Wednesday, April 3, 2013

Nonprofit Fraud: Are Celebrity Charities Worthy Of Your Support?

    by Gary Snyder

Often well-meaning celebrities jump in to support a charity that has a mission that strikes at your heart. Too often the celebrity and the charity are not a good fit for your charitable dollars.

You may remember that Wycelf Jean’s charity, Yele Haiti, was in the headlines for not filing the legal docs. In 2009 it lost nearly $250,000 for reasons that are unclear. The next year Yele Haiti’s IRS submission showed less than one third of the $16 million in donations were used for earthquake relief efforts.

Yele Haiti’s spending raised a tremendous amount of attention. Based on the charity's tax filings from 2010, $1 million was paid to a non-existent firm, Amisphere Farm Labor Inc. to distribute food. Another $353,983 was doled out to P&A Construction, a company headed by Jean's brother-in-law Warnel Pierre. The charity also gave $250,000 to a Haitian television station run by Jean. Yele Haiti also paid $577,185 to a company called Samosa SA, based in the Haitian capital of Port-au-Prince, as a “bulk water supplier.” But some of that money went to rent a house for Yele Haiti volunteers on Samosa’s property at the inflated price of $35,000 a month. In another instance, the charity paid Lindsay Lohan $30,763 almost fifty percent of the charity’s take on one event. The charity also paid Wyclef Jean $100,000 to perform in his own charity event with tens of thousands of dollars to rent him a studio. A New York attorney general’s investigation covering 2005 and 2010 found $256,580 in illegitimate benefits to Jean and other Yele board and staff members.

If a charity spends money -- including paying someone a salary -- on activities not consistent with its stated mission, that could be a violation of tax law that could draw the attention of the IRS or a state attorney general's office to prosecute.

The Yele Haiti is hardly an isolated case. The following examples just scratch the surface of misappropriation. They are stories of an untold rise in celebrity charity deceit. Added to the thousands of instances of other charity mischief, there is a continued decline in the trust of the nonprofit sector.

A few years ago, Madonna had a dream of building a $15 million school in poverty stricken Malawi. All the money was frittered away without a brick being laid. A friend of a friend ran the charity. Auditors found that cars were bought for employees that were not working for the charity. Design fees to architect, salaries, office space and free housing were “outlandish”. More recently, Madonna has restarted her efforts by helping to build 10 school wings in Malawi.

Lady Gaga was sued in a $5 million class action suit for allegedly scamming a Japan relief charity. The singer said on her website that all proceeds from the sale of the “We Pray For Japan” wristbands were going to the victims of the Japanese earthquake and tsunami. But a Michigan law firm says that’s not true. According to the lawsuit filed, Gaga sold the bracelets for $5, plus $3.99 for shipping and handling, and 60 cents for taxes, but jacked up the price of the shipping costs in an effort to pocket the extra money. A federal suit also claims Gaga never disclosed how much of the $5 bracelets was actually going to Japan relief, even though she included the money she allegedly pocketed as part of her claimed donation.

Several stars like Courtney Cox, Eva Longoria, David Beckham, Sheryl Crow and Jennifer Aniston assisted in raising contributions to Millennium Promise, a charity to end poverty in Africa only to find out that about a half million dollars was pocketed by the founder.

Marg Helgenberger, who was featured on “CSI: Crime Scene Investigation” and in appeals for donations for Help Hospitalized Veterans is withdrawing her endorsement of the latter. The charity is the target of attorney general investigations of “outrageous greed and self-serving practices.”

In response to charges in several publications, Bono was hard pressed to explain why his anti-poverty foundation ONE handed out only 1.2 percent to good causes for the needy.
Danny Glover, Harry Belafonte and other celebrities wanted to assist Vanguard Public Foundation in funding battered women’s shelters and other social causes. As a result of a multi-million fraud, the Foundation ended up in financial collapse.

Mary J. Blige’s Foundation for Advancement of Women Now (FFAWN) was sued which raises money to send several girls to college, her Yonkers Center for Women fund, were slapped with two lawsuits.  One was for failing to pay the musicians' bands from a 2011 FFAWN Gala, and a second for failing to repay a bank loan for $250,000. And only $368.33 was repaid. Blige’s charity has no office, no phone number — and hundreds of thousands of dollars in missing donations. Blige readily admitted that "it happens that FFAWN has been mismanaged” The mismanagement is due to incompetence from a former staffer, said an associate.

The California Attorney General's Office of Charitable Trust investigated the Farrah Fawcett Foundation for potential mismanagement of funds, diversion of assets, and fraud.

In honoring her late father Robert Kardashian, Kim Kardashian admitted while promoting a Dream Foundation auction that a mere 10 percent was going to charity. A representative of the foundation said, “10 percent is significant when considering the number of dreams that have been fulfilled as a result”

Athletes Abuse

An "Outside the Lines" investigation of 115 charities founded by high-profile, top-earning male and female athletes has found that 74% of their charities don't measure up to what charity experts would say is an efficient, effective use of money.

Lamar Odom's charity in 2004 through 2011 was set up to fund children’s cancer, but ended up supporting two elite youth basketball travel teams. Of the $2.2 million raised by the charity, at least 60 percent -- $1.3 million -- went to those AAU teams. He and his wife dispute the reference to AAU.   The charity operated at a loss since its inception. Its 2011 tax returns show it $256,000 in debt, mostly stemming from a loan Odom made to the charity, according to his business manager who is the charity's treasurer.  Apparently not one dime was given to help cancer children in need.

Former Chicago Bears player Chris Zorich was ordered by the Illinois Attorney General's Office to pay back almost $350,000 in unspent funds that he couldn't account for after his charity fell into disarray.

A foundation started by New York Yankees third baseman Alex Rodriguez gave only 1 percent of proceeds to charity during its first year of operation in 2006, then stopped submitting mandatory financial reports to the IRS and was stripped of its tax-exempt status. The group’s website still tells visitors the A-Rod Family Foundation is a nonprofit organization. 

The “Star, Stripes and Skates raised as much as $2.1 million because the charity drew on the likes of Nancy Kerrigan, Sasha Cohen, Sarah Hughes, Viktor Petrenko, Nicole Bobek, Philippe Candeloro and Todd Eldridge to raise funds. The founder confessed she blew all the cash. She even milked the parents of 800 young performers for thousands of dollars in the tragedy. She spent not one penny on the charity’s cause.

Saints quarterback Drew Brees is suing former organizers of his celebrity golf tournament suggesting that the organizers cheated benefactors.

The Second Mile, a charity created to help at-risk youngsters attracted national attention after its founder, and former Penn State University (and closely tied to coach Joe Paterno) assistant football coach Jerry Sandusky, was charged with molesting boys he met through the organization. In the end, Second Mile was forced to close its doors.

A charity was set up to honor Notre Dame football standout Manti Te’os girlfriend’s supposed death. The IndieGogo drive raised thousands of dollars only to find out that the girlfriend did not exist.

Similarly, Lance Armstrong was forced to cut ties to his cancer group, Livestrong, after a report accusing him of leading a doping conspiracy among teammates.


A 60 Minutes investigation found that Greg Mortenson, founder of the Central Asia Institute, fabricated parts of his best-selling book, Three Cups of Tea. A subsequent probe questioned the misuse of donors’ contributions. A major shake-up took place at the charity. His tightly controlled board of three was expanded as part of a larger settlement.

Bristol Palin (daughter of vice presidential candidate Sarah Palin) was paid $262,500 by Candie’s Foundation while the charity only disbursed $35,000 to its mission.

Questions have arisen about the Caylee’s Fund Foundation. The parents and grandparents of Casey Anthony incorporated the charity to advocate for grandparents rights and assist them in finding children, neglected children and exploited grandchildren. After appearing on the Dr. Phil show there appeared a deposit of $600,000 from Dr. Phil. Just months later, the charity was dissolved with just $100,000 left in its coffers that was distributed to other charities. People magazine suggests that the payment went to support Casey Anthony who was acquitted of her daughter’s murder. If that is the case, such support would violate its articles of incorporation. A number of other family charities are in various stages of viability from one being defunct and another without IRS legal submissions.

There Are Good Celebrity Charities
Not all celebrity charities are bad. Perhaps, most are not.
A few examples of fiscal prudence include foundations by current and former stars such as Paul Pierce, Cam Neely, Vince Wilfork, Curt Schilling and Ray Allen all of which funnel large portions of revenue to their chosen causes. Michael Phelps Foundation righted a wrong start by cutting expenses and giving larger amount to swimming programs. Some others that simplified fund-raising efforts and monitoring expenses are the San Francisco 49ers Alex Smith Foundation (gives 91% to causes); New York Knicks Carmelo Anthony Foundation (87%); retired quarterback/ESPN analyst Steve Young (75%).
New York Yankees shortstop Derek Jeter’s family foundation’s, Turn 2, mission is to get kids in impoverished communities “to turn away from drugs and alcohol and “Turn2 healthy lifestyles”. The hands-on and active involvement of Jeter and his family is admirable since they get no salaries.

Not all celebrities give large sums to the charities. In many cases the celebrity is simply a paid face to attract donors. In some instances the celebrity’s appearance fee is more than the money given to the charity’s mission. Some fail to continue to be associated with the charity that used their name that brought the attention to the nonprofit.

Where is the Board?

In virtually all instances illustrated above, the board has been nonexistent or deficient in exercising its responsibilities. The board has been blinded and a sleep at the switch when they simply follow a charismatic celebrity. Boards have not set the “tone” for the organization. These charities fail to have strong independent leadership and typically no separation between the board and the staff.

Best Practices for the Contributor

Before donating, start protecting your contributions by using watchdog sites such as Charity Navigator, Better Business Bureau and GuideStar. Use the watchdog site to determine the charity’s financial health. Some offer ratings to guide you in your decision-making.

Request the charity’s IRS 990 Form if not found on GuideStar. Look for conflicts of interest such as board members that are also suppliers to the agency or family members that are receiving a salary. Other flags may include huge fundraising costs and significant charges for professional services.

Nonprofit Imperative gathers its information principally from public documents...some of which are directly quoted. Virtually all cited are in some phase of criminal proceedings; some have not been charged, however. Cites in various media: Featured in print, broadcast, and online media outlets, including: Vermont Public Radio, Miami Herald, National Public Radio, Huffington Post, The Sun News, Atlanta Journal Constitution, Wall Street Journal (Profile, News and Photos), FOX2, ABC Spotlight on the News, WWJ Radio, Ethics World, Aspen Philanthropy Newsletter, Harvard Business Review, Current Affairs, The Chronicle of Philanthropy, St. Petersburg Times, B, USA Today Topics,, Responsive Philanthropy Magazine, New York Times...and many more Nonprofits: On the Brink (2006) Silence: The Impending Threat to the Charitable Sector (2011)
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