How a Foundation Trustee Burned Through $52M in Charity Funds in 6 Months
The Boston Globe's Sacha Pfeiffer, of the paper's Spotlight team, has a fantastic story about foundation trustee Mark J. Avery, who Pfeiffer mentioned in a 2003 report on the pitfalls of inherited trustee positions.
In that report, Pfeiffer used Avery as an example, citing the $400,000 annual salary and other benefits he reaped simply for inheriting his late father's trustee seat at the then $264 million May and Stanley Smith Charitable Trust. When Pfeiffer reached Avery for comment, he would say only, "I get sick and tired of people wondering about how much I get paid and why."
Fast forward 13 years, and Avery is back in the Boston Globe. Pfeiffer received an email from Assistant U.S. Attorney Steven E. Skrocki, who had spearheaded a federal investigation on Avery in 2005. Skrocki had remembered Pfeiffer's 2003 report and had written her with an update: In February, Avery was found guilty on 11 of 17 charges in a federal fraud case.
He had spent $52 million of his foundation's funds in less than six months.
According to Pfeiffer, Avery took out the $52 million as a loan and promptly went on a spending spree. And his list of purchases was impressive in its excess. Via the Boston Globe:
Avery’s blizzard of spending in 2005 included purchasing an air charter company (despite having no background in aviation), Gulfstream executive jets, World War II military aircraft, Czech fighter planes, helicopters, rocket launchers, a patrol boat and a yacht. He also paid off more than $600,000 in personal debt and bought a $700,000 home.
In the small town of Anchorage, [Alaska,] it was an unusual orgy of spending that quickly drew the attention of the FBI, IRS and other law enforcement officials. One of them was Skrocki, who questioned the source of Avery’s funds—and became even more suspicious after reading my Globe story.
“We started Googling him,” he told me, “came upon your article, and thought: Maybe this is where he’s getting the money.”
Pfeiffer, citing court documents, says Avery told a pair of trustees he needed funds to start an aviation company "for trustee travel." The trustees, then in their 70s, agreed to loan him the funds. Avery burned through the money in months, his fast-growing and expensive collection of aircraft and military gear attracting attention from authorities.
Avery's legal defense? He had been tricked by a business partner. He'd intended to use the planes to train the Philippine Air Force, which would make money back for the foundation trust. It was all a misunderstanding.
Prosecutors disagreed. “Avery used this money as his personal piggy bank,” they wrote, according to Pfeiffer. “The defendant in this case is a fraud and a thief.”
Avery was sentenced to 13 years in prison.
The story serves as a cautionary tale on a flawed system, one in which "hand-me-down trusteeships" at private foundations leave far too much room for shady and downright illegal behavior. It's a kind of sad epilogue to Pfeiffer's original report from way back in 2003. There, she and the Spotlight team brought many of those issues to light. But Pfeiffer says not much has changed since then.
"My 2003 Spotlight story was part of a larger series of articles on financial abuses at private foundations, which are ostensibly philanthropic but often spend money on lavish office space, luxury cars, and, in at least one case, a corporate jet," Pfeiffer writes. "They also frequently pay high salaries to trustees for minimal work. The Smith case shows that these shenanigans continue, largely because government officials aren’t equipped to properly monitor the philanthropic sector."
Check out the rest of the article here. It's worth the read.