrong when she calls ACORN's response to an alleged near-million-dollar embezzlement a judgment call. According to Stephanie Strom's recent reporting in the New York Times last week, the brother of the organization's founder is alleged to have embezzled $948,607.50 from the organization. Funds Misappropriated at 2 Nonprofit Groups, June 9, 2008.  The alleged embezzler, Dale Rathke, apparently also was an Acorn employee. We would like to put that number in perspective by comparing it to ACORN's gross revenue, but we are unable to...

LEGISLATIVE EXTORTION IN CALIFORNIA: FOUNDATIONS SHOULD HAVE MOVED OUT OF THE STATE RATHER THAN SUBMIT

DATELINE: June 25, 2008, Chicago

Several California-based foundations just set a bad precedent. The California legislature was considering legislation—Assembly Bill 624—that would have required foundations with assets of $250 million or more to make certain disclosures regarding diversity. The focus of the disclosures was on board and staff diversity, as well on grant recipients. It had been established that the required disclosures would impose significant and costly compliance burdens on the affected foundations. See our previous post: The California Legislature Should Pass Assembly Bill 624: Then Private Entities Might Finally Teach Overzealous Regulators A Lesson or Two, Feb. 2, 2008.

In order to head off the legislation, ten foundations have agreed to make multiyear grants to charitable organizations that provide services to...