Tuesday, June 24, 2008
Charity's Founder Charged with Using Charitable Funds for Personal, Political Purposes
Attorney General’s enforcement action cites Gene Christensen and People Against Drugs Affordable Public Housing Agency
AUSTIN – Texas Attorney General Greg Abbott today charged People Against Drugs Affordable Public Housing, Inc., its founder and three of its directors with violating the Texas Nonprofit Corporation Act. According to court documents filed by the state, the defendants illegally used charitable resources to fund the founder’s salary, support a NASCAR Truck Series team, and advance the founder’s political career.
The state’s enforcement action asks the court to prevent further misuse of charitable assets by appointing a temporary receiver and issuing a temporary injunction against the defendants. A hearing on the temporary injunction and appointment of receiver is scheduled for 9 a.m., Monday, July 21, in Travis County Probate Court No. 1.
|Texas Attorney General's lawsuit against People Against Drugs Affordable Housing Agency, et al.|
Defendant Gene Christensen founded People Against Drugs Affordable Public Housing, Inc., which purported to be a non-profit housing operation that offered “gang and drug-free living environments.” Christensen, along with defendants John W. Brown, Martin T. Glenn and, more recently, John Shute, served on the organization’s board of directors. In 1992 the defendants, relying on government-backed loans, purchased an apartment complex, which they promised would offer qualified individuals reduced-cost rent in a drug-free living environment.
An investigation by the Attorney General’s Office revealed that the defendants operated the apartment complex like an ordinary, for-profit enterprise. Court documents indicate that People Against Drugs generates approximately $2 million in annual rental revenue. However, the charity’s revenue was neither used to provide reduced-cost living to the poor, nor was it donated to other charitable endeavors. Instead, the defendants spent charitable dollars on Green Light Racing, a NASCAR Truck Series team. Expending charitable funds for a non-charitable purpose is a violation of the Texas Nonprofit Corporation Act.
Evidence indicates that Christensen converted People Against Drugs’ financial resources for his own personal financial gain. Without authorization from the board, Christensen entered into an “employee contract” with People Against Drugs that stipulated he would serve as executive director for 25 years at an annual salary of at least $102,000. In 2005, People Against Drugs paid Christensen $181,000, plus benefits and a company vehicle.
Despite the fact that Christensen had no significant training or experience in nonprofit management prior to his involvement with People Against Drugs, the employment contract provided for an unreasonably high level of compensation -- $102,000 per year, plus annual cost of living increases. Because of this excessive benefit, the Attorney General’s Charitable Trust Section charged Christensen with diverting charitable resources for his personal use. Additionally, although Texas law prohibits charities from giving their executives interest-free loans, Christensen received a $119,000 no-interest loan from People Against Drugs.
Evidence uncovered by the state also indicates Christensen used charitable resources to fund his extravagant lifestyle. People Against Drugs’ credit card billing records show that Christensen charged expensive meals, purchased personal items, and stayed in hotels in exotic locales at the charity’s expense. Christensen also spent $40,000 in charitable funds to help finance a film that he produced.
Additional evidence indicates that Christensen used charitable resources to advance his political career. During Christensen’s 2008 primary campaign for the U.S. House of Representatives, he “loaned” himself $278,000. Of that sum, $94,500 has been traced back to accounts owned by the charity, and investigators have reason to believe that the entire amount came from the charity’s funds. That loan has yet to be repaid. Records also indicate that he made financial contributions to the Dallas County Republican Party with the People Against Drugs funds. State and federal law prohibits charitable organizations from making political contributions.
Christensen and his fellow directors registered People Against Drugs with the Texas Secretary of State in 1992. Teaching “drug free and gang free living” and offering drug-free living environments for low-income tenants were the organization’s declared purposes. When the defendants acquired a 296-unit apartment complex through the Federal Resolution Trust Corp. and the Garland Housing Finance Corp., they promised that 35 percent of their units would be used to provide charitably-subsidized housing for low-income tenants.
According to state investigators, while some qualified low-income tenants live at the complex, those tenants pay standard rental rates. The complex does not employ special security measures to deter drug use and offers no anti-drug programs. Additionally, People Against Drugs has placed no anti-drug education programs in schools, which it promised to do in order to further its charitable purpose. Thus, the state uncovered no evidence indicating that the defendants actually served any charitable purpose.
In 2001, Christensen and his colleagues began spending charitable funds on Green Light Racing. People Against Drugs’ 2005 tax forms indicate the defendants spent millions of charitable dollars on vehicle parts, drivers, mechanics and other Green Light Racing-related expenditures.
Although Christensen tried to justify his spending by claiming that the trucks advertised his anti-drug message, advertising was limited to a small People Against Drugs logo on both sides of the truck. The charity’s decal was roughly three to four inches in diameter. Today’s state enforcement action charges the defendants with spending millions of charitable dollars to fund a racing enterprise that inadequately advanced its stated charitable purpose – drug-free, low-income housing and anti-drug education.
According to investigators, Christensen was able to divert charitable resources because People Against Drugs’ board of directors inadequately policed his actions and relied on legally questionable corporate governance practices. The state’s investigation revealed poor financial record-keeping, the charity’s inability to produce corporate bylaws or minutes from its board of directors meetings, and no evidence of management oversight by the board of directors.