New York State AG Announces Lawsuit against Not-for-Profit Board - Part 1 of 2

On April 9, 2015, New York State Attorney General Eric T. Schneiderman announced a lawsuit against the board of directors of two Brooklyn-based not-for-profits. The lawsuit alleges gross negligence and failed management of the not-for-profits. The organizations were intended to provide housing and support services for pregnant women, young mothers and their children. As set forth in the lawsuit, an investigation by the Attorney General’s Charities Bureau found that several board members listed property of the organizations for sale without necessary approval. Supreme Court Justice Genine D. Edwards granted the Attorney General’s Office a temporary restraining order earlier this week that freezes the organizations' assets.

The complaint also details evidence of several other alleged improprieties by the organizations’ board and its officers, including:

• Unauthorized transfer of $80,000 from a charitable bank account directly into the personal account of the financial manager;
• taking out two high-fee loans totaling $600,000;
• forging the signature of the secretary of the board to authorize a high-fee loan, without the board member’s permission;
• failing to pay the wages of their employees; and
• neglecting corporate filings, including tax returns.

For the full Attorney General press release on the lawsuit, click here.

Look for part 2 of this blog titled “Governance Duties of a Not-for-Profit’s Board of Directors” for advice to all board members on how to avoid negative allegations against your not-for-profit similar to ones announced by Attorney General Schneiderman.