MANHATTAN (CN) — The founder and president of the New York Legal Assistance Group diverted more than $2 million in charitable funds from the nonprofit over 15 years, the New York attorney general says in a settled complaint.
The People of the State of New York filed the seven-count lawsuit against Yisroel Schulman on Wednesday in New York County Supreme Court.
Schulman founded the New York Legal Assistance Group, or NYLAG, in 1998, as a nonprofit to help poor New Yorkers obtain legal counsel.
But according to the complaint, he spent the next 15 years diverting at least $2.3 million to other funds. He transferred $1.7 million of it back to NYLAG, without revealing the precise routes of the money, and in January 2015, “when Schulman learned of the federal investigation, his diversions exceeded the amount he had previously returned to NYLAG by at least $800,000 inclusive of the interest that NYLAG would have obtained from investing those funds,” according to the complaint.
Schulman allegedly transferred some of the money to himself.
“In addition to reaping personal financial benefits, Schulman also made the transfers to enhance his reputation and standing in his community – i.e., so that he could appear to be a much greater benefactor of the organizations with which he was affiliated than he could be by using his own personal funds,” the complaint states.
Attorney General Eric Schneiderman said in the complaint that Schulman funneled improper transfers through NYLAG’s Interest on Lawyer Account “because he knew that NYLAG’s accountants did not audit those accounts and that the Board would not be monitoring those accounts when it reviewed the financial statements prepared by the accountants.”
Schneiderman’s complaint follows a federal investigation and grand jury subpoena as well as an internal investigation by the NYLAG, whose board discovered Schulman’s transfers. Schulman resigned from NYLAG in February 2015, after the federal subpoena. Beth Goldman now serves as its president. According to its website, in fiscal-year 2015 the group “directly served over 78,500 vulnerable New Yorkers” and maintains overhead costs of just 9 percent.
Camilla Jenkins, a spokeswoman for the New York Legal Assistance Group, applauded the Attorney General’s Office for its thorough inquiry into the matter.
“We are pleased that the critical legal services NYLAG provides have been unaffected and that NYLAG’s funds are intact,” Jenkins said in an email. “NYLAG will continue to expand the scope of the legal services we provide to tens of thousands of New Yorkers who rely on NYLAG’s dedicated staff and volunteers to protect their interests. Further, when this matter was first raised almost three years ago, NYLAG implemented new procedures to ensure the proper safeguarding of funds and has agreed with the attorney general to keep these procedures in place.”
The complaint says Schulman recommended in 1998 that the NYLAG reserve fund of $2.45 million be transferred to a donor-advised fund at a philanthropy management charity called FJC: A Foundation of Philanthropic Funds.
Although FJC is not an investment company or bank, this meant that it, rather than donors or NYLAG itself, had legal control of NYLAG’s money. Therefore NYLAG did not have to report on the money, which caused the nonprofit to appear to need more financial contributions than it did need, which Schulman saw as a boon to fund raising.
Without telling FJC he was a creditor of a third charity, Schulman also recommended it give grants to that charity, in part so the third group could pay him back for the loans, and from 2005 to 2014 he “wrote checks to himself from [the charity’s account] totaling $429,751.30,” according to the complaint.
FJC spokesman Timothy Gilles said the group, which was not involved with the court case or the settlement, came to a side agreement with the attorney general.
“We applaud the actions of Attorney General Schneiderman in detecting and stopping the fraud perpetrated on FJC,” FJC said in a statement. “We were pleased to assist in the investigation and look forward to continuing to work closely with the Attorney General and his Charities Bureau to ensure the integrity of the nonprofit sector and the protection of charitable assets in the State of New York.”
In the settlement agreement, which must be approved by a judge, Schulman agreed to pay NYLAG $150,000. He is also banned from serving as a nonprofit officer or director in New York for five years.