Massachusettes AG Sues Former Nonprofit President for Excessive Compensation; President and Board Should Expect Deficiency Notice Soon

In a complaint that should serve (unfortunately) as an excellent teaching prop for those of you teaching the tax law of exempt organizations, the Massachusettes Attorney General accused the former president of Falmouth College of engaging in acts that at the federal level can only be described as violative of the prohibitions against private inurement and excess benefits.  Acording to the Boston Globe:

Attorney General Martha Coakley sued the former president of a tiny Falmouth college on Tuesday, seeking to force him to repay the school millions that he allegedly squandered on excessive compensation, Mercedes automobiles, and a quarter-million-dollar timeshare in the Caribbean.In the lawsuit, filed in Suffolk Superior Court, Coakley also charged that President Robert J. Gee gave himself a $152,175 bonus in 2009, and then created false documents to make it appear that the school’s board members held a meeting to award Gee the money for his “superior job performance.’’ No such meeting ever occurred, according to the lawsuit.  During Gee’s tenure, the college he headed, the National Graduate School of Quality Management, bought an ocean-view compound with four houses that included a presidential home for Gee. Last year, the school sold those properties at a loss of at least $1.5 million.

As with campaign intervention, private inurement and excess benefit at this level is so obvious as to lack instructional value.  The complaint is useful to demonstrate the role of local AG’s in regulating nonprofits.  And their is also a useful practical lesson.  In my experience, one of the enduring truisms of nonprofit governance is that the founder can never, ever, ever be trusted years down the road when his or her zeal for whatever mission provoked the nonprofit’s founding has worn off but the nonprofit is still bringing in serious revenue.  It is a recipe for disaster and almost always leads to the founder treating the organization as his own private sugar daddy.  And the board members, probably all the President’s golfing buddies, better get set for the notices that derive from IRC 4958. 

dkj