RIVERSIDE, Calif. (CN) – A charity for military veterans bilked more than $4 million from California by understating revenue, the state claims in court.
A major component of the case involves a donation of calling cards that would keep active-duty military tapped into their favorite sports back home. EZScores donated the $18.75 million worth of “sports scorecards” to the Coalition to Salute America’s Heroes, but California says a different charity claimed the donation twice in its 2005-06 tax return.
Neither EZScores nor the coalition are parties to the 29-page complaint in Superior Court.
The coalition’s founder, Roger Chapin, also served as an officer of the second charity, Help Hospitalized Veterans.
California says Help Hospitlized Veterans, Roger Chapin and other HHV directors claimed the scorecards as revenue and as a “program services expense.” To justify the write-off, HHV said it donated the scorecards to the coalition.
In reality, however, HHV neither distributed the scorecards nor had any say in who would receive them, according to the complaint.
California says HHV misreported the donation to “boost” revenues, “and to minimize its reported cost of fundraising” – a ploy that was “likely to mislead the IRS, potential donors, and others.”
HHV officers also raked in “excessive and unreasonable” pay, wasted assets, and engaged in self-dealing, according to the complaint.
Roger Chapin, for example, earned $2.3 million in compensation since August 2002, as well as a “lump-sum retirement payment” of $1.96 million.
Other improper claims that the charity made involve $40 million for public-service announcements and shipping discounts, and $40 million in program-service expenses for the fiscal years 2002-11, according to the complaint.
HHV’s imprudent” investment in a Virginia condominium led to $150,000 in losses, California says. The charity also spent an $800,000 on golf-club memberships, and it wasted or diverted assets for gifts, entertainment and travel, according to the complaint.
In 2001, Help Hospitalized Veterans directors allegedly rubber-stamped and diverted a $500,000 grant to another of Roger Chapin’s charities, Conquer Cancer and Alzheimer’s Now.
California says that Chapin used this nonprofit as his personal bank account, withdrawing more than $490,000 from its account long after it had closed shop.
HHV later authorized $250,000 and $2.5 million loans to Conquer Cancer and Alzheimer’s Now, according to the complaint. Of $750,500 that HHV also donated for Christmas grants to active-duty injured troops, the charity used only about $550,000 for the grants, California says.
Chapin also allegedly destroyed Conquer Cancer and Alzheimer’s Now records after the U.S. Congressional Committee on Oversight and Government Reform probed Help Hospitalized Veterans and other veteran charities and asked Chapin to testify.
California additionally claims that HHV made improper self-dealing loans of $800,000 to American Target Advertising, a direct-mail fundraiser that is also not a party to the complaint.
American Target Advertising had paid hundreds of thousands of dollars into the Conquer Cancer and Alzheimer’s Now account, the state says, noting that Chapin was longtime friends with one the fundraiser’s directors.
Chapin and others allegedly backdated corporate documents, including resignations and loans to conceal conflicts of interest. The charity also falsely stated that direct mailings were “produced by Help Hospitalized Veterans, which retains 100 percent of the contributions made,” according to the complaint.
“This statement, made in one of the direct mail solicitation campaigns defendant CDR [Creative Direct Response] conducted for HHV, was false, misleading, and deceptive and would likely lead a reasonable donor to believe that there were minimal or no fundraising expenses associated with the solicitation campaign,” the complaint says. “In actuality, HHV incurred substantial fundraising costs that were paid from the contributions received from that solicitation campaign.”
California is represented by Attorney General of California Kamala Harris. It filed suit for breach of fiduciary duty, aiding and abetting a breach of fiduciary duty, engaging in self-dealing transactions, excessive executive compensation, wrongful acquisition of property/unjust enrichment, misrepresentations in solicitations, and engaging in unfair competition.
Though the lawsuit seeks unspecified damages, California estimates $4.3 million in damages plus civil penalties.
The defendants are Help Hospitalized Veterans; Chapin; his wife Elizabeth Chapin; and directors Michael Lynch, Robert Beckley Jr., Thomas Arnold, Leonard Rogers, Gorham Black III, and Robert Frank; as well as Frank’s accountancy Frank & Co. P.C.; and direct-mail company Creative Direct Response.
HHV did not immediately respond to a request for comment.