Tag: Attorney General Ellison

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Attorney General Ellison shuts down mismanaged school-supply charity, secures permanent ban against president

Minnesota Attorney General Keith Ellison announced today that his Office has shut down Welch Charities, a Minnesota nonprofit, and has permanently banned its president, Arturo Eguia, from operating a charity, having access to charitable assets, or soliciting charitable contributions in Minnesota. The charity, whose stated mission is to help children start the school year right, operates the annual Indian Bike Week motorcycle festival and fundraising event. The civil enforcement action, filed today in Ramsey County District Court, arises from failures in oversight by the organization’s board of directors that Eguia led, that resulted in the misuse of tens of thousands of dollars in charitable assets.   

Under the terms of the enforcement action, the charity must liquidate its assets, distribute them to another nonprofit organization with similar charitable purposes, and dissolve. In addition to a permanent charitable ban, Eguia is also subject to a penalty of $50,000 if he violates the terms of his settlement.   

“As Minnesota’s chief regulator of charities and protector of consumers, it’s my job to ensure nonprofits that raise money for charitable purposes use it as they promised their donors they would use it. Arturo Eguia took advantage of Minnesotans’ and motorcycle riders’ trust and generosity. Instead of using donations well-intentioned people made to Welch Charities to help low-income school children, Eguia instead used the money intended for children to enrich himself, travel on the charity’s dime, and prop up his for-profit business,” said Attorney General Ellison. “This settlement ensures the money the charity raised will actually be used to help low-income children — and that Eguia can never do anything like this again.” 

Attorney General’s investigation 

The Attorney General’s Office’s Charities Division launched this investigation under Minnesota’s civil nonprofit corporation and charitable trust laws, which require nonprofit directors and those who hold charitable assets to adhere to strict governance standards and fiduciary duties. The Attorney General’s Office’s investigation revealed that the charity’s board of directors never met, discussed, voted, or kept minutes on any operational decisions, allowing Eguia to run the organization without any input, supervision, or regard to Minnesota laws. The settlement agreement also alleges that the charity failed to properly manage and oversee its charitable assets: since at least August 2017, the charity failed to track its revenue, expenditures, or deposits; retain receipts of transactions; maintain a ledger; prepare financial statements; or otherwise keep accurate financial records.  

These failures to properly manage and oversee Eguia and the charity’s assets enabled tens of thousands of dollars of those assets to be misused. Despite the charity raising more than $142,000 over a four-year period, it only distributed $12,203 of these funds for charitable purposes. At the same time, Eguia’s personal spending and unchecked cash withdrawals tallied at least $36,856, including expenditures for restaurants and bars, hotels, auto parts, car washes, pest control, and custom motorcycle products.  

During its investigation, the Attorney General’s Office discovered that the charity’s inadequate record-keeping and internal controls made the amount of misuse difficult, if not impossible, to fully quantify. 

In Minnesota, the Attorney General has civil enforcement authority over the state’s nonprofit corporation and charitable trust laws. As in all cases involving potential misuse of charitable assets, the Attorney General’s Office will evaluate if there is sufficient evidence to make a referral to the appropriate authorities for criminal law enforcement. 

Under state law, nonprofit executives owe fiduciary duties to act in the best interests of the charities that they serve, including putting the interests of the nonprofit above any personal financial interests. The Attorney General’s Office provides additional information about these fiduciary duties, as well as other resources to help nonprofit leaders properly serve their organizations, on its website at www.ag.state.mn.us/Charity/InfoNonProfits.asp. 

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Attorney General Ellison secures agreement to strengthen governance of charity serving Cameroonian community

Minnesota Attorney General Keith Ellison today announced that his office has reached an agreement with Minnesota Cameroon Community (“MCC”) related to past neglect of the organization’s primary asset, the Cameroon Community Center. The Assurance of Discontinuance filed in Ramsey County District Court alleges that the directors’ and officers’ inattentiveness and governance violations allowed this important community asset to fall into disrepair.

“Part of my job as Attorney General is to ensure that nonprofit assets are maintained well and nonprofits are governed well,” Attorney General Ellison said. “The Cameroon Community Center is a vital Minnesota resource, but through poor governance, MCC allowed the center to fall into disrepair. All directors and officers have duties to protect nonprofit assets and prevent waste and disrepair. The Charities Division of my Office will keep ensuring that charities provide all the oversight over their operations and assets that the law requires.”

After an investigation by the Charities Division, Attorney General Ellison alleged in the Assurance that MCC’s directors and officers breached their fiduciary duties by neglecting to appropriately manage the Cameroon Community Center. MCC’s directors and officers allowed the community center to deteriorate, failed to properly insure it, and failed to pay outstanding tax liabilities. MCC also failed to use charitable assets in accordance with donor intent when it fundraised specifically to pay MCC’s tax liabilities but failed to use all the funds for that purpose. MCC’s leadership also failed to register the organization with the Minnesota Attorney General’s Office as required by Minnesota law.

Under the terms of the Assurance, MCC will restructure its leadership so that a singular board controls the business and affairs of the organization, instead of its prior fragmented governance structure. MCC must also maintain and comply with internal financial management practices developed in consultation with appropriate professionals, and adopt a conflict-of-interest, whistleblower, and document-retention policy. MCC is also required to properly maintain and insure MCC’s physical property, obtain all necessary licensures, and timely pay all taxes. MCC’s directors and officers are further required to properly maintain all books and records of the organization and adopt policies to ensure that funds are properly spent on the purposes for which they were given.

The Minnesota Attorney General’s Office makes available a number of publications and pamphlets providing information about charitable organizations, charitable trusts, professional fundraisers, and nonprofit organizations generally:

  • “Guide for Board Members” covers fiduciary duties of directors of nonprofit corporations and is meant to assist board members with the important responsibilities they assume when elected to a charity’s board of directors.
  • “A Guide to Minnesota’s Charities Laws” discusses key laws including the Minnesota Nonprofit Corporation Act, the Charitable Solicitation Act, and the Supervision of Charitable Trusts and Trustees Act, among other laws that require certain organizations to register with and provide notice to the Minnesota Attorney General’s Office.
  • “Nonprofit Organization Resources” contains a listing of resources covering charitable solicitation, professional fundraiser, and charitable trust registration, government agency contacts, and training and technical assistance providers.
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Attorney General Ellison wins $954,966 judgment and permanent ban against company Contributing 2 Combatants and its owner for bilking charitable donations intended for the military

State’s lawsuit alleged that Jacob Choinski used his for-profit company, Contributing 2 Combatants, to solicit donations from Minnesotans door to door while posing as a charity and kept the donations to line his own pockets.

Minnesota Attorney General Keith Ellison today announced that his Office has obtained a judgment of $954,966 against a Minnesota company that calls itself Contributing 2 Combatants and Coast 2 Coast Marketing, and its owner, Jacob Choinski, for violating charitable solicitation and consumer protection laws by defrauding Minnesota donors. Formally named PNW C2C Marketing, LLC (“C2C”), the company went door to door in Minnesota neighborhoods and misrepresented that C2C was a nonprofit soliciting donations to send care packages to servicemembers overseas. Choinski then spent the funds collected for his personal use and did not spend a single dollar on care packages since C2C’s inception in July 2018. The default judgment obtained by the State also permanently bans C2C from doing business in Minnesota and Choinski from any involvement in Minnesota’s nonprofit sector.

“Choinski’s conduct in this case was reprehensible. He used C2C to take advantage of Minnesotans who wanted to help our military servicemembers who are actively defending our country,” Attorney General Ellison said. “Our servicemembers overseas are making sacrifices for us every day and we will not stand by and allow their sacrifices to be exploited. This judgment ensures that Choinski and C2C can never engage in this conduct again.” 

C2C is a for-profit Minnesota limited liability company that advertised the cost of shipping a care package to service members overseas through door-to-door solicitation. While soliciting, however, C2C deceptively represented itself as a nonprofit by asking Minnesotans for donations and telling Minnesotans that their donations were tax deductible. C2C also claimed to partner with a charity to which it provided funds from its sales, but the State discovered that it never provided any funds to that nonprofit. Instead, Choinski diverted all the funds solicited for his personal use. The AGO’s judgment of $954,966 includes $70,966 in restitution for Minnesotans who were successfully solicited by C2C since its inception in 2018. The remaining $884,000 are civil penalties that must be paid to the State.

C2C solicited throughout the Twin Cities metro area, greater Minnesota, and other states. The lawsuit was filed in Ramsey County District Court and asserted that C2C and Choinski violated Minnesota’s Charitable Solicitation Act, the Uniform Deceptive Trade Practices Act, and the Consumer Fraud Act.

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Attorney General Ellison secures repayment, permanent charitable-sector ban against former Journey Home Minnesota president

Settlement requires Blake Huffman to repay $60K in charitable assets he misused from veterans-housing charity Journey Home Minnesota, permanently bans Huffman from operating a charity in Minnesota

Minnesota Attorney General Keith Ellison filed a settlement agreement in Ramsey County District Court requiring Blake Huffman, the former president of the charity Journey Home Minnesota (“JHM”), to pay back $60,000 in funds that he misused from the charity. The settlement also permanently bans Huffman from operating a charity, having access to charitable assets, and soliciting charitable contributions in Minnesota. In addition, JHM must liquidate its assets, distribute them to a Minnesota-based veterans charity, and dissolve its operations. 

“As the primary regulator of charities in Minnesota, it’s my job to ensure that charities are using their assets solely on behalf of their mission and the public, and that Minnesotans can trust that the money they generously donate to charities is being used for the causes they care about,” Attorney General Ellison said. “Blake Huffman took advantage of Minnesotans’ trust. He exploited the sacrifices of Minnesota’s veterans to line his own pockets. This settlement makes sure that the money will go where it’s supposed to — to help veterans afford their lives — and that Huffman will never operate a charity Minnesota again.” 

In December 2019, Attorney General Ellison sued Huffman for failing to properly oversee JHM’s charitable assets and failing to operate JHM in furtherance of its charitable mission, among other things. The lawsuit alleged that Huffman, as JHM’s president, engaged in transactions that presented clear conflicts of interest; helped solicit tens of thousands of dollars to build a handicap-accessible home for a Minnesota family with terminally ill children, only to abandon the project; and attempted to cancel leases midway through tenants’ terms and increased tenants’ rent to market rates, contrary to JHM’s charitable mission. The lawsuit also claimed that Huffman abandoned JHM and its charitable mission, failed to pay its bills, and allowed some of its properties to be foreclosed upon. During the litigation, the Attorney General’s Office further discovered that Huffman had misused nearly $81,000 of JHM’s assets.   

JHM owned property throughout the metro area, including Ramsey, Dakota, Anoka, and Cook counties. The lawsuit filed in Ramsey County District Court asserted that Huffman and JHM violated Minnesota’s Nonprofit Corporations Act, Supervision of Charitable Trusts and Trustees Act, and Charitable Solicitation Act. 

In Minnesota, nonprofit executives owe fiduciary duties to act in the best interests of the charities that they serve, including putting the interests of the nonprofit above any personal financial interests. The Attorney General’s office provides additional information about these fiduciary duties, as well as other resources to help nonprofit leaders properly serve their organizations, on its web site at www.ag.state.mn.us/Charity/InfoNonProfits.asp.   

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Otto Bremer’s 3 Paid Trustees Face State Charges of Violating Their Trustee Role

Trustees of the Otto Bremer Trust will once again be in court to face state charges. In August, NPQ reported on the accusations against the Trust, a $2 billion private foundation formed to help people and communities with grants for mental health and housing, crisis care for victims of domestic violence, and job placement for people with disabilities.

Among the alleged misdeeds are a 300-percent increase in salaries of three trustees and the purchase of an opulent office from which a trustee runs a for-profit company. Most alarming, though, is a plan by the trustees to sell voting stock in the trust to 19 out-of-state hedge funds. A separate board runs the bank that generates the profits for the trust, and that bank’s board sued the parent nonprofit last November, alleging that such a sale would amount to a “hostile takeover that would replace the board and set up the bank for sale,” reports Frederick Melo for Pioneer Press. Now the state of Minnesota is pursuing its own legal action.

The structure of the Bremer trust and its ownership stake in the bank is unusual in the US context. The Otto Bremer Trust owns 92 percent of Bremer Bank, the only US bank owned by a nonprofit. (Employees own the other eight percent.) For decades, dating back to 1949, this arrangement worked largely as intended; bank profits generated ongoing funding of the philanthropy, as founder Otto Bremer intended. In the last eight years alone, the foundation has provided $400 million to nonprofits in Minnesota, Wisconsin, and North Dakota.

In the US, having foundations own banks is nearly unheard of. Foundations were actually prohibited from owning businesses by law in 1969, and the Bremer Bank arrangement only persists because it was grandfathered in. But as NPQ noted last year, internationally, foundation ownership of companies is common. For instance, in Denmark, 20 percent of the nation’s gross domestic product is generated by foundation-owned businesses, and these businesses constitute an estimated 68 percent of the market capitalization of the Copenhagen stock market.

But there is always the temptation to do what in the co-op world is called demutualization. In other words, it doesn’t take a genius to realize that the trustees could earn far more money if their compensation weren’t limited by their mission. In Canada, right now, for example, Mountain Equipment Co-op—the Canadian equivalent of the 19-million-member US cooperative REI—is facing exactly this risk as trustees seek to cash out by selling the company to an outside US investor. (A member revolt may or may not succeed at stopping them).

In a different form, this appears to be the dynamic too with Otto Bremer. Specifically, it is alleged that the trustees are attempting to sell the bank and dissolve the 70-year affiliation. Ramsey County District Court Judge Robert Awsumb has received a request from the Minnesota attorney general to temporarily remove the trustees under suspicion. The attorneys for S. Brian Lipschultz, Daniel Reardon, and Charlotte Johnson, who are all listed as the Trust’s co-CEOs, filed a legal memorandum on September 21, 2020, refuting each allegation, denying self-dealing.

Voting members of a nonprofit, whether they are called directors or trustees, are generally not paid for their positions. Staff members who are also trustees, even at the CEO position, are demonstrating a conflict of interest, as the board of a nonprofit is critical in its governance. The board determines the salary for the president, CEO, or executive director. In effect, the three CEOs are voting for their own salaries.

In 2000, the trustees received a base pay of $42,000. Now, their three salaries come to $1.4 million according to the tax filing. Reviewing several years of tax filings does not reveal any other trustees or governance structure—Lipschultz, Reardon, and Johnson are the same three trustees listed on every 990PF since 1998. (1999 was the only tax filing not available).

Trusts and foundations, who must spend five percent of their assets to provide grants to charities, expect and demand those charities be responsible with the funds. Foundations are required by the IRS to receive reports from grantees on how the funds are spent. The granting foundation should live up to the guidelines it sets for its grantees, with transparency and accounting for expenses.

Five years of tax filings show that between 2013 and 2017, the Bremer Trust gave away the required five percent of their assets, averaging about $48.6 million. Now that the assets have grown to $1 billion, the Trust will have to distribute $100 million, which is the reason cited for raising cash by selling the bank.

Attorney General Keith Ellison’s office issued a 31-page reply on Thursday to the trustees’ attorneys’ statement. “Trustees minimize their conduct, fail to address the harm, and generally take no responsibility for the conduct demonstrated by the attorney general,” it reads. “Not a single unnecessary day should pass with trustees continuing to act as fiduciaries for the trust while defending their own interests.”

Bremer, a $13 billion bank, is the largest lender for farms in Minnesota. Its funding region also includes Wisconsin and Montana. The legal troubles, as noted above, go back to last November, when the bank board sued the foundation for trying to sell bank stock to out-of-state hedge funds in order to set up a hostile takeover. If the bank board was replaced as the result of a takeover, it would ease the way to selling the foundation’s major asset—the bank.

The Bremer Financial Corporation, parent company for the bank, states through their attorneys that selling the shares to out-of-state investors betrays the original documents and the stated trustee fiduciary responsibilities, even in the event of “unforeseen circumstance”—with the foundation in control of the bank—that that founder, Otto Bremer, established almost 80 years ago.

Ellison’s office has also charged that the Trust employees work in an emotionally toxic environment, with no complaint structure and the threat of retaliation for voicing objections, with an employee describing a text message between Reardon and Lipschultz that referred to a female employee as a “doorknob.” The filing states, “Current and former trust employees testified that they feared retaliation by trustees.” The attorneys for the trustees say human resources issues must be addressed in separate legal action. Other employees and former employees indicated that there have been statements within the office regarding anti-Muslim and anti-Native American giving policies.

The Bremer Trust attorneys have requested a trial date by early 2021. The Minnesota attorney general will likely request more time. The judge could rule that the trustees temporarily step down, or the lawsuit “discovery” can go on for an extended period with the trustees in place. It appears there are more governance questions to ask this private foundation.—Marian Conway