ACORN's Prophetic Lawyer
By Matthew Vadum on 10.1.09 @ 6:09AM
"But whether you try to implement some or all of these recommendations, there must be someone committed to follow-up. There must be a review mechanism, and a means of holding people accountable after any final decisions are made. If you do not make some hard choices now and ensure they are carried out, they almost certainly will be made for you." -- attorney Elizabeth Kingsley of Harmon, Curran, Spielberg Eisenberg LLP, in a prophetic legal memo to ACORN dated June 19, 2008, the day before ACORN's national board ousted ACORN founder organizer Wade Rathke.
ACORN's lawyer warned ACORN 15 months ago to begin fixing its massive internal problems or face certain catastrophe. ACORN didn't listen. It let the problems fester.
The advice from Elizabeth Kingsley of Harmon, Curran, Spielberg Eisenberg LLP came in the form of an eerily prophetic legal memo to ACORN dated June 19, 2008, the day before ACORN's national board fired disgraced founder Wade Rathke.
The memo is a kind of Holy Grail for ACORN researchers. One source of mine keeps a copy in a safety deposit box. I've lost track of how many people have asked me over the last year if I knew how to get a hold of it. One source told me yesterday that there are many people who would "kill" to gain possession of it. This is a bit of an exaggeration perhaps, but not much.
In articles by investigative reporter Stephanie Strom, the New York Times has published excerpts of the document. Incidentally, aspects of the Old Gray Lady's coverage of ACORN were top-notch last year until management made a conscious decision to suppress Strom's reporting before Election Day, apparently for political reasons.
Bearing the subject line "Initial Report on Organizational Review," the Kingsley memo is addressed to ACORN and major affiliates ACORN Beneficial Association, ACORN Housing Corp., ACORN Institute, ACORN Votes, American Institute for Social Justice, Citizens Consulting Inc., Citizens Services Inc., Communities Voting Together, Pennsylvania Institute for Community Affairs Inc., and Project Vote (formal name: Voting for America Inc.).
The complete memo will be posted at Andrew Breitbart's BigGovernment.com later today. It consists of sequentially numbered pages, but one page -- page 14 -- is missing, so in my file page 13 abruptly jumps to page 15. My source, who insists on anonymity, says the document arrived in that form via a fax machine. I have not retouched or altered the document in any way except where I superimposed the logo of the think tank I work for, Capital Research Center.
Underscoring how important the document is to ACORN, all pages except the first page bear lawyerly caveats at the top: "Sensitive Report -- Do Not Distribute Beyond Initial Recipient List." Perhaps that's community organizer-speak for "TOP SECRET."
The Kingsley memo paints a picture of a once-proud activist conglomerate in utter meltdown and confirms some of the most serious allegations about ACORN now being heard on Capitol Hill.
The problems within ACORN, she admits, are systemic.
Kingsley explains that her concerns fall into four major categories: "respect for corporate integrity, the necessary separation between different types of political work, the niceties of 501(c)(3) tax compliance and accounting for those funds, and a big-picture question about organizational capacity." She goes to great pains explaining that she is not trying to single any person out, "but to point to systemic institutional concerns."
Americans who follow the news know that the activities of the ACORN network, a tangled mess of interlocking directorates and affiliated tax-exempt groups that routinely swap seven-figure checks, have long cried out for a probe under federal racketeering laws. The undercover prostitution sting videos that began popping up at BigGovernment.com in mid-September made America intensely interested in ACORN for the first time. While the mainstream media is now covering ACORN, kind of, sort of, no longer can ACORN be said to be the exclusive preserve of Fox News Channel and conservative talk show hosts.
In her reference manual for left-wing activists, The Practical Progressive, Erica Payne reports ACORN's total 2008 budget was $50 million. Surely that figure is too low.
The network has taken in at least $107 million in donations and $53 million in federal funds since 1993, yet it owes millions of dollars in back taxes and is eligible for up to $8.5 billion in federal funding this year.
No one really knows how big the entire ACORN network's budget is. One of the reasons is that tracking housing and community development grants administered by the U.S. Department of Housing and Urban Development (HUD) is difficult. HUD often distributes the money to states and localities, which then allot the funds to many different nonprofit groups. Getting a total financial picture would require enlisting an army of Freedom of Information Act requesters.
Kingsley seems to confirm my assertion that there is no meaningful distinction, no discernible institutional firewalls that separate ACORN and its hundreds of tax-exempt nonprofit affiliates:
There is no point in having these different corporations in place if they are not respected. If not properly operated, they create difficulties (e.g., potential conflicts of interest for lawyers, non-trivial administrative burden of state filings, and the appearance that someone is trying to hide something under a byzantine corporate structure) without generating the desired benefits, whatever those may be.
This is "the natural result of thinking of all these different corporations as part of the family, or 'us,'" she writes.
Key ACORN affiliates argue they are not "'affiliated,' 'related,' or 'controlled' by or with each other, for various legal purposes, while allowing actual control to be exercised in a highly coordinated manner," she writes. ACORN suffers from "an organizational culture that resembles a family business more than an accountable organization."
She argues "it may be time to consider whether direct governance control and/or acknowledged connections are appropriate, rather than trying to pretend that these groups are not connected to one another and create control mechanisms behind the scenes."
"The IRS says that it cares about governance because it finds good governance linked to legal compliance, and slip-shod or absent governance and internal accountability are red-flags for tax and other legal problems," Kingsley counsels. "In this case, the IRS is right."
She highlights the following policies or the lack of such policies:
• Whistle blower policy [priority: CRITICAL]
• Document retention and destruction policy (simple version prohibiting illegal destruction of documents) [priority: URGENT]
• Contemporaneous documentation of Board and Committee meetings [priority: URGENT]
• Conflicts of interest policy [priority: IMPORTANT]
• Documented process for determining compensation for the CEO and any other officers or key employees [priority: IMPORTANT]
Apparently ACORN doesn't follow best practices.
Kingsley hits ACORN for its incestuous hiring practices. "Also, though we have not created a draft policy at this point, all corporations with staff should adopt an appropriate anti-nepotism policy," she writes. But don't go overboard.
This is not to suggest a draconian policy that does not permit hiring of related people…But a minimal responsible policy would probably require that immediate family members or people in a domestic partnership or dating relationship not be one another's direct supervisors.… Critically, all staff must be required to recuse themselves from any decisions relating to the employment of their relatives.
Who knew ACORN headquarters on Elysian Fields Avenue in New Orleans was Animal House!
Founder Wade Rathke might have been wise to adopt an anti-nepotism policy. His brother Dale embezzled $948,000 from ACORN while working there. Even after Wade covered up the theft, he kept Dale on the payroll for eight years. Wade's wife, Beth Butler, and reportedly, his two children also work at ACORN.
Kingsley slams her client for not keeping political activities separate from other activities. "It may be that activities are carried out with adequate independence, but without formal policies and separation of staff functions, there are potential liabilities and problems of proof."
Citizens Services Inc. (CSI), an ACORN affiliate that received $832,598 from the Obama campaign for get-out-the-vote work during primary season, is a prime example. Kingsley writes that "[w]ithin both CSI and ACORN, there needs to be a formal policy adopted and implemented and enforced that separates independent political activity from anything coordinated with a candidate or party."
This was so urgent that Kingsley insisted the new policy had to be in place "by the end of the month" or the following month.
Kingsley also warns of the danger posed by the affiliates' lack of proper documentation showing that the ACORN network has been following IRS rules on nonprofit behavior. There is too much overlap between various employees representing different affiliates and confusion about who is controlling which funds and this can only lead to trouble, she argues.
She warns ACORN that "merely papering the transfer of money is not sufficient." The nonprofits have to be able to show that their funds were used for appropriate purposes.
She writes that ACORN Institute and American Institute for Social Justice should not make further grants until such time as offices with outstanding paperwork for previous grants get around to filing the needed reports.
Suffice it to say, Kingsley lets her client know it is in big trouble. There are further serious questions about the use of pension funds and about the Dale Rathke embezzlement and coverup.
The expulsion of the "ACORN 8," a group of national board members kicked out of ACORN for asking ACORN management to produce documentation on the embezzlement, came months after the memo. You could even say the group's members were kicked out by Wade Rathke's successor, Bertha Lewis, for following Kingsley's advice.
I shudder to think what Kingsley would have to say about Lewis's flagrant abuse of power.
ACORN, as it turns out, is an ugly, corrupt organization. It is just as bad, just as evil, as people said it was. If you don't believe me, ask Elizabeth Kingsley.
The Republican National Lawyers Association, which has been in the forefront of the push to investigate ACORN, sounded just the right note. Said RNLA president David Norcross:
"ACORN should view their current situation as an opportunity to truly reform itself and place the interests of its members first and they can start by re-examining the report by Elizabeth Kingsley and addressing the malfeasance and dysfunction running rampant within their organization."
Letter to the Editor
topics:ACORN, Wade Rathke, Elizabeth Kingsley
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Matthew Vadum is a senior editor at Capital Research Center, a Washington, D.C. think tank that studies the politics of philanthropy.