CharityWatch Hall of Shame - charitywatch.org

CharityWatch Hall of Shame

—published in the December 2011 issue of the Charity Rating Guide & Watchdog Report

In 2012 we will be celebrating the 20-year anniversary of the American Institute of Philanthropy. With this significant milestone we are happy to announce that we will now be known as CharityWatch—a name that better reflects our role as the independent, aggressive charity watchdog you have relied on to expose abuses and advocate for your interests as a donor. What better way to celebrate our anniversary than to share with you the personalities behind the major charity scandals that inspire our work and illustrate the importance of a tough charity watchdog that is unafraid to challenge wrongdoing. The most important lesson to be learned from the following colorful stories of charity scoundrels is that regardless of how distinguished, well-connected and honored a charity leader is, he is only human and may be tempted to use the power and influence of his position to abuse the public's trust and thusly become the next member of the CharityWatch Hall of Shame.

The late Father Bruce Ritter founded Covenant House (CH) in 1972 to create a safe shelter for homeless teenagers. The organization had its humble beginnings in Ritter's shabby New York apartment where he first began providing housing for homeless youth. CH quickly grew into one of the most well-regarded charities in the nation. Ritter was called an "unsung hero" by President Reagan and was applauded by the first President Bush and Mother Teresa, alike. But underneath all of this public acclaim, rumors had circulated for years of sexual relations between Ritter and residents of CH, according to a report commissioned by the charity.

Four men stepped forward between 1989 and 1990, according to Time magazine, accusing Ritter of having sexual relationships with them while they were under his care. Ritter allegedly diverted up to $25,000 in CH money to finance one of these affairs, according to Time. Although Ritter denied these allegations, he stepped down amidst the scandal. CH then launched its own investigation into the priest. The resulting report cited 15 cases of reported sexual contacts between Ritter and people sheltered or working at CH. The report concluded that evidence "that Father Ritter engaged in sexual activities with certain residents and made sexual advances towards certain members of the Faith Community is extensive."

The investigators also found what they described as minor financial irregularities at CH. According to the report, Ritter diverted CH funds to the Franciscan Charitable Trust, an organization he founded, and loaned charity money to two senior staff members who later resigned. The report also noted that CH had been structured so that Ritter had complete legal and operational control over its affairs, giving the board little authority or oversight powers.

William Aramony served for 22 years as president and CEO of United Way of America (UWA), the umbrella group for thousands of local United Way organizations that fund social and human service projects nationwide. In 1992, Aramony resigned amidst allegations that he siphoned money from UWA through spin-off companies he helped to create. Before the scandal broke, Aramony was widely respected as one of the most influential nonprofit leaders of his time. He even had a hand in creating many of the rules under which charities operate today. In 1995, Aramony and two conspirators, Thomas Merlo and Stephen Paulachak, were convicted of defrauding UWA. Aramony was convicted on 25 felony counts and sentenced to seven years in prison for fraudulently diverting $1.2 million of the charity's money to benefit himself and his friends.

This scandal is especially memorable given how Aramony chose to use some of the charity's funds. For instance, he used UWA cash to woo a girl, Lori Villasor, who was only 17 years old when they began dating; Aramony was 59. He met Villasor while dating her slightly older sister. Both young women were added to UWA's payroll. For his notoriously young girlfriend, Aramony spent $450,000 of the charity's money to purchase and lavishly furnish a New York condo; $78,000 to chauffeur her around New York City; and $4,800 to renovate her home in Florida. The couple vacationed in Egypt, London, Las Vegas, and Atlantic City. The New York Times reported on the testimony of Aramony's former aide, Rina Duncan, with whom he also had an affair. Duncan testified to falsifying Aramony's expense records for seven years so that he could charge the charity for things like champagne, flowers and plane tickets for Villasor.

Aramony was also known for treating female employees inappropriately. He offered some women financial benefits if they had sex with him and would transfer those who declined, according to the indictment. Aramony's lawyer claimed there were medical reasons for his client's behavior, arguing Aramony's ability to control impulses was impaired by brain atrophy.

When Aramony resigned amidst scandal in 1992, the organization's growth in contributions stalled for a few years. CharityWatch president, Daniel Borochoff, remarked in USA Today in 1995 as to how the scandal influenced public perception of charities, saying, "It created a climate where donors are more questioning. They want to know more about how an organization is governed and the ethics of its leaders."

In 1989, philanthropist and entrepreneur John Bennett, Jr. founded the Foundation for New Era Philanthropy (New Era), an organization which boldly promised to double the investments of nonprofits. In reality, New Era was nothing more than a Ponzi scheme that, at the time of its collapse, was considered the biggest financial scandal in the history of American charities. Victims lost $135 million to New Era over its five and a half years of operation.

New Era's premise was simple: a nonprofit would deposit money with New Era for a period of time. At the end of the holding period, the deposit would be matched by an anonymous donor and the now doubled funds would be sent back to the nonprofit. In reality, New Era was paying its original investors with money from new investors. It covered any shortfalls with loans that eventually totaled $50 million. In 1995, New Era's loans were called in. Unable to repay them Bennett was forced to place New Era into bankruptcy and admit that his anonymous donors never existed.

In 1996, Bennett was charged in an 82 count indictment. Evidence showed that Bennett siphoned approximately $7 million from New Era for personal expenditures, including transferring charity funds to his own for-profit businesses. In 1995 he also used New Era funds to buy a Lexus and to pay himself an average of $26,785 per week in consulting fees. In 1998, Bennett was sentenced to twelve years in prison for his crimes.

Bennett was able to cover his tracks for so long by giving false information to both regulators and investors. For example, in correspondences with the IRS, Bennett misrepresented New Era's assets, listed fictitious board members, and submitted fabricated board meeting minutes. He also used his reputation as a leading Christian figure to disarm donor suspicions. Bennett was able to secure donations from prominent donors such as Laurance Rockefeller, the brother of David Rockefeller, and former Treasury Secretary William Simon; and investments from major nonprofits like American Red Cross, World Vision, and Nature Conservancy. The caliber of those associated with New Era helped attract others. As quoted by the Associated Press, CharityWatch President Daniel Borochoff commented that nonprofits "evidently saw New Era making money for a competitor and just played follow the leader, gambling away their individual donor contributions for snake oil."

Hale House (HH) was co-founded in 1969 by Clara Hale, a Depression era widow known for taking needy children into her home, earning her the affectionate title "Mother Hale." For decades, HH provided help for children touched by poverty, drug abuse, and AIDS. Sadly, Clara Hale's daughter and HH co-founder, Lorraine Hale, tarnished the legacy of her mother and the image of the venerable charity when she took over after her mother's death in 1992.

Extravagant spending by Lorraine Hale and her husband, Jesse DeVore, who was employed as HH's public relations director, was widely reported in the media. The New York Daily News exposed that Hale House Foundation (HHF), a separate fundraising arm of the charity, spent $444,953 on a bronze statue of Mother Hale in 1995. HHF also amassed an art collection valued at $440,133, according to the paper, most of which Lorraine Hale used to adorn her private office. The New York Times reported that HH employees overheard DeVore refer to the shelter's children as "cash cows."

In 2002, Hale and DeVore were criminally indicted by then New York Attorney General Eliot Spitzer for stealing over $700,000 from their charity. AG Spitzer also filed a civil suit against the two, seeking the recovery of over $1 million in charity funds that Hale used to pay her property taxes, install a jacuzzi in her home, pay her brother's legal expenses, and give $500,000 to her husband's failed theatrical production. That same year, Hale and DeVore pled guilty to stealing Hale House funds and falsifying business records.

Roger Chapin, a self-described "non-profit entrepreneur," has founded more than thirty charities and advocacy projects over the past forty-four years. His causes have ranged from curing Alzheimer's disease and cancer, to assisting veterans. Unfortunately, Chapin's track record often shows that he uses his charities to enrich himself and his friends while spending too little on funding the causes he touts. The U.S. House Committee on Oversight and Government Reform subpoenaed Chapin in 2007 when he refused to voluntarily testify at its hearing on rampant financial inefficiency at many of the nation's veterans charities. Chapin was later compelled to testify at a second hearing in early 2008.

Congress' investigation confirmed CharityWatch's previous findings that only about 25% of the $168 million raised between 2004 and 2006 by Chapin's veterans charities, Help Hospitalized Veterans (HHV) and Coalition to Salute America's Heroes (CSAH), went to veterans. During the same period Chapin and his wife received $1.5 million in compensation, plus $340,000 to cover restaurant, hotel and other expenses. $446,000 of charity funds were used to purchase a condo for use by Chapin and his wife, according to the investigation. Chapin hired his long-time friend and direct mail expert, Richard Viguerie, to conduct fundraising campaigns for HHV, paying Viguerie's company $14 million between 2000 and 2005.

Chapin is highly skilled at painting his charities in a favorable light for potential donors, often using celebrities to promote his nonprofit endeavors, or employing accounting tricks to inflate his charities' financial efficiency. For example, CSAH paid $100,000 to General Tommy Franks in exchange for his endorsement, the congressional investigation revealed. CharityWatch president, Daniel Borochoff, who was invited to provide advice and expert testimony at the hearing, alerted the Committee about unusual or inefficient financial transactions at Chapin's charities. In 2006 HHV and CSAH each counted the same donated "phone cards," valued by the charities at $18.7 million, as a contribution and program expense in their financial statements. These cards could not be used by soldiers overseas to call home, but rather to listen to sports scores and hear advertisements. Combined with $2 million in donated public service airtime, the cards accounted for 85% of CSAH's reported programs expense in 2006. This financial reporting made Chapin's charities appear to be highly efficient even though most of the charities' cash was not going to veterans.

When Chapin retired from HHV in 2009 he rewarded himself, with approval from his charity's board of directors, with a generous $1.9 million payout which HHV claimed was for "retirement." This payment was in addition to the years of annual, multiple six-figure salary and benefits he received while serving as president of the organization. Chapin continues as president of CSAH and a newer nonprofit he founded, Help Wounded Heroes.

CharityWatch members are certain to be familiar with Larry Jones, whose antics as president of F rated Feed the Children (FC) earned the group the moniker "Most Outrageous Charity in America" from CharityWatch. Jones is also famous for appearing in FC's television infomercials that featured malnourished children in impoverished areas around the world. During Jones' nearly three decades as president of the charity, FC was plagued by financial impropriety and mismanagement. For example, in 1999 an investigation by television station WTVF revealed that local FC executive staff in Nashville regularly took boxes of donated goods for themselves from the FC warehouse. That same year The Daily Oklahoman reported that FC allegedly attempted to pressure the newspaper into not reporting on Jones' son, Allen, who had filed for personal bankruptcy and revealed that he owed his father's charity $950,000. The paper's editor reported that Jones said he would give the newspaper a story "twice as good" if it did not publish its story. CharityWatch sounded the alarm bell when it came out that FC's former chief financial director confessed to forging the signature of the accounting firm Arthur Andersen on FC's 1997, 1998, and 1999 financial statements. Jones also had a history of making major decisions without board approval, including awarding a $40 million annual, no-bid television buying agreement to Affiliated Media Group, a company that employed Jones' son, Allen.

Despite the numerous scandals that took place under Jones' leadership, he remained at the charity for nearly three decades before FC's board finally took action. The final straw was Jones' 2009 admission that he had authorized the wiretapping of FC's offices in order to secretly record his conversations with his employees. FC's board decided to put an end to his "freewheeling dominance" over the charity, demanding that Jones take a sabbatical for an indefinite period of time. Jones did not go away quietly. He attempted to install a new board who would be loyal to him. When that failed and he was fired, Jones responded with a wrongful termination suit.

The charity responded with a countersuit alleging that Jones took kickbacks from vendors, lied to FC's board about giving himself and his wife unauthorized raises, misused charity funds, and had a large stash of pornography hidden in his private area at this Christian charity. In January 2011, Jones and FC announced a resolution of the legal dispute. Jones is no longer associated with the charity he founded, which continues to receive an F rating from CharityWatch.

'Bobby Thompson' pictured in 2006 and 2008

A man who assumed the stolen identity of "Bobby Thompson" disappeared in June 2010. He's now on the lam with a nationwide warrant for his arrest for crimes including corruption, theft, and money laundering associated with his sham charity, The United States Navy Veterans Association (USNVA). Thompson gained credibility for his organization, and donors' trust, by claiming that he and other charity officers were ex-military men, and that USNVA had been in operation since 1927 with dozens of local chapters throughout the U.S. The charity's website boasted of 66,000 "members," cited substantial contributions from nonexistent foundations, and featured thank-you notes from soldiers USNVA purported to have helped. An in-depth investigation conducted by the St. Petersburg Times exposed USNVA to be virtually a one-man operation run out of a Florida duplex by an unidentifiable man with no record of military service. By the time Thompson's deception was uncovered he had already succeeded in bilking donors out of nearly $100 million over a seven year period.

Thompson's con extended beyond charity fraud to influencing legislation. He hired a lobbyist to persuade Senator Patsy Ticer to sponsor a Virginia state law exempting certain veterans groups like USNVA from registration that discloses financial activities and other information for public scrutiny. Senator Ticer agreed to sponsor the bill, and by the time she became aware of the serious problems at USNVA it was too late to prevent it from becoming law. Thompson also contributed $67,500 to Virginia politicians. After the USNVA scandal broke all of them eventually agreed to donate those monies to other veterans charities.

Thompson disappeared just as several states began investigating USNVA, with Ohio's attorney general (AG) taking the lead. In October 2010, an Ohio grand jury indicted Thompson and Blanca Contreras-a former citrus processing plant employee who had signed USNVA registration papers in several states claiming to hold executive positions at the group. Contreras was arrested and pled guilty to charges including corruption, theft, and money laundering. She is currently serving a five-year sentence in Ohio. According to a press release from the Ohio AG, the state "won a default judgment for $3.7 million plus attorney fees" from USNVA, having "proved the organization had falsely claimed to raise money for US veterans' causes; in reality, very little money ever went to help veterans."

Greg Mortenson photo courtesy of Wikimedia Commons

Greg Mortenson, founder of the Central Asia Institute (CAI) and author of New York Times best selling books Three Cups of Tea and Stones into Schools, was the darling of philanthropic and literary communities until CharityWatch began investigating his charity in 2009. CharityWatch uncovered a serious lack of segregation between CAI's finances and Greg Mortenson's personal business interests. 2009 financials showed that the charity funded Mortenson's book promotion and speaking events, yet it received no revenue from book sales or advertising and little to none of the $25,000 to $30,000 per-event speaking fees Mortenson charged at speaking engagements.

After seeing CharityWatch's articles on the charity, 60 Minutes contacted us for insight into CAI's finances. CharityWatch president, Daniel Borochoff, was later interviewed by 60 Minutes correspondent Steve Kroft for a story that revealed the problems at CAI went well beyond financial mismanagement. 60 Minutes surveyed about thirty schools that CAI claimed to have built, finding that roughly half of them were empty, built by someone else, or not receiving funding from CAI. 60 Minutes also interviewed author and former donor to CAI, Jon Krakauer, who argued that many claims made in Mortenson's inaugural book were fictitious. Mortenson later admitted that events in his books were compressed, but insisted any literary license taken did not amount to lying.

CAI's board confirmed to 60 Minutes that CAI spent only 41% of its expenses on building or supporting schools in 2009, but argued that the funds it spent on speaking events at which Mortenson promoted his books should also be counted as a charitable program. That year CAI spent $1.7 million on book-related costs that included "Advertising, events, film and professional fees, publications (books & freight), and some travel," according to its audit. One attorney who examined CAI's financial activities advised Mortenson and the charity's board that "CAI's outlays for book advertising and travel expenses for Mortenson's speaking engagements appear to be in violation" of IRS rules, and that Mortenson could owe $7.2 million or more for "excessive benefits received during 2007, 2008, and 2009."

The charity's 2010 tax form revealed it continued to spend more on "awareness," including Mortenson's books, than funding schools that year. CharityWatch called for Mortenson's resignation earlier this year, arguing that CAI will be unable to recover from its tarnished reputation with him at the helm. The charity is also under inquiry by the Montana attorney general.