Minnesota AG Forces Charity to Restructure & Replace Leadership

Minnesota Attorney General Keith Ellison announced in early September that his office had agreed to a settlement with the nonprofit BFW Institute of Education & Research that requires the organization to replace its directors and officers and restructure its operations to end alleged self-dealing transactions. While allegations of self-dealing are unfortunately all to common with nonprofits, the complexity of the alleged scheme here is interesting.

From the AG’s press release:

BFW issues grants for pain-relief care to veterans, first responders, law enforcement personnel, and their family members. The court order that the Attorney General’s Office filed today alleges that, under prior leadership, BFW approved only its related pain-relief provider, Ultimate Wellness Center (“UWC”) for grantees to seek care.  BFW’s relationship with UWC — which is wholly owned by BFW’s founder — had never been competitively evaluated, appropriately documented, or negotiated at arm’s length. 

BFW’s structural issues also contributed to unchecked conflicted decision-making. These conflicts took several forms, including:  

• Four of BFW’s five directors had a financial interest in or were otherwise affiliated with UWC or in the two entities subcontracted to provide patient care at the clinic. 
• None of BFW’s “approved provider” relationships, financial transactions, or other conflicted director arrangements were disclosed to or discussed by the Board of Directors when it entered into transactions, renewed agreements, or elected directors to the Board. 
• Save for one, none of BFW’s board members signed required annual statements disclosing potential conflicts. 
• BFW gave its founder and its Treasurer the authority to borrow money on behalf of the corporation and did not require the Board to approve loans—even those taken from BFW’s founder. 

As a result, BFW became heavily indebted to its founder and his related entities. BFW started borrowing money from its founder and his businesses as far back as FYE 2012, when it owed $88k. As of FYE 2020, BFW owed $712k to its founder individually and $1k to one of his businesses. The loans were not board-approved, had no written agreement, and some were not disclosed on BFW’s tax returns as insider loans. The loans were ostensibly taken out to fund veteran care, but grantee checks were to be redeemed only at insiders’ for-profit care providers. From 2016 through 2019, BFW made $2,020,607 in grants for care that were to be redeemed at those insider-owned providers. 

Coverage: Minnesota Star TribuneSun Post.

Lloyd Mayer