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Attorney General Lockyer Closes Investigation of UFW-Linked Charities After Finding No Violations of Nonprofit Laws
(SACRAMENTO) – Attorney General Bill Lockyer today announced his office has closed an investigation of charities linked to the United Farm Workers of America (UFW) after finding the organizations broke no nonprofit laws but need to strengthen their procedures governing transactions and solicitations to avoid the appearance of impropriety.
The Attorney General’s charitable trust section (CST) launched the probe after the Los Angeles Times in January 2006 published a series of articles critical of the UFW and the charities. The stories raised allegations the UFW-related nonprofits misled donors in soliciting contributions, and misused or wasted charitable assets in certain transactions with affiliated groups or persons.
“We found no basis to any of the allegations that we investigated under our charitable trust enforcement authority,” said Lockyer. “While we concluded none of the questioned transactions violated the law, the appearance of impropriety existed. In the future, when dealing with affiliated entities or individuals, UFW charities should take greater care to avoid conduct that, while it may not be unlawful, looks suspicious.”
The Los Angeles Times articles raised numerous criticisms of the UFW and the related charities. Lockyer’s investigation focused only on potential violations of laws governing charitable trusts and nonprofit corporations, including alleged misrepresentations during solicitations, misuse of charitable assets and breaches of fiduciary duty. Following are the CST’s findings on the issues investigated:
The United Mixtex Farm Workers (UMFW) Solicitation. In the summer of 1999, the UFW allegedly solicited money on behalf of the UMFW, but never sent any of those donations to the UMFW. The UFW contended the funds were solicited for all farm workers, not just the UMFW. Both the UFW and UMFW are labor organizations and not public benefit corporations, so no charitable trust issue existed. But general state laws that regulate business practices prohibit deceptive solicitations. To avoid potential problems in the future, Lockyer’s office recommended the UFW and related organizations clearly identify the beneficiaries of solicitation campaigns.
The Joe Serna Jr. Civic Participation Fund (Fund). The Los Angeles Times reported that invitations to this fundraising event said contributions would benefit a nonpartisan fund to help register farm workers to vote, but that UFW President Arturo Rodriquez told the audience donations would be used for advocacy on immigration issues.
However, neither the invitation nor the Fund’s goals are limited to voter registration. The invitation letter also discusses raising funds to educate and empower migrant farm workers, and stresses the need for leadership development. To use donations for activities related to immigration reform would not be inconsistent with the invitation or the Fund’s purposes, the CST concluded. In order to avoid problems in future solicitations, however, the CST recommended UFW-related charities clearly state how contributions will be used.
Payment to the UFW-Sponsored Health Plan. The UFW charities paid a combined $558,623 to the UFW-sponsored health plan. The CST concluded the payment was not unreasonable and did not constitute a waste of charitable assets. The combined charities’ monthly premiums were in line with premiums paid by comparably-sized employers, the CST found.
UFW Charities’ Purchase of Services from UFW. Smaller UFW-affiliated charities purchased accounting and human resources services from the UFW. The CST found the payments reasonable for two reasons: it is not cost-efficient for the smaller charities to hire staff dedicated to those services; and the UFW provided the services at a lower cost than the Keene-based charities could have received 30 miles away in Bakersfield.
LUPE’s Purchase of Services From UFW Charities. LUPE (La Union del Pueblo Entero), a UFW-affiliated charity, contracted with California First Five Commission (Commission) to provide public education and outreach to migrant farm worker parents. The Los Angeles Times reported LUPE spent 40 percent of the $2.2 million contract on services provided by UFW charities. The paper raised questions about whether Radio Campesina, a for-profit radio station owned by UFW charities, was overpaid for airing public service announcements. The CST concluded payments to the station were not unreasonable and that the higher rates LUPE paid for prime time announcements helped LUPE fulfill its contractual obligations to the Commission.
Vista Del Monte Project. One UFW-affiliated charity, Vista Del Monte Affordable Housing, Inc. (Vista) took out a $1.2 million loan at 11.75 percent interest from another UFW-affiliated charity, the Cesar E. Chavez Community Development Fund (Fund). Vista approached two secured creditors for the loan, but both refused. An independent housing consultant advised Vista that under the circumstances other lenders, including the Fund, would charge a higher interest rate because they would be unsecured creditors. Vista turned to the Fund, which provided the 11.75 percent loan. Given the facts, the CST found no basis to conclude Vista directors breached their fiduciary duty in obtaining the loan. The CST also determined the Fund’s directors conducted adequate due diligence before providing the loan to Vista.
The Tanis Ybarra Property and LUPE. LUPE rents space in a building owned by UFW Secretary/Treasurer Tanis Ybarra, who also sits on the LUPE board of directors. The arrangement raised questions of self-dealing. Tanis Ybarra leased the building to his son, Arturo, who is responsible for all building expenses. Arturo Ybarra has full and complete authority to manage the property and to sublease the space. He is not required to, and does not report to, Tanis Ybarra about the operation of the property. The LUPE/Arturo Ybarra lease’s per-square-foot rate is at or below fair market value, the CST found. The lease is not a self-dealing transaction, the CST concluded, because Tanis Ybarra, the LUPE director, is not a party to the transaction and receives no payments from LUPE.
Sale of House by the UFW to Dolores Huerta’s Daughter: The Los Angeles Times reported the National Farm Workers Service Center (Center) sold a West Los Angeles house to the UFW and that the UFW subsequently sold the house to the daughter of UFW co-founder Dolores Huerta for $200,000. The UFW is not a public benefit corporation, so the CST did not examine whether the $200,000 paid by Huerta represented fair market value. But the CST did review whether the Center received fair market value in 1998 when it sold the house to the UFW for $130,000. Before the 1998 transaction, the Center’s executive vice president of housing and economic development visited the property, surveyed the value of similar homes in the area and concluded $130,000 was fair market value. The law allows nonprofit directors to rely on the opinions of employees in approving such transactions. Nevertheless, to avoid the appearance of impropriety in the future, Lockyer’s office recommended the Center place properties on the open market or use outside consultants to assess value.
Center’s $1.8 Million Land Transaction Involving Emilio Huerta. As reported in the Los Angeles Times, the Center sold undeveloped property to Landmark Residential (Landmark), a for-profit real estate development firm where Emilio Huerta, Dolores Huerta’s son, was a partner. Emilio Huerta previously had served as the Center’s secretary and general counsel. The Center sold the property to Landmark for $1.8 million, then Landmark sold it to another housing developer, Ennis Homes, for $2.9 million – a $1.1 million profit. The charitable trust question is whether the Center sold the property at below market value to benefit Emilio Huerta.
The Center’s director of housing development had estimated that with a tentative map to build affordable housing, the property’s value stood at $1 million to $1.2 million. Landmark’s final bid was $1.6 million, but a third party, Explorer General (Explorer), submitted the winning bid of $1.8 million . The Center and Explorer agreed to a large down payment and short escrow period. Prior to signing the agreement, however, Explorer attempted to renegotiate the terms, saying it wanted a longer escrow. The Center wanted a short escrow to generate cash needed by the Center’s Radio Campesina to participate in a frequency auction that would have allowed it to increase educational programming for farm workers. So, the Center rejected Explorer’s counter offer and opened negotiations with Landmark, which matched Explorer’s $1.8 million price and agreed to a short escrow. On the $2.9 million resale, Landmark received payment from Ennis in June 2005. Emilio Huerta was reappointed as the Center’s secretary in January 2006.
Lockyer’s office found the transaction troubling, but concluded there was no basis to find the Center’s directors beached their fiduciary duty in selling the property to Landmark. The sale occurred when the highest bidder attempted to renegotiate the terms of the sale, and after Landmark agreed to both the higher price and short escrow. But to avoid the appearance of impropriety, Lockyer again recommended that in future such transactions the Center consult with independent real estate brokers or place property on the open market.