The Copeland Family Foundation was one of the charities featured in the famous 2002-03 Boston Globe spotlight series on self-dealing and improper spending by charitable organizations. Some three years later, we have a resolution of the dispute that evolved out that story between those running the Copeland Family Foundation and the Massachusetts Attorney General’s office. The Globe series focused on the nearly eightfold increase in the salary of its president from 2000 to 2002.
The settlement took the form of a...
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governance agreement and requires the Copeland Family Foundation trustees to make drastic changes in the way the foundation operates to address allegations of financial abuse and excessive compensation. The agreement between the Copeland Family Foundation and the AG's office calls for the president and chief executive officer, both of whom also work as foundation employees, to return $45,000 each and terminate the foundation's lucrative pension fund. Under AG Reilly's governance agreement, the Copeland Family Foundation trustees must:
Liquidate its pension fund, which grew to $1.2 million since 2001, and return the monies to the foundation within 30 days.
Hire a professional adviser, or independent monitor, with considerable oversight authority to consult with the foundation board on operations, new policies on conflicts of interest, compensation and benefits, and report back to the Attorney General's Office.
Appoint two new, independent board members within the next 30 days. Future board members must also meet the definition of "independent," as outlined in the AG's governance agreement. The Attorney General's Charities Division must approve new board members.
Reduce and cap the salaries of foundation board member and President Martha Verdone and Chief Executive Officer John Tobin. Verdone and Tobin, who are both employees of Copeland Properties, Inc., are also required to return $45,000 each to the foundation.
This is a significant victory for the Massachusetts Attorney General and Jamie Katz, head of the Public Charities Division. The decision of the Massachusetts AG’s office to pursue the matter with such vigor reflects an increasingly larger focus by AGs on governance-related matters. In the past, many AG offices focused more on charitable solicitation and consumer protection.
In reporting the Copeland Family Foundation settlement, the Boston Globe also reported that the Massachusetts AG's agreement with Paul C. Cabot, Jr. had unraveled a bit. See F. Latour and W. Robinson, Trustess to Reimburse Foundation: AG's Investigation Leads to Agreement, Boston Globe, (April 14, 2006). Mr. Cabot had previously agreed to repay the Paul and Virginia Cabot Charitable Trust $4 million, according to the Globe. The AG’s office reported that they had only collected $900,000 in restitution to date; presumably paid to the trust. Apparently, the AG’s office settled for that amount because the Internal Revenue Service had collected some heavy fines from Mr. Cabot for self-dealing. Moreover, there was apparently the prospect of litigation by other family members that the AG’s office said might further deplete the trust’s assets.
We find that fact about the IRS particularly interesting because when these sorts of cases hit the paper, it is often unclear whether the IRS is aware of the particular situation, and if so, whether the IRS follows up. In this case, they either were aware, or read the newspaper and undertook their own investigation. Just to be fair, the Globe reported that Mr. Cabot released a statement last week indicating that he had complied with all terms of the initial agreement with the AG’s office. His compliance is not surprising. As a practical matter, he had a pool of money and the IRS and the AG's office apparently divvied it up between them. That should not be taken to mean that each side did not fight hard for a larger share of the available funds.
Internal Revenue Service - Circular 230 Disclosure: As provided for in Treasury regulations, any advice (but none is intended) relating to federal taxes that is contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.
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