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Attorney General Bonta Announces Stipulated Judgment Against ZeroDivide for Misspending Donations

California Attorney General Rob Bonta today announced a stipulated judgment against ZeroDivide and its directors and officers to resolve allegations that the nonprofit violated California’s charitable trust laws. ZeroDivide allegedly misspent approximately $606,000 in restricted donations meant to fund two of its charitable programs, instead using these donations to cover salaries and benefits for employees who did not work on those programs, and to fund other programs. Today’s settlement requires ZeroDivide to be dissolved and prohibits two of its officers from leading charitable organizations in California, or holding or soliciting charitable donations from Californians for three years. ZeroDivide and its directors and officers must also pay over $460,000 in damages, penalties, and other fees.

“As ZeroDivide’s financial situation became increasingly precarious, its officers misappropriated money designated for specific programs to pay for unauthorized operational costs,” said Attorney General Bonta. “Today’s settlement should serve as a warning for charities who consider misspending donations. Donor intent must be honored. My office is watching, and we will hold you accountable.”

ZeroDivide is a San Francisco-based nonprofit focused on bringing technology to low-income communities that ceased operations in 2016 due to its financial insolvency. ZeroDivide operated two primary programs: Digital Bridge and the Renaissance Journalism Center. Through the Digital Bridge program, ZeroDivide provided technical assistance and “capacity building” to other nonprofits and public entities, such as libraries, as they adopted new technologies and upgraded their technology infrastructure. ZeroDivide’s Renaissance Journalism Center advanced equity in the reporting of news stories by journalists. 

In court filings, Attorney General Bonta alleges that between 2014 and 2016, the California Endowment, California Wellness Foundation, Ford Foundation, Vesper Society, Whitman Institute, and Wyncote Foundation provided restricted donations to fund these two programs. At the same time, ZeroDivide’s unrestricted revenue was shrinking, and it began to struggle to pay operational costs. Unbeknownst to donors, ZeroDivide began to dip into restricted funds to pay for a range of expenses, such as the salaries and benefits for staff and other programs that donors expressly did not want to fund. ZeroDivide’s board of directors was aware of this misconduct and failed to stop it from happening.  

In total, ZeroDivide allegedly misspent approximately $606,000 in restricted donations. ZeroDivide also maintained inaccurate financial statements related to the receipt and spending of program funds; failed to file required annual reports with the Attorney General’s Registry of Charitable Trusts, and failed to maintain adequate financial records, among other violations.

As part of the stipulated judgment, ZeroDivide and its directors and officers will be required to pay $326,008 in damages and $138,525 in penalties, late filing fees, and attorney’s fees. The nonprofit’s directors must also dissolve ZeroDivide and distribute the damages amount and any remaining assets to Community Initiatives, the fiscal sponsor for the Renaissance Journalism Center. Finally, two of ZeroDivide’s officers will be permanently enjoined from any future violations of California’s charitable trust laws and will be prohibited, for three years, from leading a charitable organization in California, working in a paid or volunteer capacity for a for-profit entity in the business of charitable fundraising in California, and from soliciting, holding, or managing funds or assets for a charitable purpose in California or from Californians.

In California, the Attorney General has primary responsibility for supervising charities, charitable trustees, professional fundraisers, and others who solicit or hold charitable donations. The California Department of Justice investigates the loss and misuse of charitable assets, fraudulent and misleading solicitation practices, improper reporting practices and other breaches of fiduciary duty. Charities are required to register and file annual financial reports with the Attorney General’s Registry of Charitable Trusts.

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NASCO letter to IRS regarding 501(c)(3) status for an LLC

On February 4, 2022, the NASCO Board submitted comments to the IRS in response to the Notice 2021-56 invitation to comment on standards that an LLC must meet to obtain 501(c)(3) status.  Through these comments, the NASCO Board supported the standards that the IRS and Treasury Department currently apply and requested that the IRS and Treasury Department consider the importance of state charity oversight and the variation of state law applicable to oversight of LLCs and formation of charitable LLCs.  The Board also recommended that tax-exempt standards for charitable LLCs require similar notifications to state charity officials as those under state nonprofit corporation law.  And finally, the Board offered to help connect the IRS and Treasury Department with any individual state charity official office for any state-specific questions.

Please find the link to the NASCO letter here.

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Georgia secretary of state warns of Ukraine charities scam

Georgia Secretary of State Brad Raffensperger is warning Peach State residents to be aware of scam charities seeking to profit from the crisis in Ukraine.

Raffensperger encourages Georgians to be watchful that their donations go to legitimate organizations and support the intended recipients.

“As Secretary of State, it is my duty to warn the people of Georgia about the scams and frauds looking to take advantage of their good will and generosity,” said Raffensperger. “I encourage my fellow Georgians to support the people of Ukraine in their fight for freedom. But they should make sure their support is going to real charities who will actually send their dollars to the right cause.”

Raffensperger offers the following tips you should consider before making a charitable contribution:

▪Research Online – If there is a charitable organization or cause to which you would like to donate, research online beforehand to ensure the charity is right for you. The Better Business Bureau, Charity Navigator, Guidestar, and other websites provide evaluations of different charitable organizations.

▪Check For Charity Filings – Before making any donation, be sure to confirm the organization you are supporting is a legitimate 501(c)(3) charity. Ask for the organization’s Employer Identification Number (EIN) and search it on the IRS website, or look for the organization’s 990 tax filings.

▪Effectiveness Matters – Take the time to look at an organization’s financial situation. Tools available online, such as those mentioned above, will provide you with information necessary to ascertain how much of your contribution will actually go to those in need versus administrative or other costs. Ask what percentage of your donation will go to relief efforts.

▪Do not share personal financial information over the phone – Do not share your credit card, debit card, or bank account information over the phone. Donate by check or credit card, rather than cash. And send the contribution directly to the organization rather than through a third party. If you donate more than $250, the organization should send you a letter confirming the size of your donation.

▪Tax Deductible Donations – If making a tax-deductible donation is important to you, search the database of tax-exempt organizations available on the IRS website. Before making your donation, ensure the charity you have identified is in fact tax deductible. Then, once you have made the donation, be sure to get a receipt for your contribution.

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Following the Invasion of Ukraine, Attorney General Bonta Issues Consumer Alert Warning Californians Against Fraudulent Charitable Solicitations

California Attorney General Bonta today warned Californians of fraudulent charitable solicitations that may claim to help the victims of Ukraine’s recent invasion. Well-intentioned or otherwise, the charities formed overnight as a response to this crisis may lack the experience, contacts, and staff needed to respond to a disaster. Fraudsters are always seeking to capitalize on people’s desire to help. Before aiding the victims of this crisis, Attorney General Bonta urges Californians to take their time to research before giving.

“The invasion of Ukraine is heartbreaking and unacceptable. I know that Californians, many with families and loved ones in the country, stand in solidarity with Ukraine and will be looking for any way to help its people,” said Attorney General Bonta. “However, before Californians do this, I urge them to take the necessary steps to research these charities so their contributions can go to legitimate causes. As Californians do their part to give to those in need in Ukraine, we will do our part to protect the integrity of those donations from deceptive solicitations. If you believe that a charity or fundraiser has acted in bad faith, please report it immediately at oag.ca.gov/charities/complaints.”

Donation Tips

  • Check the Registration Status: Charities operating in California and telemarketers soliciting donations in California are required to register with the Attorney General’s Registry of Charitable Trusts. They are also required to file annual financial reports, which are made available to the public. Prior to making a donation, make sure to confirm that the charity is registered and up-to-date with its financial reporting by searching the Attorney General’s Registry of Charitable Trusts’ database, located here.
  • Give to Organizations You Trust: Do your research before giving. Review the charity’s purpose and find out how the charity spends its donations. How much is spent directly on the charitable cause? How much goes to overhead and employee compensation? Research charities in your community and support those charities that make a positive impact. If you choose to donate to a charity you are unfamiliar with, contact the charity and ask for information in writing about its programs and finances. You should also confirm the charity’s name, address, and its nonprofit status. 
  • Be Wary of Social Network Fundraising: If you are planning to donate through a social network solicitation, first do some research. Find out what percentage is going to the charity, whether you will be charged a fee, or if a percentage of your donation will be paid to the platform website. 
  • Don’t Be Pressured by Telemarketers – Ask Questions Before Donating: If you receive a call from a telemarketer, ask for the name of the fundraising organization, whether it is registered with the Attorney General’s Office, the name of the charity benefitting from the solicitation, how much of your donation will go to charity and how much to the telemarketer, and the direct telephone number of the charity. If the telemarketer tells you the donation is for your local animal shelter, hospital, school, police, firefighter, or other public safety agency, check directly with the benefitting organization to confirm that it authorized the solicitation and will actually benefit from your donation. Don’t fall for pressure tactics or threats. Remember that you have the right to reject the donation appeal and if you feel pressured or threatened, just hang up.
  • Watch Out for Similar-Sounding Names, Web Addresses, and Other Deceptive Tactics: Fraudulent organizations may use names that closely resemble those of well-established charitable organizations in order to mislead donors. Look out for fraudulent websites that have a slightly different web address (URL) than that of a legitimate charitable organization. Similar-looking URLs are sometimes purchased by fraudsters to lure in would-be donors. These sites may ask you for personal information or install harmful material onto your device. Be skeptical if someone thanks you for a pledge you never made, and always check your records. 
  • Understand the Difference Between “Tax-Exempt” and “Tax-Deductible”: Being a nonprofit does not mean the organization is exempt from taxation, or that your donation is tax-deductible. Generally, a tax-exempt organization is exempt from paying tax on its income and gifts, but may or may not be able to offer a charitable tax deduction to donors for their contributions. Just because an organization has a “Tax ID Number” or provides donors with a receipt that says “keep this receipt for your records” does not mean that the organization is a charity, tax-exempt, or that your donation is tax-deductible. A few tax-exempt organizations – most notably those given 501(c)(3) tax-exempt status by the Internal Revenue Service (IRS) – are able to offer charitable tax deductions for your donations. If you are not sure whether your donation is tax-deductible, verify the charity’s tax-exempt status by using the tools and information located on the IRS website.
  • Consider the Costs of Gifts and Merchandise: Gifts that you receive from a charity in exchange for your donation cost money and generally, these expenses are paid from donated funds. The value of the goods and services that you receive for your donation is not tax-deductible. Some charities may sell merchandise online and claim that “100% of the proceeds” will benefit its charitable purpose. However, this does not necessarily mean that 100% of the sales price of the merchandise will go to charity, and the cost of the merchandise itself can greatly reduce the value of your donation.
  • Protect Your Identity: Never give your Social Security number or other personal information in response to a charitable solicitation. Never give out credit card information to an organization unfamiliar to you. Some organizations sell or rent their donor lists to other organizations, including organizations that are not charities. Review the charity’s privacy policy to find out if your information will be shared with outside companies.
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NASCO Drafts Letter to FTC Regarding Impersonation Scams

On March 22, 2022 the NASCO Board responded to the FTC’s Advance Notice of Proposed Rulemaking (“ANPR”) by submitting the NASCO letter .  The FTC has stated that their ANPR is to combat government and business impersonation fraud and is intended to allow the FTC to seek strong relief for consumers in cases involving imposter scams.  The NASCO letter specifically requests that the FTC consider impersonation of charitable organizations and causes in its rulemaking.

https://www.nasconet.org/wp-content/uploads/2022/02/NASCO-Letter-to-FTC-2022-02-22-002.pdf