Decline and Fall of the Vanguard Public Foundation

Richard Cohen is an excellent, thoughtful writer and I am always pleased to feature his work here.  This is a long article, however, it is very instructive.  Often we think of "ponzi schemes" only happening in "for-profit" enterprise, when the truth is, nonprofits are ripe for this kind of use and abuse, maybe even more so since nonprofits are not measured by money earned but by services provided.  Additionally, boards of directors of nonprofits may not conduct the due diligence of boards of directors of for-profit corporations.  Whatever the cause and effect, the real pay off in this article are Richard's conclusions at the end.  Bunnie

(This article is reprinted with permission from Blue Avocado, a practical fast-read magazine for community nonprofits. Subscribe free by sending an email to editor@blueavocado.org or at www.blueavocado.org.)

Decline and Fall of the Vanguard Public Foundation 
by Richard Cohen

Once acclaimed as a pioneer in philanthropy and an important force for social justice, the Vanguard Foundation is no more. The full story will take years to emerge, but we report here in Part I on some of the clues to its sorry demise. A link to Part II is at the end of the article.

In San Francisco, the Vanguard Public Foundation is out of business, its nonprofit status suspended by the California Secretary of State, its website down, its assets apparently gone. Federal and state court lawsuits involving donors, investors, staff, and trustees question what happened to millions of dollars that flowed through the foundation to progressive causes.

But nonprofits and foundations go out of business all the time, particularly in this nonprofit-devouring recession. What makes the Vanguard Public Foundation worth special inquiries? Is it because of the celebrities associated with Vanguard -- Danny Glover, Harry Belafonte, and United Farm Workers co-founder Dolores Huerta, among others? But the glam factor is not the story.

The Vanguard Public Foundation (not to be confused with the Vanguard Charitable Fund related to the for-profit Vanguard), was lauded in its heyday as a new wave of philanthropy, a generational shift, an exemplar, and a model.

The famous people associated with the foundation are neither the story nor the cause of the foundation's demise. Rather the story may be one of organizational hubris, board narcolepsy, and the disease of our time: the siren song of the get-rich investment plan which, like Bernie Madoff's ponzi scheme, was just too good to be true.

A new generation of philanthropy

Established in 1972, the Vanguard Public Foundation was among the first of the social justice foundations established by the young scions of wealthy families, inheritors of corporate fortunes who were devoted to supporting a progressive, very liberal social and political agenda. One of the first of the "rich kid foundations," Vanguard was heralded as an inspiring model of a new generation's remaking of philanthropy.

Vanguard rose as a leader among some two dozen new progressive public grantmakers that became members of a network called the Funding Exchange. Largely modeled on Vanguard are the Haymarket People's Fund in Boston and the Liberty Hill Foundation in Santa Monica. In 1977, Vanguard produced the bible for these funds, Robin Hood Was Right: A Guide to Giving Your Money for Social Change, re-issued by the Funding Exchange 25 years later.

Vanguard's grantmaking role remained distinctive, putting money into social movement causes, often before they became politically acceptable and often to organizations and actions that were never going to generate mainstream support. Among the often controversial groups that benefitted from Vanguard grants:

• Act Now to Stop War and End Racism (ANSWER)
• Astraea National Lesbian Action Foundation
• Center for Third World Organizing
• Emilio Zapata Oakland Street Academy
• Free Mumia Abu-Jamal
• KPFA (Pacifica Network Free Speech Radio)
• National Immigration Project of the National Lawyers Guild
• Rainforest Action Network
• School of Unity and Liberation (SOUL)
• Solidarity Info Services
• Southern Poverty Law Center
• Young Worker Project

Vanguard was a friend to emerging causes which often went on to become more accepted by the public and more fundable by mainstream foundations. Donors also gave funds to such causes through Vanguard, enabling unincorporated groups to receive donations.

These are the kinds of grants that cause heartburn for the likes of Glenn Beck ("Marxist foundations of the 'social justice' movement") and Bill O'Reilly ("pinheads!").

Are progressive foundations in general suffering?

Is Vanguard's demise reflective of a downturn in these foundations of young (and in many cases, now no longer young) progressive rich people? While just about every public foundation has experienced the downturn while raising money from wealthy donors, the members of the Funding Exchange look healthier than one might expect, even in many cases increasing their grantmaking over a period of many peaks and troughs in the economy. For example, grantmaking grew between 1998 and 2008/9 at Liberty Hill, the Appalachian Community Foundation, Bread and Roses Community Fund (Philadelphia), the Headwaters Foundation for Justice (Twin Cities), and the McKenzie River Gathering (Oregon).

Others have shrunk over the years, perhaps as the big community foundations offered themselves as social justice competitors for donor-advised funds, others perhaps simply due to changes in leadership and management. The Southern Partners Fund in Georgia, Haymarket, and even the North Star Fund in New York City are significantly smaller than they were a dozen years ago, but they still exercise influence in their communities and within the philanthropic sector.

Unlike many of its peer progressive foundations, the Vanguard Public Foundation dissolved into nothing -- other than litigation. Why?

Mouli makes the world go 'round

In 2002, Vanguard leadership met an exceptionally intriguing entrepreneur named Samuel "Mouli" Cohen. In addition to his glamorous background, Cohen reportedly promised to achieve astonishing financial returns using Vanguard's funds as investments.

The Israeli-born Cohen (no relation to this author) and his wife Stacy lived the lifestyle of the rich and famous in a mansion in Belvedere, California. A master of self-promotion, Cohen's multiple personal websites, Facebook page, and press releases reveal him to be anything but modest; he describes himself as a "brilliant visionary," "business tycoon and magnate," "world renowned philanthropist," and "super entrepreneur."

Given the charges and countercharges now swirling around Mouli's relationship with the foundation and its leaders, some of his self-promotion is unintentionally humorous and ironic, particularly this from his Mouli Cohen on Business webpage: "(I)ntegrity is one of the most important characteristics for any investor. Investors, customers, employees and partners will reward you endlessly if you always act with complete integrity, according to Mouli Cohen."

It's hard not to give him one-name celebrity status, like Cher, Bono, Usher, or Madonna; his over-the-top persona demands it. As a philanthropist, Mouli's exploits, mostly known from press releases and philanthropic blog posts that he seems to have generated, didn't sync with Vanguard's values, mission, or funding priorities.

For instance, representative of Mouli's philanthropic activities were support for the European Center for Jewish Students, which works to increase the Jewish population of Europe against the threat of intermarriage and assimilation; a Jewish orphanage in Odessa; facilities development at the Ukraine tomb of a Lubavitcher Hasidic rabbi; and a library and museum in Israel affiliated with the Lubavitcher Hasids. In addition, he claims to be a leader and donor to several organizations which mention him nowhere on their websites, including Camp Okizu, Seva Foundation, and Soroko Medical Center.

Regardless of these differences in philanthropic goals, Vanguard became interested in Mouli for his investment acumen. A self-described technology entrepreneur, he claims to have founded or led business ventures which have generated some $3 billion in shareholder value. One of his more recent activities was a digital entertainment firm called Ecast, which provides services to bars and nightclubs.

The picture blurs

Now the story gets murky with a mix of charges and countercharges, and of course, litigation. Apparently, in 2002, Mouli met Vanguard CEO Hari Dillon and actor/activist Danny Glover. According to complaints filed in state and federal courts, Mouli said he would help the foundation by allowing Vanguard and its individual donors to buy shares in the privately owned Ecast. Dillon and Glover formed general partnerships through which they purchased several million dollars worth of Ecast -- or thought they did. The Contra Costa Times reported that Vanguard donors ultimately put in over $20 million more in philanthropic money and personal investment cash. How much of this was Vanguard money repurposed through Mouli is unclear.

The story gets even murkier. The investors -- now plaintiffs -- say Mouli stated that Ecast was to be acquired by Microsoft, which would generate a return on investment, according to the Times, of 1,000 percent. And according to peHUB Wire, the deal was to buy Ecast stock at $3.50 a share, but get paid off in Microsoft shares after the purchase at $23 per share. But something or other kept putting off the miracle. The Microsoft acquisition reportedly got delayed over EU rules, which generated a need for more fees to cover transaction costs. Then there were reports that Ecast was considering a competing bid from Google, further delaying the deal. Ultimately, there was no Microsoft purchase, no Google bid, and the money disappeared ("stashed" in Cohen's secret accounts and distributed to family members like wife Stacy, according to plaintiffs), and the investors were, one might say, aggrieved.

Mouli's attorney denies it all.

Even Ecast sounds aggrieved, stating that Mouli Cohen left Ecast in 2002, roughly when these dealings began. An Ecast attorney told Vending Times that the firm has had "ongoing" legal problems with Cohen, including two cases filed in 2003 and 2004 against Cohen about "very similar" charges that were settled out of court. If it was true that Dillon, Glover, and the Vanguard Public Foundation investors thought they were buying Ecast stock, they were doing so with a guy who had been out of Ecast's picture for years.

Transforming a social justice foundation into what?

But questions of questionable management and governance decisions at the foundation do not seem to have been limited to this speculative multi-million dollar investment with someone of dubious provenance. Why didn't someone notice the following?

• Annual operating deficits: $427,000 deficit in 2003, $1.33 million deficit in 2009 and $1.37 million deficit the subsequent year
• Deficit of $1.95 million in 2006, nearly equal to the $1.99 million received in contributions, gifts and grants
• In its last publicly accessible Form 990 in March 2007, Vanguard had total assets of $453,000 and total liabilities of $3.59 million
• That same 990 showed $1.25 million in loans from officers and directors and $1.8 million in mortgages and other notes

The operating deficit dropped to "only" $1.2 million on its final Form 990, but by then the foundation was living on fumes -- or loans.

By 2007, loans from officers and directors included $5,000 from Danny Glover, $100,000 from board member Susanne Moore, and $600,800 from CEO Hari Dillon. In Vanguard's 990 for the fiscal year ending in 2008, Dillon's loan to the foundation had grown to $1,172,511.

The Vanguard Public Foundation was living on borrowed funds largely from the CEO, whose salary and benefits at the foundation combined do not appear to have ever topped $90,000 annually. But the foundation didn't appear to be thinking about belt-tightening during this period of financial stress. Travel expenses skyrocketed and salaries grew as significant funds were used to send CEO Dillon, senior staff member Gus Newport, and others on "projects."

A grantmaking foundation was turning into an operating foundation, running its own programs instead of making grants to nonprofits. In its last available 990, the foundation lists $3.35 million in total expenses, including the following:

• $600,000 from Vanguard's donor-advised funds to the Peninsula Community Foundation
• $103,000 from non-donor-advised funds to Gathering for Justice c/o Belafonte Enterprises (singer Harry Belafonte is one of Vanguard's founders)
• Only $129,000 in other non-donor-advised grants

In the fiscal year ending March 2007, Vanguard's total expenses were almost exactly what it owed in loans. The foundation was investing, borrowing, and spending itself out of existence.

Oddly, the partnerships established by Dillon to invest money in Mouli Cohen's Ecast scheme made him personally fully liable for the funds. Typically, a general partner would never expose himself to such risk, unless perhaps the deal was a sure thing with a big upside. But the foundation's investments and the donors' additional funds didn't yield a nickel, at least perhaps to anyone other than Mouli Cohen. This left Dillon on the hook. In 2010, Dillon filed for personal bankruptcy, listing assets of $836,000, primarily from the value of his home, secured claims of $721,000 (probably a home mortgage), and unsecured claims totaling a whopping $21.6 million.

Lessons from Vanguard's demise

These are all clues to a story for which we have neither an end nor a satisfactory answer about motivations and choices. More of the Vanguard Public Foundation story will emerge in the months ahead as lawsuits wend their ways through the courts, but some lessons are discernable now:

1.      Too good to be true: The lesson of Mouli Cohen, like the lesson of Bernie Madoff, is to be careful about schemes that will make your nonprofit or foundation rich. Mouli's deal was better than anything Bernie Madoff ever pitched. It should have been obvious.

2. Character counts: Dillon and many of the Vanguard people are hard to find now or won't speak on the record, but Mouli continues to issue self-congratulatory pronouncements on his website. It's hard to imagine that the philanthropic values of Mouli Cohen (or his wife, the author of the Kosher Billionaire's Secret Recipe) were any kind of comfortable match with those of the foundation.

3. Non-attentive trust in the CEO is not a healthy governing model: With warning signals in abundance, observers suggest that the board was even a little mesmerized by the CEO and his celebrity friends. And board meetings were reportedly very rare.

4. Give the grants to nonprofits, not yourself: It's so easy for foundations -- even progressive foundations -- to decide they should run their own programs rather than give grants. Whether one agrees with Vanguard's agenda or not, a legacy of giving grants to causes it believed in would have been one to be proud of . . . rather than one dirtied by using the funds on its own activities.

5. Are progressive groups especially vulnerable to disengagement? Some have suggested that Vanguard's moves to turn over some decision making to community leaders left donors disengaged, and resulted in board members who were less attentive to grantmaking decisions and governance responsibilities.

6. Sleepy press, sleepy government: How does a public grantmaker disappear and garner so little attention from the press -- including the nonprofit press -- and no attention from the government? The Internal Revenue Service? The Attorney General?

There are many stories to be found in the rise, decline, fall, and aftermath of the Vanguard Public Foundation, and this article only touches on one of them. Tragic stories have at least as much to teach us as the rosy, jargon-filled stories about themselves that foundations pump out by the thousands. The Vanguard story is one from which we will be learning for a long, long time.

Note: Part 2 of this story was published in the October 5, 2010, issue of Blue Avocado: Here