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Brown Sues to Stop UCLA Professor from Improperly Using Charitable Donations to Fund Personal Business Ventures

Wednesday, September 9, 2009
Contact: (415) 703-5837

Los Angeles – Attorney General Edmund G. Brown Jr. has filed legal action to permanently stop Professor Gerald D. Buckberg, M.D., and five officers of the nonprofit L.B. Research Foundation from “diverting donations” from the charity to their own personal business ventures and medical research activities.

“California law strictly prohibits the use of charitable donations for one’s personal benefit,” Brown said. “Yet, Professor Buckberg and his associates diverted donations from L.B. Research Foundation to fund their research and development projects in clear violation of California law.”

Under California law, “no part of a charitable organization’s income or assets may inure to the benefit of any director, officer, member or private person.” However, since 1997, L.B. Research Foundation’s officers have used its funds to finance their own medical research, the research activities of companies in which they had a financial interest and the development of medical devices that they sold.

Dr. Buckberg founded L.B. Research Foundation in 1997. The purpose, as stated in the articles of incorporation, was to assist people suffering from physical and mental disabilities. The Foundation was funded primarily by Buckberg, although it also received some donations from several other individuals and businesses.

Brown’s office launched an investigation in 2007. The investigation revealed that the foundation has been under the primary control of Buckberg and LB has been used primarily to fund Buckberg's research and development projects and the research of his colleagues and friends.

For instance:

• From 1997 through 2004, Buckberg used $120,000 in donations to produce an educational DVD for use by medical professionals. The rights to the DVD belong to The Helical Heart Company, a for-profit corporation which Buckberg owns.

• In 2000, $1 million of the charity’s funds were donated to UCLA to establish an endowed faculty chair. Buckberg then applied for an appointment to the chair and, when that application was rejected, L.B. Research Foundation sued UCLA. Approximately $300,000 of the Foundation’s assets have been used to pay legal fees related to that lawsuit.

• In 2003, Buckberg used $15,000 of the charity’s funds to pay General Theming Contractors, LLC – which he owns -- to build plastic heart models, which he subsequently sold.

• From 2002 to 2006, Buckberg used over $50,000 of the charity’s funds to pay the travel and hotel expenses of physicians whose research benefited a medical device licensed and patented by a for-profit corporation owned and controlled by Buckberg.

The investigation further revealed that not all board members knew they were officers of LB or that they were even part of LB’s board of directors. Buckberg had sole custody of the charity’s financial records and checkbook. Very few of the board’s grant-making decisions were documented and board members failed to understand that the charity’s assets could not be used for their personal benefit.

Brown’s suit, filed in Los Angeles Superior Court, contends that the charity and its officers:

• Failed to maintain adequate books and records in violation of Corporations Code section 6320;
• Breached their fiduciary duties in violation of Corporations Code sections 5233, 5260 and U.S. Code section 4945;
• Failed to maintain an independently elected board of directors in violation of Corporations Code sections 5210 and 5213;
• Filed and distributed false and incomplete reports in violation of Corporations Code sections 6215 and 6812; and
• Engaged in unfair competition in violation of Business and Professions Code section 17200.

Brown is seeking to recover over $500,000 in misappropriated funds, permanently dissolve the charity, assess civil penalties of over $100,000 and prohibit the defendants from running a charity until they provide accounting statements to his office.

To report charity fraud, contact the Attorney General’s Office at 1-800-952-5225 or fill out a complaint form, available on the charities pages of the Attorney General’s website at http://ag.ca.gov/charities/forms/charitable/ct9.pdf.

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