Self-Dealing Revealed at New Orleans Nonprofit Lender

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August 14, 2011; Source: Times-PicayuneIn the competition for which type of misuse of nonprofit resources is most galling to nonprofit leaders who are concerned about the integrity of the sector, the winner is probably self-dealing. And if the misuse occurs with resources that were supposed to help people affected by disasters such as Hurricane Katrina, it is doubly galling. Welcome to the scandal at Citizens United for Economic Equity (CUEE).

Here are some of the particulars. Barbara Major, who had been CUEE’s executive vice president, received $160,000 in organizationally subsidized loans—$100,000 of which were not revealed in audits filed with the state in 2008 and 2009—while she served as VP. CUEE then promoted her to the position of executive director. She also holds other important appointments under the administration of New Orleans mayor Mitch Landrieu, serving as chair of the Regional Transit Authority and as a mayoral appointee on the board of the New Orleans Redevelopment Authority.

How did Major get these loans? Apparently, according to the New Orleans Times-Picayune, state rules do not “bar lenders outright from issuing loans to CUEE employees or relatives [but]… call for adherence to lenders’ own ‘conflict of interest’ policies.” However, CUEE doesn’t have a conflict of interest policy.

That allowed CUEE to make other loans to insiders as well. One was a loan to a company owned by David St. Etienne, brother of Greg St. Etienne, who was at the time CUEE’s executive director. Greg was later drafted by Mayor Landrieu to be one of the city’s deputy mayors. Audits revealed other financial shenanigans, including frequently missing or incomplete documentation of financial transactions, as well as the collection by CUEE of a quarter-million dollars more in administrative fees than it was entitled to.

The major arena of dubiously documented lending involved a “revolving capital fund” that was supplied with money repaid by borrowers who had taken out loans from CUEE’s primary loan fund. Although the primary loan fund was restricted in terms of income levels and loan purposes, the revolving-fund loans weren’t quite so strictly controlled. About half of the 43 loans from the fund went to companies with direct ties to CUEE executives, including $831,000 to firms owned by Barbara Major, her son Gentry Major, and David St. Etienne. In many cases, the loans were much larger than CUEE officially reported. For example, a $90,000 loan to Major Construction LLC was nearly three times what had been reported to the state. Nine loans for $470,000 went to St. Etienne’s firms, $120,000 more than had been reported.

Both Major and St. Etienne were a bit reticent in explaining to the Times-Picayune what had gone on at CUEE, but a week ago, St. Etienne did admit one thing that NPQ Newswire readers know: “I think that you can’t own the company that you’re lending to, you can’t have a financial interest in that respect. That’s self-dealing.” St. Etienne has since resigned as one of Landrieu’s deputy mayors while admitting no inappropriate or illegal behavior during his tenure at CUEE.

We usually ask at this point, “Where was the board?”, but Major has previously asserted that the board knew about these transactions. One suspects that in cases like this, unless the board suffered a mass case of narcolepsy during significant points in board meeting agenda, enough of them knew the score, but they chose not to out their colleagues, friends, business partners, and political associates.—Rick Cohen