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Calif. sues major veterans charity for millions, alleges fraud and self-dealing

California's attorney general sued a major veterans charity on Thursday, accusing the officers and directors of engaging in self-dealing and fraudulent fundraising, and paying excessive compensation.

The suit seeks to remove the officers and recover $4.3 million that it claims was improperly diverted from Help Hospitalized Veterans. The charity in Winchester, Calif., was founded in 1971 to provide therapeutic arts and craft activities for patients receiving care in Veterans Affairs hospitals, military hospitals and state veterans homes, according to its website.

"What makes this case so egregious is our military servicemen and women are willing to sacrifice their lives for our country and for us as Americans, and when they are in need of help and support we should give it to them and not manipulate charitable people and then personally profit from them," state Attorney General Kamala D. Harris told The Associated Press.

The charity raised more than $108 million in contributions over the last three years, it said in tax filings and on its website, with 33.8 percent going toward its programs. The suit alleges that it filed "false and misleading" tax returns that inflated program expenses and reduced its actual fundraising costs to "less than 30 percent."

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Based on its reported fundraising, Help Hospitalized Veterans ranks among the top 1 percent of charities in the United States. The group once was endorsed by retired Gen. Tommy Franks, who later distanced himself from the charity.

At the same time, it has ranked for more than a decade at the bottom of lists by watchdog groups that rate nonprofit organizations based on their financial management and abilities to use most of their donations toward their causes. CharityWatch says about 35 percent of Help Hospitalized Veterans' funds go toward programs to aid veterans. The recommended standard is about 65 percent.

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The California lawsuit said the charity's president, Michael Lynch, received excessive compensation of $900,000.

The complaint said that former president Roger Chapin, who during a 2008 U.S. congressional hearing about his management of the charity called himself the "the most honest person in this room," retired the following year with a nearly $2 million pension plan. The suit alleges that the group's board members retroactively spiked Chapin's earnings to justify the inflated amount for his retirement.

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Chapin is also accused of diverting the charity's funds through a separate charity called Conquer Cancer and Alzheimer's Now.

Chapin was accused of paying himself more than $493,000 from the cancer charity. That charity received the money from American Target Advertising, a fund-raising firm run by conservative political fundraiser Richard Viguerie, who is not named in the suit.

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'It's surprising it's taken this long'
Viguerie, who is identified in the suit as Chapin's long-time friend, is said to have deposited funds into the account of Conquer Cancer and Alzheimer's Now from $800,000 that Help Hospitalized Veterans had lent ATA and was not repaid.

"It's surprising it's taken this long for something to happen with all the serious problems that were brought up in the (2008 congressional) hearing," said Daniel Borochoff of CharityWatch, which monitors the financial records of nonprofit groups. "What's more, this information did not filter down to donors."

But he added: "Mr. Chapin spun a complex web to confuse well-intentioned donors and make it difficult for regulators to untangle."

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Calls to Help Hospitalized Veterans and Lynch's office were not returned. Viguerie did not immediately respond to phone and email messages seeking comment. Reuters was unable to contact Chapin on Thursday evening.

Borochoff said the complaint sends a strong message to unscrupulous charities.

"It's about $2 billion that is raised on behalf of veterans charity, and unfortunately a lot of that's being wasted and not being used to help our veterans," Borochoff said. "It's really ludicrous what's going on. It's out of control, there's such great waste. It's a national disgrace that people are allowed to exploit veterans for their own personal financial benefit, or benefit of their company."

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According to Charity Navigator, a third of the 50 military veterans charities it evaluates rate poorly and 20 percent either got a zero for their financial management or a "donor advisory" tag, which indicates the organizations are being investigated by authorities.

That compares to 2 percent for other kinds of charities, said Ken Berger, the president of the Washington-based group that evaluates 5,500 charities.

Reuters and The Associated Press contributed to this report.


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