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AG Racine Sues Officer of Two Nonprofits for Abusing His Authority for Decades & Diverting Charitable Funds for Personal Benefit

Today, Attorney General Karl A. Racine announced he filed a complaint against two District nonprofit entities and a long-standing officer and director of those entities for disregarding the nonprofits’ governing requirements and diverting nonprofit funds for the officer’s personal benefit, instead of using those funds to further the nonprofits’ purpose of supporting education in the foreign services. 

The Office of the Attorney General (OAG) alleges Delta Phi Epsilon, Inc. (Fraternity); Delta Phi Epsilon Foundation (Foundation); and Terrence Boyle used nonprofit funds for personal gain and failed to meet the entities’ nonprofit purposes, including the award of educational scholarships, in violation of  District law. Mr. Boyle has maintained control over the governance and finances of the two nonprofits for decades and used this control to enrich himself while failing to take any action in support of a nonprofit purpose.   

“Nonprofit funds are legally required to serve the public good and may not be used for personal gain. My office will not allow the misuse of nonprofit funds to stand, nor will we allow those who hold power to illegally use money to enrich themselves,” said AG Racine. “With this lawsuit, we are holding bad actors accountable, just as we have successfully done with other nonprofits that misuse funds. This illegal behavior will not be tolerated.”

Specifically, Mr. Boyle and the Foundation diverted hundreds of thousands of dollars in nonprofit funds to subsidize Mr. Boyle’s purchase of a personal home in Georgetown in 1990 that provided no benefit to the Foundation. Meanwhile, the Foundation’s board of trustees has never used its nonprofit funds to award educational scholarships as required by its articles of incorporation. And, since at least 2015, the Foundation has failed to conduct any business at all, such as holding regular board meetings required by District law and the Foundation’s bylaws. Under Mr. Boyle’s control, the Foundation operated merely as a repository for donations from Fraternity members. More recently, Mr. Boyle caused the Fraternity to donate its ownership interest in a different Georgetown house to the Foundation without the requisite authorization of Fraternity members, and further caused the Foundation to sell that property—thus depriving the Fraternity of any benefit from the sale of its primary asset. 

OAG’s lawsuit seeks to ensure the entities’ funds are used for charitable purposes, remove Mr. Boyle from any official role in the organizations, and reform the governance of these organizations so they function legally and in furtherance of their nonprofit purposes.

Delta Phi Epsilon, Inc. is a District non-profit organization established to promote international trade and foreign service education and was, until recently, affiliated with Georgetown University. The Foundation is a separate nonprofit organization established to serve as the charitable arm of the Fraternity and provide scholarship awards to individuals studying foreign services or other related areas. 

Since at least 1980, Mr. Boyle has been an officer or director of both entities. In those positions, he governed and managed both organizations’ assets, including the Foundation’s nonprofit assets, which he used largely for his own benefit. Under Mr. Boyle’s control, the Foundation has ceased functioning. The Foundation’s board of trustees has failed to conduct any business furthering the Foundation’s stated charitable purposes since at least 1984. And the Foundation has failed to award educational scholarships as required by its governing documents. 

Under the District’s Nonprofit Corporation Act, the Attorney General is responsible for protecting charitable organizations and their assets, and for ensuring nonprofits are acting and using their funds in the public interest. OAG also has broad powers under the common law to police the activities of nonprofit entities within the District to ensure that their use of nonprofit assets meets their public nonprofit purposes.

In its complaint, OAG alleges that Mr. Boyle and the nonprofit entities violated the District’s Nonprofit Corporation Act and common law by: 

  • Illegally diverting nonprofit funds to personally benefit Mr. Boyle: As officer or director of the Fraternity and Foundation since at least 1980, Mr. Boyle maintained control over the entities’ assets, including the Foundation’s nonprofit assets, and directed them to personally benefit himself. Specifically, he used Foundation funds to subsidize his purchase of a personal home in Georgetown. Mr. Boyle has retained, and continues to receive and retain, private financial and other benefits from this transaction.
     
  • Abusing authority over both entities: Mr. Boyle has abused his authority over and disregarded his fiduciary duty to both entities by causing them to engage in transactions that benefitted him personally to the detriment of the nonprofits and their public purposes. Instead of nonprofit funds being used to provide educational scholarships as required by the Foundation’s by-laws, those funds were used to subsidize Mr. Boyle’s purchase and ultimate sole ownership of a house in Georgetown. Mr. Boyle also caused the Fraternity to donate its Georgetown house to the Foundation without legally required authorization, and he has failed to use the proceeds of the sale of that house in the manner he represented to other Fraternity members. Mr. Boyle’s actions divested the Fraternity of its principal asset and base of operations, while shifting control over the sales proceeds to Mr. Boyle through the Foundation.   

OAG is asking the court for a constructive trust over funds that Mr. Boyle improperly received from the Foundation and the sales proceeds of the Fraternity’s house and the removal of Mr. Boyle from leadership over the two entities. OAG also seeks to ensure that the two nonprofit entities are properly governed and functioning in support of their nonprofit purposes going forward.   

A copy of the complaint against Delta Phi Epsilon, Inc.; Delta Phi Epsilon Foundation; and Terrence Boyle is available here.

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2021 NASCO/NAAG Conference

The annual NASCO conference will be held virtually this year over two consecutive afternoons on October 13-14, 2021.

Members of the public/sector are invited to join us on October 13, 2021 from 1-5 EST, we will be holding interactive panels on recent enforcement actions and regulator priorities, fundraising, and ways in which regulators are working with the sector to weather the current economic challenges.  October 14 from 12-5 EST, will be for regulators only, and we will hear from various NASCO committees (including Education, Sham PACs, Multistate, Crowdfunding), and get your input on priorities for the coming year.  We’ll be supplementing some of the training we usually have at the conference with additional webinars throughout the year.  More details coming as the develop and specific times are subject to change.

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Fraudulent charity shut down in Kansas, ordered to pay damages

A Georgia man and his Kansas charity have been banned from doing business in Kansas and ordered to pay more than $11,000 in damages for violating the Kansas Charitable Organizations and Solicitations Act, Attorney General Derek Schmidt said today.

Steven Beck of Ludowici, Georgia, and A Ride for the Wounded, Inc., a Kansas charity, were permanently banned from doing business in Kansas. Shawnee County District Court Judge Thomas Luedke this week approved a default judgment after Beck and the charity failed to respond to a lawsuit filed by Schmidt’s office.

Luedke ordered Beck and the charity to pay $11,029.05 for funds that were used for personal expenses in violation of the Kansas Charitable Organizations and Solicitations Act.

Schmidt urged Kansans to do their homework when donating to charities and offered the following tips to keep in mind when making charitable contributions:

  • Ask for written information, including how much of the money raised is actually used for charitable purposes and how much will end up in the hands of the professional fundraiser.
  • Be careful with telemarketers requesting contributions – oftentimes the telemarketer keeps a substantial portion of the donation.
  • Do not be pressured into making a contribution or pledge.
  • Do not feel obligated to send a donation to charities that send token gifts such as key chains, greeting cards, mailing labels, etc.
  • Make certain the charitable organization actually serves the need it claims to serve.
  • Ask for financial statements of the organization to determine who will benefit from the donations.
  • Make a personal giving plan and support well established charities on your terms, not in response to marketing solicitations.
  • Check out the charity at www.kscharitycheck.org to assess whether it is registered to solicit in Kansas and to see important aspects of its financial filings, including how much of any money you give will be spent on the charity’s overhead expenses rather than going to support the charitable purpose, such as disaster-relief efforts. However, note that some charities are exempt by law from registration.
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Wasden Issues Warning over Charitable and Attorney Solicitations Following Rigby School Shooting

Attorney General Lawrence Wasden is warning Idahoans about scam fundraisers related to the recent shooting at Rigby Middle School. Victims and their families also should be cautious if they receive legal representation solicitations about filing lawsuits or joining potential class actions.

Idaho’s charity laws prohibit misleading charitable solicitations and authorize the Office of the Attorney General to investigate and bring legal actions against organizations or people who misrepresent the purpose of charitable donations or who misuse charitable assets. Consumer protection laws help protect Idahoans from deceptive advertising of goods and services, including legal assistance.

“Unfortunately, some people take advantage of tragedies to exploit victims’ pain and capitalize on the public’s generosity,” Wasden said. “I encourage individuals to file a complaint with my office if they become aware of suspicious fundraising attempts or misleading legal solicitations.”

Donors who have lost money or who want to report a scam charity, solicitation, or legal representation advertisement may file a complaint through the Attorney General’s website at www.ag.idaho.gov, or by calling the office’s Consumer Protection Division at 208-334-2424 or 1-800-432-3545 (toll free in Idaho).

Shootings nationwide have prompted scores of lawsuits, including class actions. Within days of these tragedies, victims or their families may be pressured into signing representation contracts.

Attorney solicitations are governed under the Idaho Rules of Professional Conduct for lawyers, which recognize that targeted in-person, telephone, or real-time electronic communications of potential clients can be abusive. Lawyers may not solicit professional employment through such methods unless the person contacted is a lawyer or has a family, friend, or prior professional relationship with the soliciting lawyer.

Written communications soliciting professional employment must be marked as “Advertising Material.” Advertising that misrepresents the sender’s qualifications, the purpose of the ad, or the status or effect of a legal action violates the Idaho Consumer Protection Act and should be reported to the Attorney General.

When deciding whether to donate money to a charity or contribute towards a fundraising campaign, donors should consider the following tips:

  • Research before giving. Important background information about charities is available online. Donors can review the charity’s tax-exempt status and IRS financial filings at www.irs.gov. Financial records inform the public about a charity’s mission and show how a charity spends its money. Giving to an organization that spends most of its money on furthering its charitable purpose is better than donating to one that spends the bulk of its funds on administrative costs and employee compensation. Other websites that rate charities include the BBB’s Wise Giving Alliance and Guidestar.
  • Question telemarketers and don’t give money over the phone. Charities sometimes use paid “telefunders” to help them raise money. Donors should ask questions and request written information from such callers before deciding whether to donate. Never agree to donate over the phone and hang up on callers who use pressure tactics to get immediate contributions. It is often best to ignore calls from unknown numbers.
  • Don’t click links in email solicitations and watch out for “look alike” websites. Links in unsolicited emails, or spam, can be very dangerous. They may contain malware that harms digital devices or takes the recipient to unsecure or fraudulent websites. Always visit a charity’s website directly to donate money. Fraudulent websites with slightly different web addresses than the legitimate charity’s website can scam donors out of their personal information or install malware or spyware on devices.
  • Be wary of crowdfunding campaigns and social network fundraising. Crowdfunding can be a great way to fundraise, but it also is an attractive tool for scammers. Before donating to a crowdfunding campaign or through a social network solicitation, donors should question the person collecting the funds and find out (a) what percentage of donations will be used for the charitable purpose, (b) the amount of any added fees, and (c) what percentage of a donation goes to the platform website. Remember, donations to individuals are not tax-deductible.
  • Protect personal identifying and financial information. Never give Social Security or driver’s license numbers, birthdates, or other private information to a solicitor. When donating to an organization through its website, use a credit card with a low credit limit and that protects against fraud. Read the charity’s privacy policy to find out how the charity may use donors’ personal information.

Don’t send money orders or buy gift cards. Never donate to a person or organization that asks for money orders or gift cards. Reputable charities accept checks or credit cards. They do not instruct donors to buy gift cards.

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Attorney General James Wins Dismissal of NRA’s Fraudulent Bankruptcy, Fight for Dissolution to Continue in New York

NEW YORK – New York Attorney General Letitia James today scored a major victory in her case against the National Rifle Association (NRA) when a federal bankruptcy court in Texas rejected the organization’s claims of bankruptcy after the NRA sought to reorganize in Texas, stating, “that the NRA did not file the bankruptcy petition in good faith.” Despite its attempts to escape New York’s jurisdiction, Attorney General James will now continue to pursue her enforcement action against the NRA, in addition to seeking a number of other forms of relief she requested when initially filing her lawsuit last summer.

“Weeks of testimony have demonstrated that the NRA and Wayne LaPierre simply filed chapter 11 bankruptcy to avoid accountability,” said Attorney General James. “This trial underscored that the NRA’s fraud and abuse continued long after we filed our lawsuit. Without a doubt, the board was deceived when bankruptcy language was hidden in Mr. LaPierre’s contract earlier this year. Today’s order reaffirms that the NRA does not get to dictate if and where it will answer for its actions. The rot runs deep, which is why we will now refocus on and continue our case in New York court. No one is above the law, not even one of the most powerful lobbying organizations in the country.”

Last August, Attorney General James filed a lawsuit against the NRA and four of the organization’s current or former top executives for failing to manage the NRA’s funds; failing to follow numerous state and federal laws, as well as the NRA’s own bylaws and policies; and contributing to the loss of more than $64 million in just three years. The suit was filed against the NRA as a whole, as well as Executive Vice-President Wayne LaPierre, former Treasurer and Chief Financial Officer Wilson “Woody” Phillips, former Chief of Staff and the Executive Director of General Operations Joshua Powell, and Corporate Secretary and General Counsel John Frazer.

This past January, in an effort to avoid accountability, the NRA filed for chapter 11 bankruptcy even though the organization still claimed to have healthy financial reserves. Over the course of the bankruptcy trial, LaPierre and other senior leaders admitted that the bankruptcy was simply a way of avoiding New York’s enforcement action, yet still stated that they believed that New York courts and judges could be trusted to fairly and impartially oversee the case.

In today’s decision, U.S. Bankruptcy Judge Harlin Hale of the Northern District of Texas condemned the NRA’s attempts to avoid accountability, making clear that the organization’s actions were “not an appropriate use of bankruptcy.”

Specifically, Judge Hale said, “The question the Court is faced with is whether the existential threat facing the NRA is the type of threat that the Bankruptcy Code is meant to protect against. The Court believes it is not. For the reasons stated herein, the Court finds there is cause to dismiss this bankruptcy case as not having been filed in good faith both because it was filed to gain an unfair litigation advantage and because it was filed to avoid a state regulatory scheme. The Court further finds the appointment of a trustee or examiner would, at this time, not be in the best interests of creditors and the estate.”

Judge Hale also went on to specifically lay blame for the fraudulent bankruptcy at LaPierre’s feet: “What concerns the Court most though is the surreptitious manner in which Mr. LaPierre obtained and exercised authority to file bankruptcy for the NRA. Excluding so many people from the process of deciding to file for bankruptcy, including the vast majority of the board of directors, the chief financial officer, and the general counsel, is nothing less than shocking.”

The case against the NRA will proceed in the New York County State Supreme Court, where Attorney General James will continue to fight for the organization’s dissolution; for removal of two of its top leaders, LaPierre and Frazer; for full restitution of tens of millions of dollars from LaPierre, Phillips, Powell, and Frazer; for penalties; and for the four individuals to never be able to serve on the board of a charity in New York state again.

Lead trial counsel for the Office of the Attorney General (OAG) in this proceeding was Special Counsel for the Litigation Bureau Monica Connell, along with Bureau Chief James Sheehan, Bureau Co-Chiefs of the Enforcement Section Emily Stern and Yael Fuchs, and Assistant Attorneys General William Wang, Sharon Sash, Jonathan Conley, and Stephen Thompson — all of the Charities Bureau; with additional assistance from Legal Assistant Nyna Sargent and Assistant Attorneys General Peggy Farber of the Charities Bureau and Lucas McNamara of the Environmental Protection Bureau. The OAG was also represented in the bankruptcy proceeding by co-counsel Gerrit Pronske, Eric Van Horn, and Jason Kathman of Spencer Fane LLP. The Charities Bureau is a part of the Division for Social Justice, which is supervised by Chief Deputy Attorney General Meghan Faux and First Deputy Attorney General Jennifer Levy.