$52 Million in Charitable Funds Lost Despite Spotlight Team’s Exposé of Foundation Abuse

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Steampunk-Spotlight

Steampunk Glados | by Kevan

May 23, 2016; Boston Globe

The body of investigative work of the now-famous Sacha Pfeiffer of the Boston Globe includes way more than just the investigation of the Catholic Church that was the focus of last year’s Oscar-winning movie, Spotlight. In fact, that team has done some important work on the practices of a number of legacy philanthropic institutions in Massachusetts. Some of that work addressed the ways trustee positions at old money foundations are sometimes just passed down generationally, complete with high remuneration for minimal work.

Pfeiffer says these stories were the reason that Assistant U.S. Attorney Steven E. Skrocki of the Department of Justice contacted her about Mark J. Avery, who was 44 years old when she wrote about him in 2003. Avery inherited his trustee seat at the May and Stanley Smith Charitable Trust and at the May Smith Trust, for which he was paid $600,000 a year. But who can get along on such a paltry sum? So his law firm in Anchorage also billed the trusts separately for work performed.

Pfeiffer said that at the time, Avery told her, in response to questions, “I get sick and tired of people wondering about how much I get paid and why.”

Back to Skrocki. Thirteen years later, Skrocki wrote, in an email to Pfeiffer, “We’ve never forgotten the piece you did back then, nor Mr. Avery’s quote, and [we] thought you may appreciate the end result so many years after your article.”

Apparently, in March, Avery, now 57, was convicted of a 2005 spree of fraud and money laundering, and this past week he was sentenced to 13 years for absconding with $52 million of that May Smith Trust money, which he managed to spend out in six months. This was, writes Pfeiffer, the biggest private fraud case in Alaskan history. He had somehow convinced the two other trustees who were in their seventies and, as Pfeiffer writes, “medically challenged” to “loan” him the money

What the heck did he buy, you might ask? Among other things, “a air charter company, Gulfstream executive jets, World War II military aircraft, Czech fighter planes, helicopters, rocket launchers, a patrol boat, and a yacht. He also paid off more than $600,000 in personal debt and bought a $700,000 home.”

In Anchorage, this amounted to a spending orgy that drew the attention of various law enforcement agencies and the IRS. Skrocki says that when they did a simple Google search, they found Pfeiffer’s article and thought, “Hmmm…maybe this is where he’s getting the money.”

Avery defended himself by countering that he had been conned by his business partner, but all the air power was intended to make money, “including training the Philippine Air Force and conducting U.S. security details in Africa.”

Pfeiffer said she felt a moment’s elation about Avery getting some measure of comeuppance, but then realized that basically nothing will have changed:

  • Trustee positions, even at the Smith Trust, continue to be inherited;
  • Trustee positions, even at the Smith Trust, continue to allow active double-dipping; and
  • There are still insufficient safeguards over private foundations.

Pablo Eisenberg, a vocal critic of the philanthropic sector, has an even stronger opinion: “There’s absolutely no oversight by the AGs, the IRS is dead in the water and has been for 15 years, and newspapers are bleeding reporters and killing off investigative reporters, so the field is wide open for crooks and scandals.”

We have to agree with Eisenberg on this one, though we would not paint with such a broad brush where the attorneys general are concerned. How was the self-dealing at these foundations, which were the subject of one of the most searing investigations of foundations ever, left to fester, finally resulting in the loss of $52 million in charitable funds? Recent discussions with regulators suggest to us that the gaps in our regulatory systems are being eyed for plugging by those who want a more comprehensive and serious approach. But, as Eisenberg says, the current status of critical oversight with consequences is way less than impressive and is a scandal in itself. Part of the fault lies with the sector’s apologists, who resist regulation as if it were a threat rather than a protection for honest practitioners. (This author can remember quite vividly the anger with which the Spotlight series was originally received by portions of the sector.)

In a follow up to the Globe series, Rick Cohen wrote in 2007, “It is good but insufficient for foundations to promulgate standards by which they can govern themselves. In the cases highlighted by the Globe, there was little evidence that the foundation sector’s trade associations took action against philanthropic malefactors. It will take more than blind faith in the self-correcting DNA of the nonprofit sector to clean up these kinds of abuses.”—Ruth McCambridge