Vanguard Foundation Update: With Leader Pleading Guilty, "Truth and Reconciliation"?

Blue Avocado Investigates [1] • Feature Articles [2] • By Rick Cohen • December 5, 2011 • forward article

Email [3] print article

The Vanguard Public Foundation was a high-profile, influential, progressive institution in San Francisco: the original "rich kids" foundation making grants to radical grassroots organizations and involving community members in grantmaking. As we chronicled in earlier Blue Avocado articles, Vanguard's ambitions coupled with absence of CEO oversight led to making the Foundation and many of its donors easy targets for a get-rich-quick scheme. Rick Cohen provides this update:

In all likelihood, within the next couple of months the former president and CEO of the Vanguard Public Foundation -- Hari Dillon -- will be sentenced for his self-admitted role in a small-scale version of a Bernie Madoff-like scam.

And around the same time, Mouli Cohen -- the persuasive businessman behind the scam -- will be sentenced as well. Just two weeks ago, he was convicted in U.S. District Court on 15 counts of wire fraud and 11 counts of money laundering (plus three counts of tax evasion). More than $30 million of foundation and donor money have disappeared.

As of now: Cohen is in jail and Dillon is facing jail; the Vanguard Foundation has closed its doors; there's talk of a grantee lawsuit (for awarded but unpaid grants); some activists are calling for a "tribunal" or a "truth and reconciliation process;" and progressive nonprofits are finding it harder than ever to raise funds in the wake of the Vanguard implosion.

The decline begins

Samuel "Mouli" Cohen was the hotshot Internet businessman who convinced several major donors to the Vanguard Public Foundation, including actor Danny Glover, to invest more than $30 million with him purportedly to purchase stock in Cohen’s firm -- Ecast -- which would then be acquired by Microsoft. The result would pay a return of some 1,000 percent ($3.50 shares of Ecast stock would be paid off in Microsoft stock at $23 per share), giving them both a fantastic return and the ability to make even bigger donations to Vanguard. All told, more than 55 investors had given Cohen money for the chimerical Ecast deal.

When a deal is too good to be true, it usually is exactly that. Although Cohen had been with Ecast (which provides bars and nightclubs with digital music and interactive advertising), he was long gone from the firm by the time he started pitching to Vanguard donors and leaders; there was no pending acquisition by Microsoft, and Cohen was pocketing the money to finance an extravagant lifestyle. Like Bernie Madoff in New York, Tom Petters in Minneapolis, R. Allen Stanford in Texas and most recently Garfield Taylor in Washington, D.C., Cohen was just another Ponzi scheme artist whose scams captured charities as well as individual investors

Somehow, Dillon and some of the foundation’s longtime donors fell for Cohen’s scheme. Their participation essentially bankrupted the well-known Vanguard Public Foundation, an organization founded in 1972 known to make grants to progressive, grassroots organizations mostly in the San Francisco Bay Area. Therein lies the tragedy, a story of hubris and ignorance mixing to undo a history of philanthropic good work and causing damage beyond the specific downfall of Vanguard.

Based on interviews with former board members, staff, grantees, and donors (many of whom asked not to be named), and by review of court documents, the story emerges:

In the late 1990s, Vanguard's leaders watched the dot.com boom enrich other foundations. It seemed as if not only the progressive causes, but Vanguard itself and Vanguard's donors would all benefit by making a killing in the market. A few years earlier, a sign reading the "Dillon Group" had appeared next to the "Vanguard Public Foundation" sign on the foundation’s offices front door. What it was, who it was, who worked for it, and what part of the Vanguard Public Foundation offices and personnel were working for the Dillon Group was not clear . . . except that Hari Dillon (president of Vanguard) was the CEO of the Dillon Group, which was a private partnership vehicle for investors. The first Dillon Group preceded any dealings with Israeli technology entrepreneur (and self-styled philanthropist) Mouli Cohen, but eventually there were at least three Dillon Group partnerships and one Glover partnership used as vehicles to funnel investments from Vanguard Public Foundation donors to a deal with Mouli.

Reluctance to question

As the attorneys asked the investors/donors who testified during the trial: why didn’t you call anyone about Cohen? Why didn't you consult investment advisors? Why didn't you look to see that Cohen had been sued by his own former firm and by an Oregon investor who had fallen for the same scheme? Why didn't you do basic due diligence on a deal that was taking millions on the promise of a fantastic, too-good-to-be-true deal?

Partly, they fell for Mouli Cohen’s show, his self-produced documents about his international philanthropy. They fell for the trappings of this successful hotshot investor: his four-story house in Belvedere, his house full of original Picassos and Matisses (that turned out to be fakes), the butler and the maids.

The investors also fell for the deal, it must be said, partly because of Hari Dillon. Dillon was the leader and face of the foundation, Danny Glover's pal, the radical activist who had stood up against criticisms of his foundation work, even causing critics on the board to leave the organization in frustration. In many instances, Cohen's pitches were conveyed and assured by Dillon acting as the intermediary to the scammed investors. Many critics say that donors and Vanguard board members were afraid to challenge Dillon for fear of being seen as undermining a progressive leader of color, and some board members -- who were also grantees -- have said they didn't want to jeopardize their grants by questioning the foundation's leadership.

Guilty pleas

Dillon and the board weren't motivated only by the usual desire for personal wealth. They wanted to see Vanguard run its own initiatives and make bigger grants, requiring a good deal more money. Hari Dillon spent two days on the witness stand at Cohen's trial, having signed a "cooperation plea"of guilty to a couple of counts of wire fraud and money laundering. On cross-examination,Cohen’s attorneys tried to paint him as a con man himself rather than the dupe he claimed to be.

But Dillon’s plea involves his own share of the booty. Apparently, the plea agreement -- revealed in court, but still not accessible in the court’s public records -- acknowledges that Dillon diverted or misappropriated some $2.5 million for his own purposes, including the purchase of a condominium in San Francisco and the payment of personal debts. Sources say that Dillon had anticipated that the Cohen/Ecast/Microsoft deal would generate such huge returns that he would be able to repay what he had taken, but the fact is that he has pled guilty to taking money for himself.

Where did Mouli’s money go? It’s gone, that’s for sure. We’re told that he spent some $6 million between 2003 and 2009 renting private jets, taking expensive trips to Israel, the south of France, and elsewhere, and purchasing a mammoth $1.4 million diamond ring (presumably for his wife, Stacy, who attended the trial faithfully) and fancy cars such as an Aston Martin, a Jaguar, and a Rolls Royce -- but it doesn’t all add up to $30 million. Several sources suggest money stashed away or given to family members.

Maybe there will be investor lawsuits against Cohen as there have been against Dillon and the Dillon Groups to recover some of the money. Good luck.

Collateral damage

The damage of the Vanguard Public Foundation implosion is not limited to Dillon, the donors, and the foundation itself. The damage goes to fundraising for progressive organizations. Efforts to create or revive a "new Vanguard" that would bring money from progressive donors to making small grants to progressive groups "run off the kitchen table" have been difficult to sustain. For instance, social activists concerned about Vanguard's fall, the closing of the Agape Foundation, and the San Francisco Foundation's dismantling of its social justice program have created the Bay Area Community Advised Fund (BACAF). Structured to prevent the management governance problems of Vanguard, BACAF suffers from the fallout of the Vanguard disaster. "Every time I talk to a donor from that era," one activist said, "the question is what happened [at Vanguard]."

But structuring new funds that self-consciously present themselves as managed and governed differently from Vanguard isn’t enough. “We’re really hampered by Vanguard, hampered by issues of trust… it’s impacting us in our ability to build anything here,” one activist said, adding that “people are furious, they aren’t buying the [Dillon-as-] victim story.”

A tribunal for Vanguard?

As a result, there are moves to “clear the air,” to examine the story of Vanguard publicly enough to allow donors and groups to hash out the issues. Several people mentioned the idea of a Vanguard “tribunal” (one called it a “truth and reconciliation” process, telling terminology given Dillon’s well-known history of support for the African National Congress in South Africa). "The community needs to heal from his dishonest behavior, and this cannot happen if he continues to spout lies about what he (Dillon) did with the money," a former donor to the foundation said.

There is also word of a grantee lawsuit in the works -- the 501(c)(3) Vanguard Public Foundation still exists, though there were court documents questioning whether anyone was authorized to officially represent the entity -- though what assets plaintiffs might seek are questionable. It may be that some "pass-through" grants from donors to specific nonprofit recipients may never have reached their targets despite being announced as having been made by Vanguard.

According to the Justice Department’s press release, Mouli Cohen faces a maximum penalty on each wire fraud count of "20 years in prison, a fine of the greater of $250,000 or double the gross gain from the offense, restitution to victims, and three years of supervised release" and, on each count of money laundering, "10 years in prison, a fine of the greater of $250,000 or double the amount of criminally derived money, and three years of supervised release." Presumably, Dillon is eligible for the same penalties, though his cooperation with the federal prosecutors and his guilty plea (compared to Cohen’s tooth and nail fight against the charges) -- plus the fact that the scheme was clearly cooked up by Cohen, who had run it before -- may end up being taken in his favor by the courts.

Nonetheless, both Cohen and Dillon having to disgorge themselves of whatever assets they received in this scam, won’t be enough for the Bay Area philanthropic community or the region’s politically progressive community that feels, according to one observer, "burned…[due do the] bad business, bad politics, [and] bad personal behavior" attributed to Dillon, the board, and others. "We’re burdened by [the Vanguard Public Foundation’s] history big time," one activist added.

Did the Cohen-Dillon scandal do damage to philanthropy beyond the demise of one now all-but-defunct foundation? An expert in the public charity field put it professionally: “There are a lot of pretty disillusioned donors out there, the violation of fiduciary duties always hurts the field.” One former donor was somewhat less polite about the impact on her: “No matter your personal relationships with folks involved, it's more important to ask the tough questions and be willing to take some heat,” she said. “I'm advocating radical philanthropy at this point … F**k the gatekeepers; it's critical to fund the new movement that has arisen without waiting for bureaucracies to sprout.”