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AG in Conn. begins probe

2 foundations for charities are eyed

The attorney general of Connecticut yesterday launched an investigation into two private foundations, including one ranked as the state's largest, following a Globe report that documented excessive spending on costly furnishings, luxury cars, and generous trustee benefits -- expenses that have drained tens of thousands of dollars away from charities.

Meanwhile, the head of a leading organization representing foundations called the report a "wake up call" for the sector and said she expects some foundation trustees and executives to face serious penalties.

"I am frankly expecting to see some perp walks," said Dorothy S. Ridings, president of the Council on Foundations, a Washington association of 2,000 foundations.

Connecticut Attorney General Richard Blumenthal said his office would examine the management of the $494 million Smith Richardson Foundation of Westport, after the Globe reported that the foundation spent thousands of dollars on art work and high-end decor and vehicles for the three top officers of the foundation which makes grants for public policy research.

"We are very seriously troubled by reports of excessive and lavish spending on questionable purposes by these charitable foundations, and we're investigating to determine whether there has been misspending," Blumenthal said in an interview, referring to both Smith Richardson and the Beinecke Foundation, a $62 million Greenwich group which supports the arts, environment, and other causes.

Between 1999 and 2001, two part-time trustees for the foundation, including a Beinecke heir who lives on a 50-acre Greenwich estate valued at $2 million, have collected $280,000 in retirement benefits as well as health care coverage for themselves and their families, all paid for with foundation money.

Officials of both foundations have said their use of foundation assets for the expenses was justified. Attempts to reach them yesterday were unsuccessful.

Blumenthal said that he can seek a range of penalties if the probe by his office turns up wrongful actions by the foundations. "We can seek recovery of misspent monies or court action that stops future wrongdoing." And, he added, "At the extreme end of the spectrum there is always the possibility of criminal action if money has been embezzeled or misappropriated."

Typically, Blumenthal said, investigations into foundations end in settlements.

Connecticut was one of two states that took action yesterday following the second in a series of Globe Spotlight Team reports on abuses at private foundations. A spokeswoman for Oregon's Department of Justice said the department had opened a review of the Chiles Foundation of Portland, after the Globe determined that it spent $591,415 on travel, conferences, and meetings between 1998 and 2002; another $128,115 for car-related expenses in that period; and $300,000 on office rent, according to tax filings.

The Chiles Foundation supports many West Coast causes, and is also a significant benefactor of Boston University. Foundation executives could not be reached for comment.

The latest Globe report detailed free spending on travel and perks often by part-time trustees, who are charged with protecting foundation assets. In October, a Globe report on excessive pay at numerous foundations sparked inquiries by attorneys general in Massachusetts, New York, and California.

The revelations of lavish spending on perks and benefits for foundation trustees and executives have rocked the charitable world, Ridings said. She said she is pressing with greater urgency for more rigorous state oversight of foundations, largely because the Internal Revenue Service has failed in its watchdog role.

"It is to our great dismay that these actions by a few foundations -- and we believe it's a few -- are really damaging the majority of foundations that have been doing it right for a long time," she said. "Yet the egregious behavior of just a few taints us all and is very disheartening. The stories are a very unwelcome but necessary wake-up call for us."

Ridings said the Council has been working to devise measures to prevent abuses at private foundations for several months. In June, its board of directors approved a new ethics and values committee. And next month, board members will be asked to approve a new initiative that will include a plan for cooperating with state attorneys general and other state regulators, Ridings said.

She said the new initiative was spurred in part by frustration with Congress, which, she said, has failed to provide the IRS with funds to effectively monitor the 60,000 foundations across the country. The agency audits only about 100 foundations per year.

Foundations, which earn large tax breaks for the wealthy people who set them up, are considered tax-exempt organizations. They pay a federal excise tax of 1 to 2 percent of investment earnings that generates about $500 million annually. But instead of being spent on oversight of foundations, as was intended by the law establishing the tax, the money reverts to the government's general fund.

"We did not want to become the cop, but we realize now we've got to be much more public and more vocal about the behavior society expects from all its nonprofits," Ridings said.

On Sunday, the Globe detailed extraordinarily high spending by several foundations on travel, cars, and million-dollar retirement packages. The Arthur S. DeMoss Foundation of West Palm Beach, Fla., a $444 million foundation dedicated to Christian causes, owns a $36 million, long-range Bombardier jet.

The foundation said the aircraft is used to monitor evangelistic projects in such places as Africa and Asia. But it also is used to shuttle chairman Nancy S. DeMoss and her daughter, Nancy L. DeMoss, to various US cities from airports near their homes, according to publicly available flight logs.

In Oklahoma City, the Kerr Foundation bought a $44,000 Jaguar and spent twice as much on travel and other administrative costs as it spent on grants to social and cultural causes.

And in rural Ardmore, Okla., the $900 million Samuel Roberts Noble Foundation, which supports agricultural research, owns a $5.7 million jet.

In Oklahoma, it appears that no arm of state government is responsible for overseeing private foundations, according to officials contacted at the attorney general's office, the secretary of state's office, and the Oklahoma Tax Commission.

Sacha Pfeiffer and Michael Rezendes contributed to this report.

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