Decline and Fall of the Vanguard Foundation

Once acclaimed as a pioneer in philanthropy and an important force for social justice, the Vanguard Foundation is no more. The full story will take years to emerge, but we report here in Part I on some of the clues to its sorry demise. A link to Part II is at the end of the article.

In San Francisco, the Vanguard Public Foundation is out of business, its nonprofit status suspended by the California Secretary of State, its website down, its assets apparently gone. Federal and state court lawsuits involving donors, investors, staff, and trustees question what happened to millions of dollars that flowed through the foundation to progressive causes.

But nonprofits and foundations go out of business all the time, particularly in this nonprofit-devouring recession. What makes the Vanguard Public Foundation worth special inquiries? Is it because of the celebrities associated with Vanguard -- Danny Glover, Harry Belafonte, and United Farm Workers co-founder Dolores Huerta, among others? But the glam factor is not the story.

The Vanguard Public Foundation (not to be confused with the Vanguard Charitable Fund related to the for-profit Vanguard), was lauded in its heyday as a new wave of philanthropy, a generational shift, an exemplar, and a model.

The famous people associated with the foundation are neither the story nor the cause of the foundation's demise. Rather the story may be one of organizational hubris, board narcolepsy, and the disease of our time: the siren song of the get-rich investment plan which, like Bernie Madoff's ponzi scheme, was just too good to be true.

A new generation of philanthropy

Established in 1972, the Vanguard Public Foundation was among the first of the social justice foundations established by the young scions of wealthy families, inheritors of corporate fortunes who were devoted to supporting a progressive, very liberal social and political agenda. One of the first of the "rich kid foundations," Vanguard was heralded as an inspiring model of a new generation's remaking of philanthropy.

Vanguard rose as a leader among some two dozen new progressive public grantmakers that became members of a network called the Funding Exchange. Largely modeled on Vanguard are the Haymarket People's Fund in Boston and the Liberty Hill Foundation in Santa Monica. In 1977, Vanguard produced the bible for these funds, Robin Hood Was Right: A Guide to Giving Your Money for Social Change, re-issued by the Funding Exchange 25 years later.

Vanguard's grantmaking role remained distinctive, putting money into social movement causes, often before they became politically acceptable and often to organizations and actions that were never going to generate mainstream support. Among the often controversial groups that benefitted from Vanguard grants:

  • Act Now to Stop War and End Racism (ANSWER)
  • Astraea National Lesbian Action Foundation
  • Center for Third World Organizing
  • Emilio Zapata Oakland Street Academy
  • Free Mumia Abu-Jamal
  • KPFA (Pacifica Network Free Speech Radio)
  • National Immigration Project of the National Lawyers Guild
  • Rainforest Action Network
  • School of Unity and Liberation (SOUL)
  • Solidarity Info Services
  • Southern Poverty Law Center
  • Young Worker Project

Vanguard was a friend to emerging causes which often went on to become more accepted by the public and more fundable by mainstream foundations. Donors also gave funds to such causes through Vanguard, enabling unincorporated groups to receive donations.

These are the kinds of grants that cause heartburn for the likes of Glenn Beck ("Marxist foundations of the 'social justice' movement") and Bill O'Reilly ("pinheads!").

Are progressive foundations in general suffering?

Is Vanguard's demise reflective of a downturn in these foundations of young (and in many cases, now no longer young) progressive rich people? While just about every public foundation has experienced the downturn while raising money from wealthy donors, the members of the Funding Exchange look healthier than one might expect, even in many cases increasing their grantmaking over a period of many peaks and troughs in the economy. For example, grantmaking grew between 1998 and 2008/9 at Liberty Hill, the Appalachian Community Foundation, Bread and Roses Community Fund (Philadelphia), the Headwaters Foundation for Justice (Twin Cities), and the McKenzie River Gathering (Oregon).

Others have shrunk over the years, perhaps as the big community foundations offered themselves as social justice competitors for donor-advised funds, others perhaps simply due to changes in leadership and management. The Southern Partners Fund in Georgia, Haymarket, and even the North Star Fund in New York City are significantly smaller than they were a dozen years ago, but they still exercise influence in their communities and within the philanthropic sector.

Unlike many of its peer progressive foundations, the Vanguard Public Foundation dissolved into nothing -- other than litigation. Why?

Mouli makes the world go 'round

In 2002, Vanguard leadership met an exceptionally intriguing entrepreneur named Samuel "Mouli" Cohen. In addition to his glamorous background, Cohen reportedly promised to achieve astonishing financial returns using Vanguard's funds as investments.

The Israeli-born Cohen (no relation to this author) and his wife Stacy lived the lifestyle of the rich and famous in a mansion in Belvedere, California. A master of self-promotion, Cohen's multiple personal websites, Facebook page, and press releases reveal him to be anything but modest; he describes himself as a "brilliant visionary," "business tycoon and magnate," "world renowned philanthropist," and "super entrepreneur."

Given the charges and countercharges now swirling around Mouli's relationship with the foundation and its leaders, some of his self-promotion is unintentionally humorous and ironic, particularly this from his Mouli Cohen on Business webpage: "(I)ntegrity is one of the most important characteristics for any investor. Investors, customers, employees and partners will reward you endlessly if you always act with complete integrity, according to Mouli Cohen."

It's hard not to give him one-name celebrity status, like Cher, Bono, Usher, or Madonna; his over-the-top persona demands it. As a philanthropist, Mouli's exploits, mostly known from press releases and philanthropic blog posts that he seems to have generated, didn't sync with Vanguard's values, mission, or funding priorities. For instance, representative of Mouli's philanthropic activities were support for the European Center for Jewish Students, which works to increase the Jewish population of Europe against the threat of intermarriage and assimilation; a Jewish orphanage in Odessa; facilities development at the Ukraine tomb of a Lubavitcher Hasidic rabbi; and a library and museum in Israel affiliated with the Lubavitcher Hasids. In addition, he claims to be a leader and donor to several organizations which mention him nowhere on their websites, including Camp Okizu, Seva Foundation, and Soroko Medical Center.

Regardless of these differences in philanthropic goals, Vanguard became interested in Mouli for his investment acumen. A self-described technology entrepreneur, he claims to have founded or led business ventures which have generated some $3 billion in shareholder value. One of his more recent activities was a digital entertainment firm called Ecast, which provides services to bars and nightclubs.

The picture blurs

Now the story gets murky with a mix of charges and countercharges, and of course, litigation. Apparently, in 2002, Mouli met Vanguard CEO Hari Dillon and actor/activist Danny Glover. According to complaints filed in state and federal courts, Mouli said he would help the foundation by allowing Vanguard and its individual donors to buy shares in the privately owned Ecast. Dillon and Glover formed general partnerships through which they purchased several million dollars worth of Ecast -- or thought they did. The Contra Costa Times reported that Vanguard donors ultimately put in over $20 million more in philanthropic money and personal investment cash. How much of this was Vanguard money repurposed through Mouli is unclear.

The story gets even murkier. The investors -- now plaintiffs -- say Mouli stated that Ecast was to be acquired by Microsoft, which would generate a return on investment, according to the Times, of 1,000 percent. And according to peHUB Wire, the deal was to buy Ecast stock at $3.50 a share, but get paid off in Microsoft shares after the purchase at $23 per share. But something or other kept putting off the miracle. The Microsoft acquisition reportedly got delayed over EU rules, which generated a need for more fees to cover transaction costs. Then there were reports that Ecast was considering a competing bid from Google, further delaying the deal. Ultimately, there was no Microsoft purchase, no Google bid, and the money disappeared ("stashed" in Cohen's secret accounts and distributed to family members like wife Stacy, according to plaintiffs), and the investors were, one might say, aggrieved.

Mouli's attorney denies it all.

Even Ecast sounds aggrieved, stating that Mouli Cohen left Ecast in 2002, roughly when these dealings began. An Ecast attorney told Vending Times that the firm has had "ongoing" legal problems with Cohen, including two cases filed in 2003 and 2004 against Cohen about "very similar" charges that were settled out of court. If it was true that Dillon, Glover, and the Vanguard Public Foundation investors thought they were buying Ecast stock, they were doing so with a guy who had been out of Ecast's picture for years.

Transforming a social justice foundation into what?

But questions of questionable management and governance decisions at the foundation do not seem to have been limited to this speculative multi-million dollar investment with someone of dubious provenance. Why didn't someone notice the following?

  • Annual operating deficits: $427,000 deficit in 2003, $1.33 million deficit in 2009 and $1.37 million deficit the subsequent year
  • Deficit of $1.95 million in 2006, nearly equal to the $1.99 million received in contributions, gifts and grants
  • In its last publicly accessible Form 990 in March 2007, Vanguard had total assets of $453,000 and total liabilities of $3.59 million
  • That same 990 showed $1.25 million in loans from officers and directors and $1.8 million in mortgages and other notes

The operating deficit dropped to "only" $1.2 million on its final Form 990, but by then the foundation was living on fumes -- or loans.

By 2007, loans from officers and directors included $5,000 from Danny Glover, $100,000 from board member Susanne Moore, and $600,800 from CEO Hari Dillon. In Vanguard's 990 for the fiscal year ending in 2008, Dillon's loan to the foundation had grown to $1,172,511.

The Vanguard Public Foundation was living on borrowed funds largely from the CEO, whose salary and benefits at the foundation combined do not appear to have ever topped $90,000 annually. But the foundation didn't appear to be thinking about belt-tightening during this period of financial stress. Travel expenses skyrocketed and salaries grew as significant funds were used to send CEO Dillon, senior staff member Gus Newport, and others on "projects."

A grantmaking foundation was turning into an operating foundation, running its own programs instead of making grants to nonprofits. In its last available 990, the foundation lists $3.35 million in total expenses, including the following:

  • $600,000 from Vanguard's donor-advised funds to the Peninsula Community Foundation
  • $103,000 from non-donor-advised funds to Gathering for Justice c/o Belafonte Enterprises (singer Harry Belafonte is one of Vanguard's founders)
  • Only $129,000 in other non-donor-advised grants

In the fiscal year ending March 2007, Vanguard's total expenses were almost exactly what it owed in loans. The foundation was investing, borrowing, and spending itself out of existence.

Oddly, the partnerships established by Dillon to invest money in Mouli Cohen's Ecast scheme made him personally fully liable for the funds. Typically, a general partner would never expose himself to such risk, unless perhaps the deal was a sure thing with a big upside. But the foundation's investments and the donors' additional funds didn't yield a nickel, at least perhaps to anyone other than Mouli Cohen. This left Dillon on the hook. In 2010, Dillon filed for personal bankruptcy, listing assets of $836,000, primarily from the value of his home, secured claims of $721,000 (probably a home mortgage), and unsecured claims totaling a whopping $21.6 million.

Lessons from Vanguard's demise

These are all clues to a story for which we have neither an end nor a satisfactory answer about motivations and choices. More of the Vanguard Public Foundation story will emerge in the months ahead as lawsuits wend their ways through the courts, but some lessons are discernable now:

1. Too good to be true: The lesson of Mouli Cohen, like the lesson of Bernie Madoff, is to be careful about schemes that will make your nonprofit or foundation rich. Mouli's deal was better than anything Bernie Madoff ever pitched. It should have been obvious.

2. Character counts: Dillon and many of the Vanguard people are hard to find now or won't speak on the record, but Mouli continues to issue self-congratulatory pronouncements on his website. It's hard to imagine that the philanthropic values of Mouli Cohen (or his wife, the author of the Kosher Billionaire's Secret Recipe) were any kind of comfortable match with those of the foundation.

3. Non-attentive trust in the CEO is not a healthy governing model: With warning signals in abundance, observers suggest that the board was even a little mesmerized by the CEO and his celebrity friends. And board meetings were reportedly very rare.

4. Give the grants to nonprofits, not yourself: It's so easy for foundations -- even progressive foundations -- to decide they should run their own programs rather than give grants. Whether one agrees with Vanguard's agenda or not, a legacy of giving grants to causes it believed in would have been one to be proud of . . . rather than one dirtied by using the funds on its own activities.

5. Are progressive groups especially vulnerable to disengagement? Some have suggested that Vanguard's moves to turn over some decision making to community leaders left donors disengaged, and resulted in board members who were less attentive to grantmaking decisions and governance responsibilities.

6. Sleepy press, sleepy government: How does a public grantmaker disappear and garner so little attention from the press -- including the nonprofit press -- and no attention from the government? The Internal Revenue Service? The Attorney General?

There are many stories to be found in the rise, decline, fall, and aftermath of the Vanguard Public Foundation, and this article only touches on one of them. Tragic stories have at least as much to teach us as the rosy, jargon-filled stories about themselves that foundations pump out by the thousands. The Vanguard story is one from which we will be learning for a long, long time.

Rick Cohen writes this column for every other issue of Blue Avocado. He is also National Correspondent for the Nonprofit Quarterly, and former Executive Director of the National Committee for Responsive Philanthropy. Rick is known for his investigative reporting, sharp eye, and commitment to integrity. Here he is as detective Sherlock Holmes on the trail for clues. How did he find the outfit? Elementary, my dear Watson.

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Comments

An excellent article. But why are you blaming the IRS and the attorney general? How would they have seen a problem in the works? This is really laid at the feet of the CEO and the board.

I wouldn't say "blame," but you have to wonder when the AG and the IRS get into the game. In this instance, with litigation going on for some time now, there have been enough flares in the air to catch the attention of Sacramento and Washington to pay attention, I think.

Great article, though it turned my stomach.

August 4, 2010 Great article, thanks. Yes, if it's too good to be true, it's too good to be true!

Great story. Great outfit. Lay off the tobacco.

We know from your article that Mouli & Stacy made large claims and lived large, with a lot of name-dropping along the way. But it would be of interest to understand their background & history. How long have they been hustling and what have the hustles been? Is their agenda simply to con wealth out of available mark, or is anything else motivating them. Where did they hone their "skills."

Knowing some of these sorts of things might help others avoid disaster in the future

Dear Anonymous: You're right, of course, and I do have plans to do a follow-up on this in some more detail. But think back to when this deal with the Cohens started. It was as the dot.com boom was petering out, but still lots of people thought that they too could make dot.com-like profits, even if even then many were shown to be paper profits at best. Mouli's track record, which I can detail, is a lot of high tech entrepreneurial stuff, with three or four companies preceding ECast that looked like, to others, that they had the attributes of dot.com/venture capital success. Digging into them, you'll find the clues that would have been important for the Vanguard Public Foundation staff and board to investigate. However, it seems that there was little appetite for asking questions not simply about the probity of Mouli and Stacy, but due diligence questions about any kind of large investment of this kind. I'm guessing that some people on the VPF board did have questions, but somehow these basic questions never got pushed through to the fore. Watching out for hustlers is one thing; asking the right questions about any kind of investment scheme is important whether or not Mouli Cohen is a player. Back with more on this soon.

This should have been the clue ... right up front: "the deal was to buy Ecast stock at $3.50 a share, but get paid off in Microsoft shares after the purchase at $23." There is no free lunch. If it sounds too good to be true, well then it probably is. Thank you for the article. Liz

While Congresswoman Betty McCollum’s proposed legislation about creating a “Small Business Administration (SBA) for non-profits has received a fair amount of press in non-profit circles, my question is would a model based on the Securities and Exchange Commission (SEC) organization make more sense? The core principle of the laws about capital formation is “Full Disclosure and Transparency.” That’s way public corporations have to file both annual reports (10-K’s in SEC parlance) and quarterly reports (10-Qs), as well as special reports about any “material change”, e.g. insider trading, change in the corporate structure, etc.

In the context of Rick’s question about where was the IRS or the Attorney General, it’s often very late in the game when criminal actions are discovered. If non-profits above a certain size were required to have periodic filings (since they are also a “public” entity) this could be a better model for creating early warning systems that would let both donors and officials know of potential problems sooner rather than later. The other appeal of the SEC model is that it is one that has both government and non-government entities as a critical part of the overall structure. The SEC does not have 100% responsibility for monitoring and disclosing issues with corporations, the “Self-Regulatory Organizations (SROs)” actually have the first responsibility for monitoring and making sure corporations and broker-dealers are following the rules. Who are the SROs – they are they exchanges and other key components of the USA’s capital formation system – New York Stock Exchange, NASDAQ, etc.

In the non-profit world, the Independent Sector, the National Council of Nonprofits, the Foundation Center, and others are some of the organizations that with expanded resources and authority could perhaps take on the responsibilities of being a “SRO” for non-profits. SROs have to be willing to discipline their members, that’s one of their key responsibilities. I give kudos to Congresswoman McCollum for paying attention to the non-profit world, which many Representatives and Senators do not. If the proposed legislation has any hearings, perhaps some of these ideas deserve discussion. Regards, Bill Huddleston The CFC Coach www.cfcfundraising.com P.S. I’m not a securities lawyer, and don’t play one on TV.

Hi Bill: thanks for the very interesting comment. I'd be very very interested to hear from Avocado readers regarding what they think of your comment. Readers, please weigh in!

I agree that the National Council of Nonprofits should be given more authority and money to be the "police" for our own organizations. We are the ones who care and know what our issues are the most. Pat Drewry Sanger

Excellent article. A must-read!

Why aren't Stacy & Mouli in jail by now?

I suspect that the story of Stacy and Mouli has not reached its final chapter. Mouli's most recent post-Ecast business venture was/is a venture capital group called Voltage Capital. Its website doesn't have much on it (http://www.voltagecap.com/). Have any Avocado readers had any interactions with Mouli's investment or philanthropic sides? We'd love to know.

Ours is one of who knows how many nonprofits that were told we were getting a grant from Vanguard -- the grant never appeared. I guess it's time to take it off of our receivables...

Thank you for investigating and publishing this article. i used to work at a nonprofit that Vanguard still owes money to--money that was awarded over 5 years ago. i'm not there anymore, but after reading your article i'm fuming again at the hubris and total lack of accountability evidenced by the Board of Directors specifically. their names should be made public and they need to be held personally accountable for squandering the wealth and good will of donors and grantees alike.

In your article you ask why no one spoke up about these problems before--nonprofits like my former employer knew something was rotten, but because of the near total power foundations have over nonprofits, we can't say anything for fear of being blacklisted. until foundations become more transparent and meaningfully accountable to the community they serve, this will happen again. by the way, you should also look into the Funding Exchange itself, which is also foundering amid questionable Board practices & lack of accountability to the progressive community.

The warning signs were there for SO long. I know my org isn't the only one with grants due to us from Vanguard dating back before 2005. I've often wondered if there were anything small organizations like ours could have done as a group to demand a level of community accountability from a funder that caused real harm.

For years, the foundation staff/board continued to award grants to small organizations that detrimentally relied on those contracts and verbal promises of forthcoming funds, all some or all of them must have known that the foundation would/could not pay out the funds.

At one point I called Mr. Dillon to tell him personally what it is like to take maternity leave without a salary all because a grant wasn't paid out. I got more verbal promises of a huge payoff coming down the pipe from far away. If I felt like I was listening to a spam email pitch, surely others must have as well. I hope one day there is a conversation about how fundees and other foundations could intervene in a constructive way in situations like this one in the future so that fewer folks get hurt.

I especially value these comments from nonprofits that were awarded grants -- but never got them -- from Vanguard. All the time the Foundation's board is the last to know in a community that there's something deeply wrong with the staff.

Yes, this problem of groups promised Vanguard grants that never appeared seems to have been a consistent theme. Actually, these groups were awarded grants, told they were receiving grants, and as one of the commenters noted, they probably booked them as receivables. But the comment about fear is important. I suspect that not only did groups not want to complain because they thought that might mean they wouldn't get the grants when Vanguard got that big payoff that the ED mentioned, but that it would poison their relationships with other funders, because foundations are seen as not wanting to fund troublemakers, complainers, groups that will question what funders are or aren't doing. So there's something to be addressed about the culture of philanthropy in which nonprofits that might want to complain about their mistreatment at the hands of one funder feel like they will be hurting themselves with other funders. These are all very important comments and worth more thinking and analysis. What can and should groups do when they are clearly awarded funds and then the funds don't come through?

This is very sad news! I was on the Board of Directors of Vanguard in the late 80's early 90's and at the time it was a truly transforming experience. For a short period of time after Beth Rosales the former ED left to take a job in New York I also served as the interim ED before Hari was hired. What is troubling about this news is how far it appears that Vanguard had fallen from it's core values. At the time I was involved the foundation on which the organizational values were based involved community engagement, and a transparent process based on a social agenda! The board members at the time were very engaged and had almost weekly meeting and active fundraising activities. The collaboration/relationships that existed between activists and donors was a unique experience that I will value for a life time. Again, this is sad news. Brenda Crawford

Dear Brenda: Thank you for your comment. It is a truly sad story. There were parts that i uncovered that simply struck me as tragic, especially given the earlier history of the Vanguard Public Foundation. Nothing in this story should be taken as impugning the important history of Vanguard before the events that led to its demise. The saddest part of the story are actually the comments that have been posted from nonprofits that were promised or awarded money, but the money wasn't delivered. Thank you for writing and reminding the Avocado's readers about the history of the foundation before Mouli and Hari.

We are having prooblems with our local foundation now providing services themselves, sot they are sharing less and less with nonprofits. They have gone so far as to mislead the community about where the funds they are raising are going. Local nonprofit representatives were used to make presentations to the community to give, and then the bulk of the funds were kept by the foundation for their own program.

Local nonprofits were too scared to speak out about it for fear of being black balled. We were so outraged, that we at least asked them some rather softball questions. As everyone predicted, we will no longer be getting funds from this foundation or any of their partners. This is unfair and there seems nothing we can do about it. As foundations struggle to find relevancy since their funds are dwindling, they are straying away from their purpose. We no longer look to this foundation for support; we look to them as a really tough competetor for funding.

There are two important issues here, with the first being the nature of communication within the non-profit sector itself, and how good is it in terms of transparency and recognition of true power relationships. Melinda Tuan wrote a great article in a 2004 issue of the Stanford Social Innovation Journal titled the "Dance of Deceit" which is a great sound bite description of the problem. Here's one paragraph from the article and I don't think things have improved all that much in the past six years.

"There are no easy solutions to ending these dances of deceit. At the core of each of the relationships is the struggle for power. Foundations have power over nonprofits because they have the money. Nonprofits know foundations cannot achieve their mission without their work. The heads of organizations want to use and protect their power. Executives of both nonprofits and foundations are taught how to “spin” their communications and “manage their boards of directors” to limit their accountability to a governing entity. Few executives truly want the accountability that a fully engaged board of directors will provide – and demand in return."

The second issue is one that I alluded to in my earlier comment about using an "SEC model" for non-profits as opposed to the SBA model. One significant aspect about publicly traded companies is that there is a wealth of information available about them, from both government and private sector sources. It is possible to create a mechanism for providing information to the public about non-profits, including capitalization as well as a category for "grants payable". Once a grant is awarded, with this type of system there would be public disclosure of the grant and it would help hold the "feet to the fire" of the grantmaking entity.

Regards,
Bill Huddleston

The CFC Coach

www.cfcfundraising.com

Bill, thank you for contributing some very good thoughts to this conversation.

However, I can't agree with creating an SEC-like organization for nonprofits. The SEC regulates large firms such as banks and securities brokers. They have zillions of requirements that are very, very expensive to implement -- such rules for nonprofits would result in killing off the democratic aspects of nonprofits as they would prejudice so strongly for only large nonprofits handling large amounts of money. Second, as we should all know by now, neither SEC regulations nor Sarbanes-Oxley have done much to keep fraud and questionable activity out of even the biggest, most public companies. Witness Goldman Sachs, Bear Stearns, and the rest of the Wall Street crowd . . .

We already have the IRS, the state attorneys general, the state charity officials, and the country contract officers and foundation program officers looking over our shoulders. PER DOLLAR I'm guessing we have 600 as many eyes looking at our finances as do the banks. No reason to create another barrier and regulator when we already have some good ones in place -- we should fund these rather than create new ones.

Not to mention that in terms of magnitude of problem, the high impact crimes in our country are in the banks, the investment firms, the real estate firms, the pharmaceuticals and the like . . . not in the small businesses and community nonprofits.

Jan,
A few points, first and foremost I think it’s way too early to reject any approach based on costs, since there’s been no discussion of what the approach would actually be used, much less being able to determine any realistic cost estimates before an overall approach is decided upon.
While it’s true that the SEC does regulate large companies and the market participants, (broker-dealers, market makers , etc.) the actual purpose of the SEC is:
---------------------------------------------------------------------------------------------------------------------
SEC Mission (from the SEC website):
The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.
-----------------------------------------------------------------------------------------
SBA Mission (from the SBA website):
The U.S. Small Business Administration (SBA) was created in 1953 as an independent agency of the federal government to aid, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise and to maintain and strengthen the overall economy of our nation. We recognize that small business is critical to our economic recovery and strength, to building America's future, and to helping the United States compete in today's global marketplace. Although SBA has grown and evolved in the years since it was established in 1953, the bottom line mission remains the same. The SBA helps Americans start, build and grow businesses. Through an extensive network of field offices and partnerships with public and private organizations, SBA delivers its services to people throughout the United States, Puerto Rico, the U. S. Virgin Islands and Guam.

Both are important missions, and as you can see the focus of the SEC is the public, including both investor protection and capital formation, and the focus of the SBA is on individual businesses. In terms of how they are physically organized, the SEC has about 12 regional and district offices, while the SBA has 70 district offices, 10 regional offices, and 4 disaster field offices.

I actually think the non-profit sector needs some combination of both approaches, one to help non-profits be better at what they do (the SBA model) as well as some of the functions that facilitate capital formation (the SEC model). And you are correct, that when organizations have top leaders whose prime motivation is greed and power, (Enron, “Chain-Saw Dunlop” with the companies he destroyed, Lehman Brothers, etc.) bad things happen to both employees and the public. Of course in the non-profit world, the most infamous example is the United Way of America under William Aramony, so that particular human weakness is not confined to the for-profit world.

In terms of the issue of foundations not telling the truth, and reneging on promised grants to non-profits it’s much more important to take advantage of modern technologies (i.e. computers and web-based applications) to create a system of public available information. Just as no developing country without a decent phone system would decide to dig thousands of miles of trenches and install copper wiring, instead they would use wireless technology, any modern system of transparent information can be computer based, at a single point. The different state regulators would and the public could all have access to this information, but national non-profits would not have to file with 50 different regulators.

One system about that provides publicly available information about colleges is The Delta Project, with its “Trends in College Spending (TCS) database which lets you compare different universities to each other by criteria you specify. Here’s an example comparing a UCAL campus, Penn State & Virginia Tech to each other on a per student basis:
Total Revenues by Source (One Year) url: tcs-online dot org

Year:
2008
All dollars are reported per FTE Student, in current dollars.

Column Headings ( on report they are at the top of each column)
(a) Net Tuition

(b) State and Local Appropriations

(c) Private Gifts, Investment Returns, and Endowment Income

(d) Federal Appropriations and Federal , State, and Local Grants and Contract
(e) Auxiliary Enterprises, Hospitals, Independent Operations and Other Sources

Total Revenue: (f)=(a+b+c+d+e)

Institutiton Carnegie (a) (b) (c) (d) (e) Total Rev.

UCAL -San B. Public Master's 4,650 $ 7,567 $176 $2,233 $1,019 $15,644
Penn State Public Research $14,826 $4,411 $3,822 $7,161 $18,207 $48,428
Virginia Tech Public Research $8,730 $9,627 $1,983 $8,072 $6,572 $34,984
Comparison Group -Median $8,730 $7,567 1,983 $7,161 $6,572 $34,984
Comparison Group-Mean $9,402 $7,202 $1,994 $5,822 $8,599 $33,018

It took about two minutes to generate this report( it looks better on your own PC, I had to delete spaces for it fit here) and while the categories needed for non-profits and foundations would certainly be different, I do think it’s a good example of what’s possible as a means of providing valuable information to the non-profit stakeholders, including donors, boards, and employees.

Regards,
Bill Huddleston
The CFC Coach
www.cfcfundraising.com
Bill Huddleston, CFC Expert

Author of soon to be released:

CFC Fundraising
How to Grow Donors that Give for Decades

Email: BillHuddleston@verizon.net
1-703-560-1825
www.cfcfundraising.com

With all due respect to some of the previous comments, I would hope that people would differentiate between the intentions of a long succession of really excellent program staff, who repeatedly warned Vanguard's board members that something was terribly wrong, and the actions of the CEO and the cronies with whom he eventually surrounded himself.

Unfortunately, rather than confront the CEO in any meaningful manner, the board allowed the most talented of Vanguard's staff to depart or be dismissed unheeded and put up with the untenable situation of meeting only once or twice over long periods of time-- even after key board officers were made aware of allegations of inaccuracies in financial reports, inappropriate staff relationships, and the existence of a murky investment company, called the Dillon Group, of which Vanguard's CEO was the chair.

Dear Anonymous: There's no question that some staff were clearly not a party to these activities and were in fact vocal with senior management and perhaps the board expressing their concerns and opposition, to the point of leaving because they couldn't abide by this stuff. So yes, let's not impugn some of the fine staff whose integrity and values made it impossible for them to simply go along with the flow for their paychecks. One of the early comments posted here addressed the board culpability, and that is clearly the first and most important line of control and oversight. To my knowledge, board meetings were very very infrequent, maybe once a year at some points, board questioning sparse, financial and program data given to the board incomplete or worse. I think my article hinted at the dynamic of the board trusting the CEO, perhaps because many/most board members were friends of the CEO or rather taken by the CEO's charisma. Consider me a nonprofit apostate, but I think for all of the attention our sector gives to questions of board composition, board roles, board governance, I see tons of not simply dysfunctional boards, but boards that are cheering sections for the CEO comprised of CEOs' friends and lovers, board meetings in which the CEO dominates discussion, harangues, lectures, etc., and they're encouraged to do so in the guise of "strong leadership" or "visionary leadership." I think boards have to be questioning, skeptical, and probing, pushing for answers that hold water, not promises and "trust me" pledges. One theme of the Vanguard Public Foundation story is, as one comment above noted, the drift from its mission and purpose, but another is a reaffirmation of the importance of good board oversight and responsibility. Thanks for the comment, for sure!

Keep digging for great stories, Sherlock!

Actually I think this writer himself got mesmerized by Mouli Cohen. The far more interesting character seems to be Hari Dillon, but he's hardly mentioned. He heads up the foundation for years, apparently not involving the board in the big decisions. When I read that he had lent the foundation an eye-opening $21 million dollars I figured he was another rich kid. But then it says he went into bankruptcy. Was he worth $21 million and used it all on bailing out the organization he worked for, only to fail anyway?

Dear Anonymous: No, you're right that there's a story about the CEO too. It's like the Bernie Madoff story. First, there was the stuff on Madoff, then the question of the culpability of the investment managers and (some) nonprofit CEOs involved with him began to come to the surface. Stay tuned.

oh, and Hari didn't lend the foundation $21 million. On his bankruptcy filing, he owed $21 million (actually more). He loaned the foundation what looks like $1.2 million or so, as of the last 990 i was able to find.

One of the most interesting aspects of this story is that, until now, it wasn't a story. For all the value of rethinking how nonprofits are regulated and overseen by authorities, the press plays an important role as well. Or at least it used to.

This story, whether about Dillon or Cohen, or perhaps best about the two of them, has received scant attention. Arguably 20 times bigger a malfeasance than ACORN was, not a peep from Stephanie Strom. One wonders why? Strom after all seems to thrive in this kind of material. While the NY Times could probably do a great deal better, she's kinda all we got in the national press.

Last point: what IS up with the California AG's office on this? If the facts are anywhere near what you report, there seems ample justification for a criminal indictment. Madoff after all is in jail for life. Cohen? Seems to be rocking out in front of his mirror (read self-promoting websites) trying to figure out which superlative to use about himself. One does wonder if any of the Vanguard people ever looked at those sites. This is one strange dude.

Someone brought your article to our attention and we have since read it. Especially given that you did not have the benefit of talking with any of us directly involved, we were impressed by your article.

At the same time, which is understandable, there are some important inaccuracies, both historically (Vanguard's history since 1989), and regarding what transpired when Mouli Cohen began his targeting of Vanguard in late August 2002. While it would require us to write a lengthy narrative to address all of these, or even the most important, right now we wanted to inform you of three interrelated things of significance.

First, we are not hard to find. Vanguard's phone number remains the same, so that people can reach us. Much more importantly, we (including Hari Dillon) and several donors who were/are major victims of the multi-million dollar fraud conceived and perpetrated by Mouli Cohen, have worked mightily over the last period of time to bring Cohen to justice and get restitution for the huge sum of monies stolen. A significant achievement was reached in that regard after a long period of tireless effort, when Mouli Cohen was arrested and taken into custody last Thursday in Los Angeles by the federal authorities. He was arraigned last Friday.

We are not allowed to say more right now because it could jeopardize the legal efforts against Mouli Cohen, but we did want you and those following your article to know of our efforts and this major development.

from Several Who Are Directly Involved

Thank you for the information. I certainly did try to reach Several Who Are Directly Involved, including investors and others, who informed me that they could not speak to me, I gather on or off the record, I think precisely because of those legal efforts. But I would be more than pleased to speak directly with anyone and everyone who would like to fill in the blanks in my brief article or to correct inaccuracies, which I assure you I would love to correct. Please feel free to contact me at cohenreport@gmail.com if you would like to start a conversation. And yes, it is a very major development that Mouli Cohen has been arrested and arraigned.

It's very good to hear from you. As part of the background for this story I also talked to many people who would either talk only as deep background and completely off the record. Please get in touch with Rick or me as we are planning to have another article on this topic. Jan

Vanguard was pivotal in redirecting the course of philanthropy during its early years, and many other similar foundations were created and modeled on Vanguard's dual donor and community boards, making grants to small grassroots social change organizations. The staff and boards at Vanguard took great pains to keep meticulous records, and conform to all IRS laws regulating 501 (c) 3s. The financial statements of the foundation were made available to the public, published every year in the Annual Report. Investments were never an issue until Mr. Dillon arrived.

I suggest that you look closely at the books/annual reports (or lack thereof) for the days, weeks and years immediately following Hari Dillon's hiring by VPF. Where were the incoming funds going? When and why was Dick Chinlund, CPA let go? When and why did board meetings decrease in frequency, thereby reducing Dillon's accountablility to the donors, boards, staff, and grantees? I hope you are able to expose the underlying reasons for the demise of the foundation, in the hopes that similar situations can be prevented as foundations have a great responsiblity to those they fund.

Lesson I learned? Donors should beware of those they hire to run their philanthropic organizations and be diligent in the oversight of their work.

Yes it's true Vanguard was pivotal in the progressive philanthropy direction. I don't know who Dick Chinlund is, but how come the grand jury/DA isn't asking these questions? I don't know Mr. Dillon but seems like some serious questions need to be asked about his role in the demise of the foundation.

Thanks for the great article. I have to take issue with your Point #5, however. Many of the other funds that are members of the Funding Exchange, such as North Star Fund, have committees that make the grantmaking decisions made up of community organizers and activists. And thanks to the leadership of member funds and the Funding Exchange, many other private foundations are now including community members in their decision-making processes. This does not mean that the board is disengaged or not involved in governance. All of us in the nonprofit and philanthropic sector need to be careful about falling for schemes that seem to good to be true and instituting adqueate internal controls for financial management. Unfortunately, the progressive sector is not immune. But neither are we at special risk. cori schmanke parrish Deputy Director of Finance & Operations North Star Fund www.northstarfund.org

Dear Cori: thanks for the note and the important point you make. I'd love to see other funds write in on that question, not just the Funding Exchange groups, but others that have created committees of community activists with grantmaking decision-making roles. That was a topic I addressed positively in a report I wrote some years ago for the National Committee for Responsive Philanthropy on "community-based public foundations." It is important that the donors do not become inadvertently disengaged. In the Vanguard case, something went amiss. Thanks again for the comment.

Loved this article on the Vanguard Foundation. Somehow I hadn't heard
anything about their demise. So sad.

Dear L.B.: There was almost no coverage. The Avocado deserves credit for taking a leap of faith to explore what happened in this story. There is more come--and more to be learned that will help current and future grantmakers.

I'm just noticing the vast difference between this article on Vanguard and the article by Cate Steane of Family Emergency Shelter Coalition. It's true that every nonprofit organization, every Executive Director/CEO and every board of directors are bound to face challenges that at first glance can seem insurmountable. It's all about who the people are and how they chose to respond. This is the real test of leadership and Cate's should be an example to us all. Leadership is not a position, a title or a celebrity - its about the responsibility you hold, the commitment you make and the values you practice in your decision-making. I got dreamy imagining what it is Cate would be able to do with a fallen organization like Vanguard.

Rick: Holy Cow! I didn’t know about the crash and burn of the Vanguard Foundation until I read your article. What a freak’en mess. Thanks for keeping your eye on our peers.

Readers will want to know that two days after Blue Avocado published this article, Mouli Cohen was arrested in Los Angeles; see http://www.samspadesf.com/2010/08/samuel-mouli-cohen-indicted-for-wire.html for more.

What a shocker! Who would have thunk'it: Vanguard is out...? Very tragic and sad.

I interned at Vanguard in the late 70's and was impressed with how well its staff and many of its board knew who and what was happening at the grassroots, in politics, in social change in the Bay Area and beyond. A smart, savvy group. They were well connected and well respected. Many in progressive circles knew they had an ally in VPF. It contributed a lot to the fabric of the Bay Area and to progressive philanthropy. The donors were exceptionally open minded and democratic. It is a great legacy. Perhaps the last-serving leadership of VPF meant well, but executed poorly. Tim Siegel

You are missing a big part of the story... Those who gave Cohen money based on that phony Microsoft deal, were engaging in insider trading, which is illegal! They should be prosecuted!

Several of the comments have touched on a common theme The CEO was involved in an illegal deal with Cohen. The reason Vanguard ceases to exist is the fact that Hari Dillon took Vanguard funds (embezzled) and either put them into a deal that he should have known wasn't real or he used that money for his own personal funds. If his salary was reported correctly but he was able to make the loans reported it sounds like he must have kept at least a significant portion of the funds he "raised".

I have heard that the majority of the board tried to meet but that Dillon kept refusing with different excuses. Some other local non profits have also been duped by him of hundreds of thousands of dollars and the time frame sounds like it was after it was known there wasn't a Microsoft/Ecast deal. If Vanguard had donations how come they didn't pay out grants for years while the CEO invested millions? Sounds like the grand jury should look into the CEO.

Interesting issue. I've had other people mention the Martha Stewart insider trading issue with Imclone as a comparison for example, but the difference strikes me in this way. Stewart was dealing with Imclone people like CEO Sam Waksal, so her source of information and access was actually connected to the company. In the Vanguard case, according to information from Ecast, Cohen was out of Ecast at just about the same time the Vanguard people began considering investments with or through him. But I'm not a lawyer. We'll keep an eye on the legal proceedings and report back to Avocado readers when we have substantive information that clarifies questions like this one. Thanks for the comment and pointer.

Really, it seems neither Rick Cohen nor the last couple of anon commentators know what they are talking about. The Vanguard/cohen fraud bares no relationship to insider trading like Imclone which was a public company and Martha Stewart. The so-called deal with E-cast and Microsoft was a private supposed to be a private purchase and hence all trading was insider trading and perfectly legal procedure. The fraud was Cohen pretending to own shares of E-Cast and claiming a deal in the works for a buy-out. John Levin

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