NY AG Requires $1 Million Settlement and Resignation of Foundation Trustees

Late last month, New York Attorney General Eric T. Schneiderman announced that current and former trustees of the Victor E. Perley Fund had agreed to completely reconstitute the board of the organization and to pay over $1 million to settle claims against them.  The settlement is contained in an Assurance of Discontinuance approved by the AG and the Fund’s current trustees.  The Fund presents a case study of fiduciary duty failures; what is perhaps most notable is that the financial penalty fell heaviest on the trustees who appear to have only failed their duty of care as a news report indicates the trustees who personally benefitted from many of the transactions at issue lacked both insurance and any significant assets.

The AG found that starting in 2009 the Fund’s board failed in its basic governance responsibilities, permitting not only a substantial shift in the Fund’s purposes but also a series of improper transactions with the Fund’s new leader.  More specifically, the Fund changed its focus from making grants to help needy children to sponsoring a children’s choir (a choir the Fund is now barred from supporting under the settlement).  The Fund also purchased a million-dollar Southhampton house in which the new leader, a long-time trustee, lived in exchange for no or below-market rent, and paid the new leader tens of thousands of dollars a year for fundraising and marketing services even though the Fund did little fundraising and received few contributions.  During this time the board rarely met and, when it did, provided minimal oversight with respect to budgets, investments, and even such basic tasks as circulating and approving minutes.  The end result was a loss of almost the entire $3.7 million investment portfolio, except for the house, through risky investments managed by another of the trustees and from at least two of which he collected payments.  While the board terminated the new leader’s employment with the Fund after the AG investigation began, the trustees agreed to collectively pay over a $1 million to the AG’s office, which will be transferred to the Fund (less costs), and to be replaced by trustees acceptable to the AG’s office.  The trustee who managed the investments has also agreed to be banned for life from service as a fiduciary for a charity formed or operating in New York, with the other trustees accepted a three-year ban subject to them completing a fiduciary duty course (the new leader committed suicide in 2013 according to news reports).  No word yet on possible federal excise taxes, but the Fund is a private foundation so presumably those will follow.

Coverage: Crain’s New York BusinessN.Y. Daily News.

Lloyd Mayer