California Attorney General Kamala D. Harris has filed suit against a California-based charity known as Help Hospitalized Veterans, accusing the group of engaging in self-dealing, paying excessive amounts of executive compensation, fraudulent fundraising and using accounting gimmicks to inflate the amount of income spent on providing veterans’ services.
She is seeking the removal of the charity’s officers and directors and to recover more than $4.3 million in funds improperly diverted from the charity. The funds were intended to support several programs serving veterans and active-duty military, including providing arts and craft kits to hospitalized veterans. Instead, according to Harris’s office, they were used to enrich the organization’s officers and fundraisers.
“The officers of Help Hospitalized Veterans improperly diverted money that hard-working and patriotic Americans donated to support injured vets,” Harris said in a statement Thursday. “We must protect veterans, active-duty military and donors from scam artists who see them as little more than prey for their financial frauds.”
HHV did not immediately respond to a request for comment.
The lawsuit alleges that the directors and officers of Help Hospitalized Veterans breached their fiduciary duty by wasting its charitable assets on golf memberships and a condominium for use by officers, and authorizing excessive executive compensation to the group’s former president, Roger Chapin, and its current president, Michael Lynch.
The suit alleges Chapin received more than $2.3 million in excessive compensation during the final seven years of his tenure and excessive compensation to Lynch totaled over $900,000. Chapin has also been charged with self-dealing as a result of substantial diversions of the charity’s funds to entities in which he had a financial interest. The diversions include loans that Help Hospitalized Veterans made to a firm called American Target Advertising, which was making substantial payments to Chapin. American Target Advertising is a for-profit business, founded by Chapin’s close friend Richard Viguerie, which directs Help Hospitalized Veterans’ vast direct-mail fundraising operation. Viguerie is a prominent conservative figure and political direct mail fundraising pioneer who chairs ConservativeHQ.com.
The lawsuit further alleges that the nonprofit used increasingly common accounting gimmicks to inflate the amount of income purportedly spent on providing veterans’ services while artificially minimizing the amount reportedly spent on fundraising. For example, Help Hospitalized Veterans’ use of one of these gimmicks resulted in decreasing its reported fundraising costs from 65 percent of total costs to less than 30 percent. As a result, the filings to both the IRS and the Attorney General’s office were substantially false. Donors and charity watchdog groups rely on both of those reported expenditure categories in evaluating a charity’s efficiency.
Controversy around the performance of veteran’s charities like Help Hospitalized Veterans was brought to the public’s attention in 2007 by Rep. Henry A. Waxman, D-Calif., who, as chairman of the House Oversight and Government Reform Committee Hearings, held hearings into their fundraising practices and overhead. During the hearings, Chapin had vehemently denied the accusations, according to the Associated Press.
The lawsuit seeks general and punitive damages, restitution, civil penalties and the removal of those officers and directors named in the lawsuit.
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