Elizabeth Smart to testify in Federal Court Thursday 10-1-2009 at 9:00 AM, Robert Paisola Reports

Video Courtesy of KSL.com

Western Capital SALT LAKE CITY -- A federal judge will allow "lay" witnesses, including Elizabeth Smart, to testify at the upcoming competency hearing for Brian David Mitchell. This will be the first time Elizabeth Smart will take the stand against Mitchel...l, one of two people accused of kidnapping her more than seven years ago. Judge Dale Kimball denied a motion by Mitchell's defense in which attorneys argued Smart's testimony and those of others were not relevant to determining whether or not Mitchell was competent to stand trial. In his ruling, Kimball said Smart's testimony will give a full picture about Mitchell's day-to-day interactions and whether he was preoccupied with religion. He said Mitchell himself has made their testimony relevant because of his refusal to cooperate in "any psychological evaluations or diagnostic tests." Elizabeth Smart's father, Ed Smart, told KSL he wasn't surprised by the ruling. "What can a professional bring to the table when somebody is not cooperating?" Smart said. He said the judge's ruling was expected and his daughter had been preparing to testify against Brian David Mitchell. He said it will be interesting to find out if Mitchell will disrupt the court with his singing again, or stay quiet so he can stay in the courtroom during Elizabeth Smart's testimony. Federal prosecutors said Elizabeth Smart will testify Mitchell was driven by sex, not religion. The judge also said Smart will be giving mostly facts and federal prosecutors will have an expert witness for opinions on a mental diagnosis. On Friday, Elizabeth's father said her experiences with Mitchell could build a strong case that Mitchell is competent to stand trial on federal kidnapping charges. "Elizabeth can certainly provide what she dealt with for nine months, how he manipulated the system, how he got what he wanted, all under the guise of religion," said Ed Smart. Mitchell's attorneys filed a motion to preclude lay witnesses from testifying at Mitchell's competency hearing. At a hearing on Friday, they argued that Smart could talk about her experiences with Mitchell but could not give opinions about his state of mind. Ed Smart expects, ultimately, Mitchell will be ruled competent to stand trial. That would contradict a finding in state court on kidnapping charges. But federal prosecutors have long argued different rules apply in the federal system. Mitchell was found incompetent to stand trial on state charges. This is his first federal competency hearing. Elizabeth Smart will take the stand on Oct. 1, to accommodate her leaving for an LDS mission to Paris. Federal prosecutors are not commenting on the ruling, and defense attorneys did not return our calls.

__________________________________________________________________________

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH

CENTRAL DIVISION

UNITED STATES OF AMERICA,

Plaintiff,

v.

BRIAN DAVID MITCHELL, et al.,

Defendants.

MEMORANDUM DECISION

& ORDER

Case No. 2:08CR125DAK

This matter is before the court on a portion of Defendant Brian David Mitchell’s Motion

to Preclude the Introduction of All Lay Witness Testimony. The motion seeks to preclude the

introduction of testimony by all lay witnesses including, but not limited to, staff members of the

Utah State Hospital, family, friends, acquaintances, coworkers, and ecclesiastical leaders of

Defendant at the hearing to determine Defendant’s competency to stand trial. Because of

scheduling conflicts, the parties agreed to brief and argue the portion of this motion dealing with

the testimony of the victim, Ms. Elizabeth Smart, prior to addressing the other witness testimony

at issue in the motion. Defendant retains the right to file a reply memoranda in support of its

motion with respect to the other proposed lay witness testimony.

On September 25, 2009, the court held a hearing on the portion of the motion pertaining

to Ms. Smart. At the hearing, Plaintiff was represented by David F. Backman and Richard N.

Lambert, and Defendant was represented by Robert L. Steele, Parker Douglas, and Audrey K.

James. The court took the motion under advisement. Having carefully considered the parties’

memoranda submitted prior to the hearing and their arguments at the hearing, as well as the law

and facts relevant to the motion, the court enters the following Memorandum Decision and Order

with respect to the portion of Defendant’s motion pertaining to Ms. Smart.

BACKGROUND

In preparation for the upcoming competency hearing, the United States provided

Defendant with a preliminary witness list. The list identified 39 lay witnesses. The anticipated

scope of the lay witness testimony is observations of and interactions with Mr. Mitchell. The

United States also provided Defendant with reports detailing the contents of lay witness

interviews with government officials. The report of the psychiatric examination conducted by

the United States’ expert, Dr. Michael Welner, incorporates information from many of these

witness interviews, including an interview with Ms. Smart. Many of these interviews were

conducted after other experts’ prepared their competency evaluations of Defendant.

Through the briefing of this motion, the United States has represented that it intends to

call Ms. Smart at the competency hearing to testify as to facts and opinions relating to:

Defendant’s lack of religious focus; how Defendant’s conduct was inconsistent with his use of

religious terminology and references to himself as a prophet; Defendant’s manipulation of others;

Defendant’s ability to lie to make his conduct appear to conform with societal norms when it was

to his advantage; and how Defendant has concealed, denied, and rationalized his conduct.

DISCUSSION

I. Legal Standard for Competency Determination

To determine the relevance and admissibility of Ms. Smart’s proposed testimony, it is

necessary to consider the issue in the context of the legal standards applicable to a competency

2

hearing. “[T]he Constitution does not permit trial of an individual who lacks ‘mental

competency.’”

Indiana v. Edwards, 128 S. Ct. 2379, 2383 (2008). In Dusky v. United States

,

362 U.S. 402 (1960), the Supreme Court defined the legal standard for assessing competency to

stand trial as including: “(1)‘whether’ the defendant has ‘a rational as well as factual

understanding of the proceedings against him’ and (2) whether the defendant ‘has sufficient

present ability to consult with his lawyer with a reasonable degree of rational understanding.”

Edwards

, 128 S. Ct. at 2383 (quoting Dusky

, 362 U.S. at 402). Unlike the insanity defense

which concerns the defendant’s mental state at the time of the offense, the issue of competency to

stand trial focuses on the defendant’s current mental state.

See United States v. Gold

, 790 F.2d

235, 238 (2d Cir. 1986).

II. Relevance and Admissibility of Testimony

Defendant’s motion to exclude lay witness testimony from the competency hearing states

that it is based on relevance, danger of unfair prejudice, considerations of delay, undue waste of

time, and needless presentation of cumulative evidence pursuant to Rule 401 and 403 of the

Federal Rules of Evidence. Rule 401 defines relevant evident as that evidence “having any

tendency to make the existence of any fact that is of consequence . . . more probable or less

probable than it would be without the evidence. Fed. R. Evid. 401. Rule 403, however, allows

relevant evidence to be excluded “if its probative value is substantially outweighed by the danger

of unfair prejudice, confusion of the issues, . . . or by considerations of undue delay, waste of

time, or needless presentation of cumulative evidence.” Fed. R. Evid. 403.

Defendant’s counsel appeared to back away from these challenges to Ms. Smart’s

testimony at the hearing and focused mainly on whether she could provide opinion testimony

3

under Federal Rule of Evidence 701. Nonetheless, the court will address all of the arguments

presented in Defendant’s motion because it is unclear from the oral argument whether Defendant

was conceding relevance and admissibility or merely relying on the arguments in the briefing for

those challenges.

A. Rule 403 – Relevance

Defendant argues that Ms. Smart’s lay observations of Defendant will not help the court

in trying to answer the competency question. Several courts, however, have allowed lay witness

testimony in determining competency: “the Court may rely on, in addition to expert testimony,

lay witness testimony concerning the [defendant’s] rational behavior, and cross examination of

[defendant’s] expert.”

Bundy v. Dugger

, 675 F. Supp. 622, 634 (M.D. Fla. 1987).

In this case, Defendant has made lay witness testimony relevant by refusing to submit to

any psychological evaluations or diagnostic tests. Dr. Golding, who prepared a report for the

state proceedings, specifically recognized that Defendant’s refusal to cooperate lessens the

reliability of the expert opinions. It is also the likely cause of conflicting expert opinions as to

Defendant’s competency. In

State v. Robertson,

the court noted that both experts testified that

“patient cooperation was very important in diagnosing competency and that without cooperation

any test result was questionable.” 932 P.2d 1219, 1224 (Utah 1997). Defendant’s refusal to

cooperate has made fact evidence from collateral sources necessary to a determination of his

competency.

Defendant attacks the relevance of testimony that is based on events that occurred many

years ago to a determination of Defendant’s current mental state. In evaluating the competency

issue, Defendant asserts that the court should not be sidetracked by testimony of Mr. Mitchell’s

4

life and the specifics of his alleged crime. But all of the expert reports give Defendant’s history

in varying degrees of detail in order to diagnose his current mental state. Thus, even though

Defendant attacks the utility of lay testimony, such as Ms. Smart’s, which is based on

interactions that occurred many years ago, it is well-established that evidence of Defendant’s

prior conduct can give the court a better understanding of Defendant’s current condition. In

addition, the United States has presented persuasive arguments that certain aspects of the crime

itself can be relevant to the competency determination.

Moreover, the United States maintains that Defendant’s mental condition has not varied

throughout the years. The United States should have an opportunity to put on enough evidence

to establish that fact. And, if that fact can be established, conduct from many years ago could be

considered as probative as evidence of Defendant’s present conduct.

Defendant relies on a Sixth Circuit case in the insanity context which states that “when a

lay witness’ direct knowledge of the defendant is brief and superficial and far removed in time

from the commission of the crime or the trial, the testimony usually should not be admitted.”

United States v. Smith

, 437 F.2d 538, 541 (6th Cir. 1970). In Smith

, the lay witness testimony

was offered by a commissioner who interacted with the defendant during a preliminary hearing

and an FBI agent who listened to the defendant’s conversation during a ride to the police station.

Id.

In stark contrast with Smith

, Ms. Smart’s proposed testimony consists of close interactions

over a nine-month period and cannot be characterized as superficial.

The United States contends that lay witness testimony is especially relevant in a case such

5

as the present case where a defendant may be malingering or manipulating the system.

1

See, e.g.,

United States v. Birdsell

, 775 F.2d 645, 650-51 (5th Cir. 1985); United States v. Gigante

, 925 F.

Supp. 967, 969-77 (E.D.N.Y. 1996);

State v. Robertson

, 932 P.2d 1219, 1224 (Utah 1997).

These cases recognize that lay witnesses can provide valuable evidence in situations involving

malingering because the evidence provided by lay witnesses, who have more lengthy interactions

with the defendant in question, is often not the type of evidence that is available to reviewing

experts during their limited periods of observation.

Defendant claims that these cases are distinguishable from the instant case. Defendant

argues that unlike these cases, Ms. Smart will not be providing any new evidence because all of

the experts had access to transcripts of her interviews. But, the experts in this case, faced with a

defendant who would not participate, have all relied on collateral sources to varying degrees,

including Ms. Smart’s testimony. It will be valuable, as will be discussed more below, for the

court to assess whether the experts have properly characterized and used her testimony in their

analyses.

Moreover, the import of these cases is that lay witnesses often have valuable evidence

because of the length of time they spend with the defendant. “It appears imminently reasonable

that the district court would rely on the observations of those witnesses in long-term daily contact

1

Defendant asserts that evidence cannot be “especially” relevant, it is relevant or it is

not. While Defendant chooses to attack the use of “especially,” the court finds this attack largely

one of semantics. The United States was not only responding to an attack of the evidence’s

relevance but one under Rule 403 as well. Rule 403, which focuses on the probative value of

relevant evidence, makes the court determine whether certain evidence is more probative than

prejudicial. When weighing such evidence under Rule 403, some evidence will be especially

probative. The court finds no basis for attacking the United States’ characterization of especially

probative evidence as especially relevant to the issues before the court.

6

with the patient rather than conclusions based on a relatively brief period of examination.”

Birdsell

, 775 F.2d at 650-51. Ms. Smart can provide testimony as to Defendant’s conduct over

the course of a nine-month period. That length of time is far more intensive that any of the

expert witnesses in this case.

In addition, the cases recognize that there can be a stark difference between the conduct

of a defendant in a day-to-day situation where there is little reason to believe one is being

evaluated and a formal interview being conducted for the sole purpose of evaluating the

defendant’s behavior. In

Robertson

, the court noted that the defendant “showed a markedly

different speaking ability, depending upon whether he was being formally observed or merely

dealing with staff.” 932 P.2d at 1224. Thus, the court finds that Ms. Smart’s proposed testimony

is relevant to whether Defendant acted different on a day-today basis than he did in controlled

interview settings.

The United States also argues that a key issue in determining competency will be whether

Defendant is so preoccupied with his religious beliefs that he cannot make competent decisions.

Given Defendant’s refusal to participate fully in evaluations and his limited time in interviews

with the psychiatrists and psychologists, lay witness testimony is particularly relevant on this

issue. Ms. Smart can provide relevant testimony that will give the court a full picture of

Defendant’s day-to-day interactions her and whether he was preoccupied with religion. The

government represents that much of the proposed testimony from Ms. Smart relates to whether

Defendant was, in fact, preoccupied with his religious beliefs.

The court concludes that Ms. Smart’s proposed testimony is relevant to the issues

involved in the court’s determination of competency. Accordingly, the court finds no basis for

7

concluding that Ms. Smart’s proposed testimony should be excluded under Rule 401 standards.

B. FRE 403 – Probative Value versus Potential Prejudice

After making the determination that Ms. Smart’s proposed testimony is relevant to the

issues involved in determining competency, the court must then determine under Rule 403

whether the value of such testimony is outweighed “by the danger of unfair prejudice . . . or by

considerations of undue delay, waste of time, or needless presentation of cumulative evidence.”

Fed. R. Evid. 403.

Defendant first asserts that Ms. Smart’s observations relevant to Defendant’s existing

mental state have been incorporated into Dr. Welner’s comprehensive report and live testimony

as to those same undisputed facts is a waste of court time and a needless presentation of

cumulative evidence. Dr. Welner’s report outlines in detail the relevance of her testimony to

Defendant’s capacity and ability to understand the charges against him, and his ability to consult

with his attorneys and aid in his defense. The United States points out, however, that while

Defendant argues that her testimony should be excluded as cumulative because Dr. Welner’s

report summarizes the information, Defendant seeks in another motion before the court to

exclude Dr. Welner as a witness because his report does not fairly describe the information from

lay witnesses.

Live testimony developed through traditional direct and cross examination would

overcome any concerns about how Dr. Welner characterizes the factual evidence. In addition, to

the extent that Defendant questions the veracity of the testimony, given that it is based on events

from many years ago, live testimony will allow the court to hear from the witness firsthand to

determine credibility and the weight to properly accord such evidence. While acknowledging at

8

the hearing that Ms. Smart’s testimony has remained consistent in interviews spanning several

years, Defendant also appeared to question whether the testimony was fully consistent. And in

his reply memoranda, Defendant states “to the extent that her recollection of events has changed

in the intervening time.” Faced with such remarks, the court cannot conclude that her live

testimony is a waste of time or the needless presentation of cumulative evidence. Moreover,

Defendant’s claims that the evidence is undisputed are made when it is advantageous to his

arguments regarding cumulative evidence, but it is not consistent with many of his other

arguments throughout the brief and in other motions. The court, therefore, finds significant value

in being able to hear the underlying factual testimony so the court can evaluate how accurately

that testimony is characterized and used in the experts’ evaluations.

The defense’s strategy of appearing not to dispute the testimony not only appears less

than candid but it could raise issues later in the proceedings. If the court allows live testimony

and Defendant is given a full opportunity to cross examine such testimony, there can be no

question regarding the vetting of such evidence. Moreover, the general rule is that “the

prosecution is entitled to prove its case free from any defendant’s option to stipulate the evidence

away.”

Old Chief v. United States,

519 U.S. 172, 189 (1997). Parties are traditionally allowed to

present their cases in the best manner they see fit. The court will not interfere with a party’s

strategy unless the court is assured that it presents prejudicial concerns. The court finds no such

concerns with the United States’ strategy to present live testimony. The United States

represented at the hearing that it intends to narrow down the witness list and to focus only on

issues pertinent in the competency context. If the evidence presented at the hearing becomes

cumulative or irrelevant to the competency decision, the court can limit the testimony at that

9

time. The court finds no basis at this time for restraining the Untied States’ strategy for

presenting its case.

Defendant also questions the probative value of lay witness testimony because the Tenth

Circuit has recognized that it may be “very difficult” for “untrained people” to recognize when

someone is suffering from a paranoid delusional system. “[A] defendant suffering from this

illness may outwardly act logically and consistently but nonetheless be unable to make decisions

on the basis of a realistic evaluation of his own best interests.”

Cook v. Lafferty

, 949 F.2d 1546,

1555 (10

th

Cir. 1991). Other courts, however, have concluded that “objections to such lay

witness testimony relate more to weight than to admissibility.”

People v. Medina

, 799 P.2d

1282, 1292-93 (Cal. 1990). Courts have recognized that

lay witnesses may testify upon observed symptoms of mental

disease, because mental illness is characterized by departures from

normal conduct. Normal conduct and abnormal conduct are

matters of common knowledge, and so lay persons may conclude

from observation that certain observed conduct is abnormal. Such

witnesses may testify only upon the basis of facts known to them.

They may testify as to their own observations and may then express

an opinion based upon those observations. Of course the testimony

of a lay witness with training in this or related fields may have

more value than the testimony of a witness with no such training.

Naples v. United States

, 344 F.2d 508, 515 (D.C. Cir. 1964).

In

Medina

, the defendant contended that the court erred in permitting the prosecutor to

elicit an opinion for a lay witness regarding the defendant’s mental state. 799 P.2d at 1292. The

lay witness was a deputy who had a conversation with the defendant at the county jail following

the defendant’s arrest.

Id.

The conversation concerned the defendant’s housing situation and his

need for protective custody.

Id.

The court found no error in the district court allowing the

10

deputy to give lay opinion testimony as to whether the defendant appeared to understand their

conversation.

Id

. The court found the challenged testimony was reasonably relevant to the

question of whether the defendant was presently able to communicate with his counsel.

Id.

at

1293.

The court concludes that Defendant’s concerns regarding Ms. Smart’s testimony goes

more to the weight afforded the testimony, not its admissibility. “The finder of fact in a hearing

as to a defendant’s competency to stand trial is generally the sole judge of the credibility of

witnesses, and the weight to be given their testimony and other evidence. It is for the finder of

fact to resolve conflicts in the testimony of witnesses.” 21 Am. Jur. 2d

Criminal Law

§ 103

(2009).

Defendant also argues that lay witnesses, such as Ms. Smart, should not provide live

testimony at the competency hearing because it is the expert witness’s job to sift through the raw

data and glean the important facts to the legal framework for determining competency.

Defendant states that neither counsel nor the court is professionally equipped through education

or experience to take raw facts from lay witnesses, determine the significance of those facts

within the mental health context, and apply the relevant facts to the question of Defendant’s

mental status. Defendant cites to no authority for this proposition and the argument is squarely at

odds with the court’s role in determining competency. The court acts as a finder of fact and

determines the weight to be given the testimony and other evidence.

See

21 Am. Jur. 2d

Criminal Law

§ 103 (2009). The court’s role in this regard includes expert testimony as well.

The court also has several procedural mechanisms at its disposal with respect to making the

ultimate determination regarding competency. In

Gigante

, the court made findings of fact

11

regarding lay witness testimony and ordered the experts to accept the findings as true and

reassess the defendant’s competency. 925 F. Supp. at 969-77. The court, therefore, finds no

merit in Defendant’s argument that live testimony from lay witnesses should be precluded based

on concerns regarding the court’s ability to apply such facts to the ultimate determination of

competency.

Defendant next contends that allowing Ms. Smart’s testimony on issues only tangentially

related to Defendant’s present competency could taint a future jury pool. In essence, Defendant

contends that the probative value of her testimony does not outweigh the potential prejudice of

influencing the jury pool. The case has received substantial media coverage, and the testimony

must be carefully circumscribed to address competency without diverging into sensationalistic

details or creating a trial within a trial on extraneous issues. Defendant asserts that the court’s

evaluation of the competency issue should not be sidetracked by extended testimony over the

facts of Defendant’s life and the specifics of the alleged crime.

The United States responds that a claim that pretrial publicity violates a defendant’s right

to a fair trial is usually only raised after the pre-trial publicity has occurred or it becomes

apparent during voir dire that publicity has tainted the jury pool.

See Gardner v. Galetka

, 568

F.3d 862, 888 (10

th

Cir. 2009). The Tenth Circuit has recognized that “‘pre-trial publicity in

topical criminal cases is inevitable.’”

Id.

at 889 (citation omitted). The local trial of newsworthy

cases cannot become the exception rather than the rule.

Id.

Defendant does not articulate what proposed testimony he believes would taint the jury

pool. Thus any such prejudice can only be considered speculative at this point. Speculation

regarding potential prejudice is not an appropriate basis for excluding relevant evidence. The

12

court also cannot presume that prejudice will arise from conducting necessary proceedings in the

matter. Even if the court found concerns regarding prejudice warranted, the court could employ

other procedures to allay potential prejudice before it precluded relevant evidence from the

proceeding–such as sealing the proceedings. Tellingly, Defendant did not suggest alternatives to

precluding the testimony. Moreover, at any time during the hearing when the solicited testimony

appears to be seeking evidence that is more prejudicial than probative, defense counsel can object

and the court can restrict testimony on a per question basis rather than a blanket preclusion of

testimony. The court concludes that the jury pool concern is not a basis for finding all of the

proposed testimony more prejudicial than probative.

Although Defendant raises several concerns as to potential prejudice from the court

allowing Ms. Smart to testify at the competency hearing, the court finds no basis for concluding

that her testimony should be excluded on the grounds that its probative value is outweighed by

potential prejudice or considerations of undue delay, waste of time, or needless presentation of

cumulative evidence. This ruling is with respect to her ability to testify based on the general

descriptions of her proposed testimony as represented to the court by the United States.

Defendant, however, is not foreclosed from raising objections at the hearing with respect to

specific questions.

C. Rule 701

If the court allows Ms. Smart to testify, Defendant argues that her opinion testimony must

be carefully tailored.

2

Rule 701 of the Federal Rules of Evidence governs opinions from lay

2

Neither party contends that Ms. Smart is an expert witness on any issue before the

court.

13

witnesses. Rule 701 provides that lay witness testimony “in the form of opinions or inferences is

limited to those opinions or inferences which are (a) rationally based on the perception of the

witness, (b) helpful to a clear understanding of the witness’ testimony or the determination of a

fact in issue, and (c) not based on scientific, technical, or other specialized knowledge within the

scope of Rule 702.” Fed. R. Evid. 701. Defendant attacks Ms. Smart’s ability to offer opinions

under each of these limitations.

Under subsection (a), Defendant cites to

Smith

for the proposition that it is difficult for

lay testimony to be helpful as to the “lack of something.” But, unlike the lay witnesses in

Smith

,

Ms. Smart’s testimony covers a nine-month period of time and her testimony is not confined to

how “normal” Defendant appeared. The United States has represented that Ms. Smart’s

testimony will cover several subjects, such as Defendant’s lack of religious focus, his

manipulation of others, and his ability to lie to make his conduct appear to conform with societal

norms when it was to his advantage. This type of testimony is not just testifying to “a lack of

something.” In addition, the court has already discussed the helpfulness of lay witness testimony

in a case where a defendant may be malingering.

Under subsection (b), Defendant argues that he does not believe the testimony would sort

out disputes or make clear a not-so-clear narrative. Defendant contends that Ms. Smart’s

testimony has not changed significantly and all of the experts have had the opportunity of looking

at her testimony. There is, however, a dispute between the expert’s in this case as to Defendant’s

competency. And, each of the experts use Ms. Smart’s to varying degrees in forming their

opinions. There are also questions regarding the expert’s use of Ms. Smart’s testimony. Because

of the dispute between the experts and the dispute regarding their use of her testimony, the court

14

finds that her live testimony would be helpful to the determination in issue.

Under subsection (c), Defendant argues that Ms. Smart cannot testify as to opinions that

are based on specialized knowledge or too close to the ultimate decision of competency. Rule

701 precludes lay opinions that are based on scientific, technical, or specialized knowledge. But

none of Ms. Smart’s proposed testimony suggests that she will be opining on anything other than

her lay observations. And, the United States represented at the hearing that Ms. Smart will

present mainly facts, with limited opinion testimony. Moreover, the United States has an expert

witness to opine as to mental diagnoses and other specialized matters. The court does not believe

there will be a significant issue with respect to Ms. Smart’s opinion testimony coming too close

to the ultimate issue, but, to the extent that the United States veers into this area while taking her

testimony, the matter can be dealt with during the specific questioning at the evidentiary hearing.

In conclusion, the court concludes that Ms. Smart’s proposed testimony is relevant to the

issues to be determined with respect to competency under Rule 401 and it is admissible at the

competency hearing under Rule 403. In addition, Ms. Smart can testify as to her opinions

consistent with Rule 701. Accordingly, the court denies Defendant’s Motion to Preclude the

Introduction of All Lay Witness Testimony as to the portion of the motion regarding Ms. Smart’s

testimony.

3

3

Defendant acknowledges that even though he argues against the admission of any

lay witness testimony, as the victim in this case, the court may have more latitude in allowing

Ms. Smart to testify under the Crime Victims’ Rights Act. The Crime Victims’ Rights Act states

that the victim has the right “to be reasonably heard at any public proceeding in the district court

involving release, plea, sentencing or any parole proceeding,” but it does not include typical

evidentiary hearings such as competency hearing, motions to suppress, or trial. 18 U.S.C. §

3771(a)(4). This exclusion may have been a recognition that the victim’s testimony would

usually be allowed as relevant in these types of evidentiary hearings whereas it may be excluded

from more procedural hearings. Or it may be an acknowledgment that the admission of

15

CONCLUSION

Based on the above reasoning, Defendant’s Motion to Preclude the Introduction of All

Lay Witness Testimony is DENIED as to the portion of the motion regarding Ms. Smart’s

proposed testimony. Pursuant to the prior scheduling agreement between the parties, the

evidentiary hearing to take Ms. Smart’s testimony will be held Thursday, October 1, 2009, at

9:00 a.m.

DATED this 28th day of September, 2009.

DALE A. KIMBALL

United States District Judge

testimony at such hearings would be governed more appropriately by the rules of evidence. In

any event, while the Act does not grant an affirmative right to be heard at a competency hearing,

the Act’s intent is to provide a victim with appropriate access to the proceedings and it dictates

that the victim has a right to be “treated with fairness.” Because the court finds Ms. Smart’s

testimony relevant and admissible under the Federal Rules of Evidence, the court need not

determine whether a competency hearing is the type of hearing at which the CVRA would allow

a victim to testify.

16

(AP)Harry W. Blausey is in the middle of filing a Federal Civil Rights Action against the State of Ohio Attorneys estimate that Blausey will be awarded in excess of 10 Million Dollars for the Violations against his Civil Rights by the State of Ohio. Governor Ted Strickland Gets Involved, Robert Paisola Reports http://ping.fm/bsXJY

The Harry Blausey Case Continues... When will the State of Ohio Learn, A WCM Exclusive for The Associated Press

For Immediate Release
Western Capital Multimedia
September 25, 2009
For The Associated Press

(Nelsonville, Ohio) The Robert Paisola Innocence Project has just been notified that former Newark, Ohio Realtor, Harry Blausey has been placed in solitary confinement for "Accepting a Piece of Bread from another Inmate" Blausey, said in a letter to WCM and AP that "I was put in the Hole (Segregation) on Friday, Did not get my medications for three days, and my hearing aid was stolen"

Blausey, has been in custody for nearly a year, for "Providing False Writings" under Ohio Code. And has been the center of worldwide controversy over his abuse and treatment while under the custody of The Ohio Department of Corrections. He was allegedly following the advice and procedures from Real Estate Guru's Russ Whitney, Carlton Sheets and Donald Trump, among others, when charges were levied against him by Licking County Ohio Prosecutor Kenneth Oswalt, who stated "It is not so much what Mr. Blausey did, but what he did not do"

Calls to the institution warden, Francisco Pineda went unanswered, and we were told that "we would be receiving a personal call from Ohio Governor Ted Strickland, and that he is very aware of this matter" said David Lucas, a Representative for the Robert Paisola Foundation.

Lucas states that "Representatives from Governor Strickland's office assured WCM that this matter was being reviewed at the highest levels of State Government" and that they would be would be contacting the foundation immediately"

Harry W. Blausey is in the middle of filing a Federal Civil Rights Action against the State of Ohio and may be compensated up to $20,000 per day of incarceration, plus punitive damages to be determined at trial. Trial Counsel estimate that Blausey will be awarded in excess of 10 Million Dollars for the Violations against his Civil Rights by the State of Ohio.

We will bring you more details on this story as it unfolds from The Hocking Correctional Facility in Nelsonville, Ohio

Copyright 2009 All Rights Reserved

Photo's Courtesy of The State of Ohio

Stay tuned to www.HarryBlausey.com for Constant Updates as well as CNN I Report

Robert Paisola Reports Green Tree Financial Debt Collectors kill Florida Resident Stanley McLeod - All Hell Breaks Loose Watch the Video! http://ping.fm/VEfSL

Journalist, Jane Burgermeister, Files Charges against WHO and UN for Bio terrorism and Intent to Commit Mass Murder, Robert Paisola Reports http://ping.fm/CdAbc

Journalist, Jane Burgermeister, Files Charges against WHO and UN for Bio terrorism and Intent to Commit Mass Murder, Robert Paisola Reports http://ping.fm/Yp3FW?note_id=144049051629&ref=mf

Journalist, Jane Burgermeister, Files Charges against WHO and UN for Bioterrorism and Intent to Commit Mass Murder, Robert Paisola Reports Live- Video

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Notice:

Flu is not normal deadly - and you can't vaccinate against it all, anyway.

I am working with a guy right now who contracted swine flu (he AND his son) - they got the flu, felt liked crap, took treatment, (not vaccine), recovered & are both fine.

Listen to an Interview with Journalist Jane Burgermeister Live from Austria:
The Interview Continues to Part 2 Automatically...

Robert Paisola

For The Western Capital Foundation

media@westerncapitalfoundation.com

Read about this in THE CANADA FREE PRESS

Read Here Also : Joseph Moshe (MOSSAD Microbiologist): “Swine flu vaccine is bioweapon”

Influenza A. Terrorismo mediatico e gruppi di resistenza al vaccino

Notice:

This article was released to journalists around the world minutes ago from Rome Italy. We are going to reprint the entire article as we received it from Media Bistro and the World Health Organization . We will not water this down like you will see on the networks as they sit for hours trying to determine what to say. That is your job. We deliver the message, you decide. Let us be clear.. We are making no guarantees as to the accuracy of this report, however the data that was reviewed came up positive

Beginning of Article--


Journalist Files Charges against WHO and UN for Bio terrorism and Intent to Commit Mass Murder

by Barbara L. Minton,

As the anticipated July release date for Baxter's A/H1N1 flu pandemic vaccine approaches, an Austrian investigative journalist is warning the world that the greatest crime in the history of humanity is underway. Jane Burgermeister has recently filed criminal charges with the FBI against the World Health Organization (WHO), the United Nations (UN), and several of the highest ranking government and corporate officials concerning bio terrorism and attempts to commit mass murder. She has also prepared an injunction against forced vaccination which is being filed in America. These actions follow her charges filed in April against Baxter AG and Avir Green Hills Biotechnology of Austria for producing contaminated bird flu vaccine, alleging this was a deliberate act to cause and profit from a pandemic.

Summary of claims and allegations filed with FBI in Austria on June 10, 2009

In her charges, Burgermeister presents evidence of acts of bio terrorism that is in violation of U.S. law by a group operating within the U.S. under the direction of international bankers who control the Federal Reserve, as well as WHO, UN and NATO. This bio terrorism is for the purpose of carrying out a mass genocide against the U.S. population by use of a genetically engineered flu pandemic virus with the intent of causing death. This group has annexed high government offices in the U.S.

Specifically, evidence is presented that the defendants, Barack Obama, President of the U.S, David Nabarro, UN System Coordinator for Influenza, Margaret Chan, Director-General of WHO, Kathleen Sibelius, Secretary of Department of Health and Human Services, Janet Napolitano, Secretary of Department of Homeland Security, David de Rotschild, banker, David Rockefeller, banker, George Soros, banker, Werner Faymann, Chancellor of Austria, and Alois Stoger, Austrian Health Minister, among others, are part of this international corporate criminal syndicate which has developed, produced, stockpiled and employed biological weapons to eliminate the population of the U.S. and other countries for financial and political gain.

The charges contend that these defendants conspired with each other and others to devise, fund and participate in the final phase of the implementation of a covert international bio weapons program involving the pharmaceutical companies Baxter and Novartis. They did this by bioengineering and then releasing lethal biological agents, specifically the "bird flu" virus and the "swine flu virus" in order to have a pretext to implement a forced mass vaccination program which would be the means of administering a toxic biological agent to cause death and injury to the people of the U.S. This action is in direct violation of the Biological Weapons Anti-terrorism Act.

Burgermeister's charges include evidence that Baxter AG, Austrian subsidiary of Baxter International, deliberately sent out 72 kilos of live bird flu virus, supplied by the WHO in the winter of 2009 to 16 laboratories in four counties. She claims this evidence offers clear proof that the pharmaceutical companies and international government agencies themselves are actively engaged in producing, developing, manufacturing and distributing biological agents classified as the most deadly bioweapons on earth in order to trigger a pandemic and cause mass death.

In her April charges, she noted that Baxter's lab in Austria, one of the supposedly most secure bio security labs in the world, did not adhere to the most basic and essential steps to keep 72 kilos of a pathogen classified as a bio weapon secure and separate from all other substances under stringent bio security level regulations, but it allowed it to be mixed with the ordinary human flu virus and sent from its facilities in Orth in the Donau.

In February, when a staff member at Bio Test in the Czech Republic tested the material meant for candidate vaccines on ferrets, the ferrets died. This incident was not followed up by any investigation from the WHO, EU, or Austrian health authorities. There was no investigation of the content of the virus material, and there is no data on the genetic sequence of the virus released.

In answer to parliamentary questions on May 20th, the Austrian Health Minister, Alois Stoger, revealed that the incident had been handled not as a bio security lapse, as it should have been, but as an offense against the veterinary code. A veterinary doctor was sent to the lab for a brief inspection.

Burgermeister's dossier reveals that the release of the virus was to be an essential step for triggering a pandemic that would allow the WHO to declare a Level 6 Pandemic. She lists the laws and decrees that would allow the UN and WHO to take over the United States in the event of pandemic. In addition, legislation requiring compliance with mandatory vaccinations would be put into force in the U.S. under conditions of pandemic declaration.

She charges that the entire "swine flu" pandemic business is premised on a massive lie that there is no natural virus out there that poses a threat to the population. She presents evidence leading to the belief that the bird flu and swine flu viruses have, in fact, been bio engineered in laboratories using funding supplied by the WHO and other government agencies, among others. This "swine flu" is a hybrid of part swine flu, part human flu and part bird flu, something that can only come from laboratories according to many experts.

WHO's claim that this "swine flu" is spreading and a pandemic must be declared ignores the fundamental causes. The viruses that were released were created and released with the help of WHO, and WHO is overwhelmingly responsible for the pandemic in the first place. In addition, the symptoms of the supposed "swine flu" are indistinguishable from regular flu or from the common cold. The "swine flu" does not cause death anymore often than the regular flu causes death.

Burgermeister notes that the figures for deaths reported for the "swine flu" are inconsistent and there is no clarity as to how the number of "deaths" has been documented.

There is no pandemic potential unless mass vaccinations are carried out to weaponize the flu under the guise of protecting the population. There are reasonable grounds for believing that the mandatory vaccines will be purposely contaminated with diseases that are specifically designed to cause death.

Reference is made to a licensed Novartis bird flu vaccine that killed 21 homeless people in Poland in the summer of 2008 and had as its "primary outcome measure" an "adverse events rate", thereby meeting the U.S. government's own definition of a bio weapon (a biological agent designed to cause an adverse events rate, i.e death or injury) with a delivery system (injection).

She alleges that the same complex of international pharmaceutical companies and international government agencies that have developed and released pandemic material have positioned themselves to profit from triggering the pandemic with contracts to supply vaccines. Media controlled by the group that is engineering the "swine flu" agenda is spreading misinformation to lull the people of the U.S. into taking the dangerous vaccine.

The people of the U.S. will suffer substantial and irreparable harm and injury if they are forced to take this unproven vaccine without their consent in accordance with the Model State Emergency Health Powers Act, National Emergency Act, National Security Presidential Directive/NSPD 51, Homeland Security Presidential Directive/HSPD-20, and the International Partnership on Avian and Pandemic Influenza.

In the U.S. since 2008, Burgermeister charges that those named in her allegations have implemented new and/or accelerated the implementation of laws and regulations designed to strip the citizens of the U.S. of their lawful constitutional rights to refuse an injection. These people have created or allowed provisions to remain in place that make it a criminal act to refuse to take an injection against pandemic viruses. They have imposed other excessive and cruel penalties such as imprisonment and/or quarantine in FEMA camps while barring the citizens of the U.S. from claiming compensation from injury or death from the forced injections. This is in violation of the laws governing federal corruption and the abuse of office as well as of the Constitution and Bill of Rights. Through these actions, the named defendants have laid the groundwork for mass genocide.

Using the "swine flu" as a pretext, the defendants have preplanned the mass murder of the U.S. population by means of forced vaccination. They have installed an extensive network of FEMA concentration camps and identified mass grave sites, and they have been involved in devising and implementing a scheme to hand power over the U.S. to an international crime syndicate that uses the UN and WHO as a front for illegal racketeering influenced organized crime activities, in violation of the laws that govern treason.

She further charges that the complex of pharmaceutical companies consisting of Baxter, Novartis and Sanofi Aventis are part of a foreign-based dual purpose bio weapons program, financed by this international criminal syndicate and designed to implement mass murder to reduce the world's population by more than 5 billion people in the next ten years. Their plan is to spread terror to justify forcing people to give up their rights, and to force mass quarantine in FEMA camps. The houses, companies and farms and lands of those who are killed will be up for grabs by this syndicate.

By eliminating the population of North America, the international elite gain access to the region's natural resources such as water and undeveloped oil lands. And by eliminating the U.S. and its democratic constitution by subsuming it under a North American Union, the international crime group will have total control over North America.



Highlights from the complete dossier

The complete dossier of the June 10th action is a 69 page document presenting evidence to substantiate all charges. This includes:

Factual background that delineates time lines and facts that establish probable cause, UN and WHO definitions and roles, and history and incidents from the April, 2009 "swine flu" outbreak.

Evidence the "swine flu" vaccines are defined as bioweapons as delineates in government agencies and regulations classifying and restricting vaccines, and the fear of foreign countries that "swine flu" vaccines will be used for biological warfare.

Scientific evidence the "swine flu" virus is an artificial (genetic) virus.
Scientific evidence the "swine flu" was bio engineered to resemble the Spanish flu virus of 1918 including quotes from Swine Flu 2009 is Weaponized 1918 Spanish Flu by A. True Ott, Ph.D., N.D., and a Science Magazine report from Dr. Jeffrey Taubenberger


The genome sequence of the "swine flu"

Evidence of the deliberate release of the "swine flu" in Mexico

Evidence as to the involvement of President Obama that delineates his trip to Mexico which coincided with the recent "swine flu" outbreak and the death of several officials involved in his trip. Contention is made that the President was never tested for "swine flu" because he had been previously vaccinated.

Evidence as to the role of Baxter and WHO in producing and releasing pandemic virus material in Austria includes a statement from a Baxter official stating the accidentally distributed H5N1 in the Czech Republic was received from a WHO reference center. This includes delineation of evidence and allegations from Burgermeister's charges filed in April in Austria that are currently under investigation.

Evidence Baxter is an element in a covert bio weapons network

Evidence Baxter has deliberately contaminated vaccine material.

Evidence Novartis is using vaccines as bio weapons

Evidence as to WHO's role in the bio weapons program

Evidence as to WHO's manipulation of disease data in order to justify declaring a Pandemic Level 6 in order to seize control of the USA.

Evidence as to the FDA's role in covering up the bio weapons program

Evidence as to Canada's National Microbiology Lab's role in the bio weapons program.

Evidence of the involvement of scientists working for the UK's NIBSC, and the CDC in engineering the "swine flu".

Evidence vaccinations caused the Spanish killer flu of 1918 including belief of Dr. Jerry Tennant that the widespread use of aspirin during the winter that followed the end of World War I could have been a key factor contributing to the earlier pandemic by suppressing the immune system and lowering body temperatures, allowing the flu virus to multiply. Tamiflu and Relenza also lower body temperatures, and therefore can also be expected to contribute to the spread of a pandemic.

Evidence as to manipulation of the legal framework to allow mass murder with impunity.

Constitutional issues: the legality vs. illegality of jeopardizing the life, health and public good by mass vaccinations.

The issue of immunity and compensation as evidence of intent to commit a crime.

Evidence as to the existence of an international corporate crime syndicate.

Evidence of the existence of the "Illuminati".

Evidence as to the depopulation agenda of the Illuminati/Bilderbergs and their involvement in the engineering and release of the artificial "swine flu" virus.

Evidence that weaponized flu was discussed at the annual Bilderberg meeting in Athens from May 14-17, 2009, as part of their agenda of genocide, including a list of attendees who, according to a statement once made by Pierre Trudeau, view themselves as genetically superior to the rest of humanity.

Media is keeping Americans clueless about the threat they are under

Jane Burgermeister is a dual Irish/Austrian who has written for Nature, the British Medical Journal, and American Prospect. She is the European Correspondent of the Renewable Energy World website. She has written extensively about climate change, biotechnology, and the ecology.

In addition to the charges currently under investigation that she filed against Baxter AG and Avir Green Hills Biotechnology in April, she has filed charges against WHO and Baxter among others concerning a case of exploding "swine flu" vials meant for a research lab on a busy IC train in Switzerland.

In her view, control of the media by the ruling elite has allowed the world crime syndicate to further its agenda unabated while the rest of the people remain in the dark about what is really going on. Her charges are an attempt to get around this media control and bring the truth to light.

Her greatest concern is that "in spite of the fact Baxter has been caught red handed nearly triggering pandemic, they are also moving ahead, together with allied pharma companies, with supplying the vaccine for pandemics." Baxter is hurrying to get this vaccine to market some time in July.

For more information:

For more information:
http://www.naturalnews.com/025760.html
http://birdflu666.wordpress.com/200...
http://in.news.yahoo.com/137/200906...
http://timesofindia.indiatimes.com/...

___End of Release___
Western Capital Multimedia 2009


Influenza A. Terrorismo mediatico e gruppi di resistenza al vaccino

(WCM International Rome)- Mentre l'Organizzazione Mondiale della Sanita' decide sulla strategia da applicare per i vaccini di massa contro l'influenza A dopo aver inspiegabilmente innalzato il livello d'allarme per la pandemia da 5 a 6 nel mese di Maggio e mentre la giungla mediatica ripropone a raffica in tv, sui giornali il medesimo melodramma che racconta preventivamente della sciagura imminente, la comunita' di internet e' ormai in allerta.


Da diversi mesi, infatti, sta attuando la sua forza propagandistica per ostacolare questo vaccino che sembra avere tutte le sembianze di un ''terrorismo mediatico'' attutato a fini politici ed economici ai danni delle popolazioni mondiali.

L'ALLARME: Le proteste non sono nate da un popolo di visionari del web, ma dalle denunce di alcuni esponenti della comunita' medico-scientifica in primis della Dott.sa Jane Burgermeister del mese di Giugno e poi un articolo apparso sul Daily Mail che riferiva di una lettera intercettata e inviata dal Governo Inglese a 600 neurologi in cui si allertava la comunita' scientifica sulla probabilita' di riscontrare casi di Sindrome di Guillem-Barre' nelle persone vaccinate.

In realta' questo sintomo non e' un semplice sospetto, ma e' stato gia' riscontrato nel 1976 quando improvvisamente una influenza suina che semino' il panico nella popolazione anche grazie all'appoggio dei media, indusse numerose persone a vaccinarsi. Morirono piu' persone a causa del vaccino rispetto a quante ne morirono a causa della pandemia. In quell'anno pero' sfortunatamente le case farmaceutiche produttrici del vaccino non riuscirono ad incassare quanto avevano pronosticato perche' la Sindrome fu subito ricondotta alle sostanze di cui era composto il materiale vaccinico ed il Governo Americano fu costretto a rimborsare con milioni di dollari le persone colpite.

Molte sono le reazioni della comunita' scientifica che nel frattempo si e' divisa in due tronconi: da una parte coloro che appoggiano il vaccino e che lo descrivono come necessario al fine di bloccare una presunta ''pandemia'' lanciata dall'OMS e appoggiati anche dal mondo politico. Dall'altro invece medici, immunologi, neurologi, giornalisti medico-scientifici come la Burgermeister che parlano non solo di pericolo e di materiale vaccinico contaminato, ma di denunce contro il Governo Americano, contro la Bexter (azienda farmaceutica che ha prodotto il vaccino) e contro l'OMS. Secondo la Burgermeister anche in questo caso i fondi vengono dalla Rockefeller Foundation come avvenne negli anni '70 e nei primi anni '90 quando si vaccino' la popolazione delle Filippine cntro il ''tetano'' in realta' le categorie che furono vaccinate erano soltanto ''donne incinte'' che poi abortirono ispiegabilmente. Si scopri' poi che il vaccino conteneva l'ormone della gravidanza o hCG che produceva un effetto anticoncezionale. Dunque anche questo progetto di vaccinazone di massa fa parte di un unico progetto da analizzare nella storia delle vaccinazioni di massa e che fino ad oggi e' costato centinaia di milioni di dollari tutti derivanti dalla Rockefeller Foundation.

Nel frattempo Kathleen Sebelius ha firmato un decreto che garantisce l'immunita' giuridica alle case produttri del vaccino.
Perche' tutto questo? Si pronostica forse un'Apocalisse?

Sulla base di cio' sono nate numerosissime resistenze al vaccino in tutto il mondo sia da parte dei cittadini sia da parte della comunita' scientifica:

Resistenza Austriaca: la dott.sa Jane Burbermeiser che lavora come giornalisa in ambito medico scientifico ed ha collaborato per numerose testate scientifiche come ''The Scientist'', il ''Reuter's Healt'', il ''British Medical Journal'', ''Nature'', si e' impegnata a sporgere denuncia prima presso l'ambasciata statunitense a Vienna e poi all'FBI.

Resisenza Francese: Il Professor Debre' parla in un'intervista televisiva di un'influenza blanda e denuncia il governo di terrorismo mediatico per fini politici. Debre' e' Direttore del servizio di Urologia presso l'ospedale di Cochin, membro del comitato nazionale di etica e parlamentare francese.

Resistenza Italiana: Il Dottor Serravalle ha scritto un'aperta lettera ai genitori dando il suo parere di pediatra in merito al vaccino e raccomandando i genitori a non vaccinare i propri figli poiche' non solo il vaccino non e' stato testato e non si conoscono di specifico gli effetti collaterali sui bambini, ma poiche' ''gli antivirali possono dare a vlte effetti collaterali importanti. Il 18% dei bambini in eta' scolare del Regno Unito a ci e' stato somministrato l'Oseltamvir in occasione dell'epidemia, ha presentato sintomi neuropsichiatrici ed il 40% sintomi gastroenterici. Con lui si schiera anche l'Associazione Culturale dei Pediatri Italiani.

Composizione del vaccino. Quel che si sa e' che questo vaccino e' stato adiuvato con ''MS 59 un derivato dell'MF 59 della Chiron ideato per la Guerra del Golfo e modificato per l'influenza H5N1. Secondo alcuni esperti della sanita' i coadiuvanti fanno parte della nuova generazione di armi biologiche'' in quanto possono ''rompere la ''tolleranza'' cioe' la capacita' dei globuli bianchi di ignorare cio' che e' auto e attaccare cio' che e' straniero''. Quesa capacita' viene ostacolata dai coadiuvanti e il pericolo di una vera e propria autodistruzione sale poiche' viene messo in bilico il sistema immunitario del corpo umano. Fin dal 1930 l'utilizzo dei coadiuvanti a base di olio (MS 59) fu limitato alla ricerca sugli animali a causa dell'elevata pericolosita'.

Influenza stagionale: Sul sito del Ministero della Salute invece e' comparsa una circolare che informa sulla composizione del vaccino contro l'influenza stagionale 2009/2010. Il vaccino sara' trivalente come ogni anno, dunque proteggera' contro tre ceppi virali che si sono diffusi l'anno precedente, in questo modo si cerca di immunizzare contro eventuali modificazioni del virus. Come si legge nella circolare un antigene utilizzato e' analogo al ceppo A/BRISBANE/59/2007 (H1N1) e questo ci induce a pensare che qualora le persone decidano di non vaccinarsi contro l'influenza suina, saranno comunque immunizzati grazie al vaccino contro l'influenza stagionale. Non a caso Fazio, viceministro della salute, parla di evitare ''sovrapposizioni'' tra le due vaccinazioni.

Il piano del Governo: Il vaccino non e' stato sufficientemente testato e dunque sara' privo di ''bugiardno''. Questa e' la ragione per cui non sara' distribuito attraverso le farmacie. Il costo del vaccino sara' a carico del governo e sara' distribuito attraverso i medici di medicina generale, pediatrici e medici competenti. Il governo Italiano ha come obbiettvo quello di vaccinare da un minimo di 8,6 miloni di italiani fino a 24 milioni e poiche' ogni persna dovra' assumere due dosi di vaccino il Governo s e' impegnato ad acquistare un totale di 48 milioni di dosi. La campagna partira' il 15 Novembre ma, qualora il siero dverre raggiungere anticipatamente il mercato italiano, la campagna comincera' il 15 Ottobre.

Il piano Europeo: Il 12 Ottobre i ministri della sanita' UE si riuniranno in via straordinaria per fare il unto sull'influenza A, come riferisce il minstro svedese alla sanita', Maria Larsson. In particolare si decidera' su un accordo tra i vari paesi per dispensare il vaccino anche alle aree in via di sviluppo come l'Africa in quanto, la scarsita' delle risorse impedisce ai Governi africani di acquistare il vaccino o autoprodurlo come sta facendo l'India attravers 4 o 5 aziende locali.

L'obbiettivo dell'OMS e' quello di vaccinare un totale di 4,9 milioni di persone e la campagna di vaccinazione prevede due ondate: la prima che ha come obbiettivo quello di vaccinare almeno 2,5 miliardi di persone e la seconda invece a come obbiettivo quello di immunizzare almeno 2,4 miliardi di persone nel mondo.

Questa dunque e' una guerra combattuta semplicemene sulla base dell'informazione tra i media manipolati dai Governi che disseminano terrorismo e la comunita' scientifica che si sfoga su internet coivolgendo sempre piu' persone.

Here is a video that will explain how the HAMP | Home Affordable Modification Program works. Please watch this if you are either in Foreclosure or Pending Foreclosure!
To your Success
Robert Paisola
http://ping.fm/SfBQg

Robert Paisola Spent the entire day dealing with attorneys and members of the Department of the Treasury working on getting the ABSOLUTE SPECIFIC FORMULAS for approval of a Loan Modification Request under "HAMP | Home Affordable Modification Program" It was brutal, however we are now compiling all of the data for you and will publish our final report on our site www.CreditInAmerica.com (If you understand what I just said... you will be blown away by the data we were able to obtain!) Relax America, just because you have not paid your mortgage in 12 months DOES NOT mean you will loose your home! Stay Tuned!

The Western Capital Foundation President, Robert Paisola, Seeks Justice and retains Attorney Sara Beck to File An Action against Broadweave Networks of Provo, Utah and David C. Moon and Scott Nelson.

Robert Paisola Reports.. The Ann Minch Debtors Revolt Gets the Attention of Bank of America Executives! Where is Ken Lewis? http://ping.fm/Dtg2A

A Robert Paisola Report -- DEBTORS REVOLT BEGINS NOW! http://ping.fm/g2gpR

Robert Paisola is working on a story with the FCC about a Utah Company "Broadweave Internet Service" .... "Discrimination or Monopoly- A Look into Scott Nelson's Utah internet company" www.westerncapitalmultimedia.com featuring Ty Mattingly, Robert Frankenberg, David C. Moon,
R. Duff Thompson, Lane Critchfield AND THE FCC!

Is ACORN Intentionally Structured As a Criminal Enterprise, Direct from Congressman Jason Chaffetz, Robert Paisola Reports

Is ACORN Intentionally Structured As a Criminal Enterprise, Direct from Congressman Jason Chaffetz, Robert Paisola Reports



CNN INVESTIGATES THE ACORN VOTER REGISTRATION DRIVE
CONGRESSMAN JASON CHAFFETZ LETS US KNOW- WE INVESTIGATE- WE GIVE YOU THE FACTS!
ROBERT PAISOLA REPORTS FOR WESTERN CAPITAL MULTIMEDIA

Download the Full Report Here!



Live from inside the Congressional ACORN Investigation Room!

Lets look at another report on this!





Special thanks to our friends at NEWSY




Page 1
U.S. House of Representatives
Committee on Oversight and Government Reform
Darrell Issa (CA-49), Ranking Member
Is ACORN Intentionally Structured As a
Criminal Enterprise?
Staff Report
U.S. House of Representatives
111
th
Congress
Committee on Oversight and Government Reform
July 23, 2009
Page 2
Page 2 of 88
Table of Contents
I. EXECUTIVE SUMMARY....................................................................................................................... 3
II. FINDINGS ............................................................................................................................................... 6
III. THE ACORN HANGS FROM MANY BRANCHES......................................................................... 7
A. VOTER REGISTRATION FRAUD............................................................................................................... 7
B. EMBEZZLEMENT..................................................................................................................................... 8
C. ORGANIZATIONAL MISMANAGEMENT................................................................................................... 9
D. POLITICAL ACTIVITY ........................................................................................................................... 10
IV. ACORN USES ITS COMPLEX ORGANIZATIONAL STRUCTURE TO FACILITATE
FRAUDULENT AND ILLEGAL ACTS.................................................................................................. 11
A. ACORN FAILS TO FULFILL ITS CORPORATE DUTIES ............................................................................. 15
1. ACORN Breached Its Fiduciary Duties by Covering up Dale Rathke’s Embezzlement ................. 16
a) ACORN Violated ERISA ..................................................................................................... 22
b) ACORN Breached Its Duty of Care ..................................................................................... 29
c) The Embezzlement Is An “Excess Benefit” Transaction Prohibited By The IRS ................ 31
2. ACORN Breached Its Corporate Duties by Failing to Abide by its Bylaws.................................... 31
3. ACORN’s Financial and Structural Mismanagement Has Led to Its Failure to Uphold Its
Corporate Duties ................................................................................................................................ 35
a) ACORN Lacks Quality Control in Hiring and Supervision of Employees ......................... 44
B. ACORN AND ITS AFFILIATES ARE NOT IN COMPLIANCE WITH THE IRS .............................................. 47
1. Congress, In Regulating Nonprofits Intended Nonprofits As Not-for-Politics................................ 48
2. ACORN and Its Affiliates Violated Their Restrictions As Nonprofits ............................................. 48
3. ACORN and Its Affiliates Engage In Substantial Lobbying Activities ............................................ 52
V. CONCLUSION...................................................................................................................................... 73
VI. APPENDIX 1: ACORN COUNCIL ................................................................................................... 74
VII. APPENDIX 2: RICO ANALYSIS..................................................................................................... 82
#
Page 3
Page 3 of 88
I. Executive Summary
We should be unfaithful to ourselves if we should ever lose sight of the danger to our liberties if anything
partial or extraneous should infect the purity of our free, fair, virtuous, and independent elections.
President John Adams, Inaugural Address, 1797
The Association of Community Organizations for Reform Now (ACORN) has repeatedly
and deliberately engaged in systemic fraud. Both structurally and operationally, ACORN
hides behind a paper wall of nonprofit corporate protections to conceal a criminal
conspiracy on the part of its directors, to launder federal money in order to pursue a
partisan political agenda and to manipulate the American electorate.
Emerging accounts of widespread deceit and corruption raise the need for a criminal
investigation of ACORN. By intentionally blurring the legal distinctions between 361
tax-exempt and non-exempt entities, ACORN diverts taxpayer and tax-exempt monies
into partisan political activities. Since 1994, more than $53 million in federal funds have
been pumped into ACORN, and under the Obama administration, ACORN stands to
receive a whopping $8.5 billion in available stimulus funds.
Operationally, ACORN is a shell game played in 120 cities, 43 states and the District of
Columbia through a complex structure designed to conceal illegal activities, to use
taxpayer and tax-exempt dollars for partisan political purposes, and to distract
investigators. Structurally, ACORN is a chess game in which senior management is
shielded from accountability by multiple layers of volunteers and compensated
employees who serve as pawns to take the fall for every bad act.
The report that follows presents evidence obtained from former ACORN insiders that
completes the picture of a criminal enterprise.
First, ACORN has evaded taxes, obstructed justice, engaged in self dealing, and
aided and abetted a cover-up of embezzlement by Dale Rathke, the brother of
ACORN founder Wade Rathke.
Committee investigators have established that a violation of corporate duties led to gross
abuses of tax laws and other federal regulations. According to documents obtained from
insiders, ACORN was made aware of its lax management structure but chose to ignore
the problems and continue a cover-up of criminal activity. By refusing to report Dale
Rathke’s embezzlement of $948,607.50 as an excess benefit transaction, ACORN
appears to have violated the Internal Revenue Code. ACORN’s cover-up of the
embezzlement for more than eight years would also constitute obstruction of justice.
Second, ACORN has committed investment fraud, deprived the public of its right to
honest services, and engaged in a racketeering enterprise affecting interstate
commerce.
Page 4
Page 4 of 88
Committee investigators have documented ACORN’s use of charitable contributions
against donor intent, typified by ACORN’s secret transfer of donor funds to recover
losses due to embezzlement. Moreover, ACORN comingles the accounts of federally-
funded affiliates with politically-active affiliates and lacks sufficient oversight to
safeguard taxpayer and donor interests, even though it receives millions of federal
dollars.
ACORN’s purposeful lack of quality control translates into the employment of convicted
felons and other suspect persons. Through a strategy of providing financial incentives to
employees who meet voter registration quotas, ACORN conducts voter drives that
routinely produce fraudulent registrations. In fact, ACORN’s employment practices have
the intentional effect of encouraging voter registration fraud while linking criminal
culpability to the lowest-level employees rather than the directors who contrive the illegal
schemes.
To date, nearly 70 ACORN employees have been convicted in 12 states for voter
registration fraud, though no federal charges have been filed against ACORN’s directors.
In fact, Pennsylvania judge Richard Zoller – after holding a low-level ACORN employee
liable for election law violations – noted that “somebody has to go after ACORN.”
Third, ACORN has committed a conspiracy to defraud the United States by using
taxpayer funds for partisan political activities.
Committee investigators have unearthed documentation that ACORN and its affiliates
conducted meticulous research that fed aggressive campaign initiatives designed to elect
Democratic candidates in targeted races. ACORN forged both formal and informal
connections with former Illinois Governor Rod Blagojevich, Ohio Senator Sherrod
Brown and President Barack Obama, among others. Each of these campaigns received
financial and personnel resource contributions from ACORN and its affiliates as part of a
scheme to use taxpayer monies to support a partisan political agenda. These actions are a
clear violation of numerous tax and election laws.
Documents contained in this report reveal ACORN’s political agenda. ACORN’s 2005-
2007 Strategic Plan states that “just as important as . . . mobilizing existing progressive
voters, ACORN and similar groups actually create new progressive voters.” In the same
document, ACORN acknowledges that its “issue campaigns play the dual role . . . of
attracting new members, and educating or politicizing existing members.” One particular
issue where ACORN claims success is “fighting key elements of the national Republican
program.”
In other documents, ACORN affiliates take credit for the election of former-Illinois
Governor Rod Blagojevich. In the 2006 year-end report of ACORN affiliate Service
Employees International Union (SEIU) Local 880, efforts to elect Blagojevich and
advance partisan political agendas are called “flawless.”
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Labor organizations, unions, and other tax-exempt entities stretched Chicago-style
political manipulation and back room schemes beyond Illinois to other state-wide and
national campaign efforts. In the State of Ohio, where ACORN directors drafted a
political plan contained in this report, overt partisan goals are enumerated. The ACORN
Ohio Political Plan states:
ACORN will target three competitive Ohio congressional districts
as well as a half dozen state rep seats nested within the districts.
Our electoral work will mobilize and educate voters [and] our
paid professional canvass will execute tightly managed Voter ID
and GOTV canvasses moving our core constituency of base and
swing voters to the polls to vote for the candidates who most
closely align with a progressive Working Families Agenda.
Moreover, documents provided by former ACORN employees and contained in this
report demonstrate the degree to which ACORN and ACORN affiliates organized to elect
President Barack Obama in 2008.
Fourth, ACORN has submitted false filings to the Internal Revenue Service (IRS)
and the Department of Labor, in addition to violating the Fair Labor Standards Act
(FLSA).
Committee investigators have tracked ACORN’s numerous failures to comply with
federal laws that required the payment of excise taxes on excess benefits to Dale Rathke.
SEIU Local 100 – under the direction of ACORN founder Wade Rathke – filed bogus
reports with the Labor Department in order to conceal embezzlement. ACORN violated
the overtime and record-keeping provisions of FLSA. All of these fraudulent acts would
constitute a violation of 18 U.S.C. ž 1001 by presenting false documents to the United
States government.
Fifth, ACORN falsified and concealed facts concerning an illegal transaction
between related parties in violation of the Employee Retirement Income Security
Act of 1974 (ERISA).
Committee investigators have concluded that ACORN plundered employee benefits and
violated fiduciary responsibilities under ERISA by relieving corporate debts through
prohibited loans to a related party. Moreover, ACORN affiliates lack independent
control of their own assets and maintain shoddy accounting practices that serve to hide
ACORN’s secret and illegal use of monies.
ACORN conspired to conceal information concerning prohibited transactions from its
board in violation of its corporate charter. ACORN’s termination of board members who
sought to uncover its illegal activities perpetuates a cover-up at the expense of adherence
to its own bylaws.
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The evidence contained in this report proves that ACORN’s stated purpose to promote
grassroots civic participation has been perverted through fraudulent and illegal acts. The
weight of evidence against ACORN and its affiliates is astounding. This syndicate of
tax-exempt organizations has coordinated and implemented a nation-wide strategy of tax
fraud, racketeering, money-laundering and manipulating the American electorate.
Scrutiny is essential to lift a dark cloud of suspicion from nonprofit community
organizations; to bring to justice the responsible parties who have heretofore been
shielded from prosecution by ACORN’s obscure organizational structure; to protect the
American system of democratic self-government from manipulation and disruption; and
to free our political climate from the choke of corruption that threatens to strangle free
and fair elections.
II. Findings
• Piercing ACORN’s corporate veil in order to determine which individuals own or
control the organization is a necessary step for preventing waste, fraud and abuse
of federal funds in the hands of corporate control.
• When ACORN commits bad acts, the individuals who are harmed are the low to
moderate income workers whom ACORN was founded to protect.
• Dale Rathke’s embezzlement and ACORN’s subsequent cover-up are violations
of ACORN’s corporate duties and constitute fraud. The identities and roles of
those involved must be disclosed.
• ACORN failed to observe its corporate articles by loaning money without proper
legal documentation, by ignoring its duties under the corporate bylaws, by
misusing corporate funds, and by terminating its members without honoring the
process setup in its Articles of Incorporation. ACORN has not complied with IRS
filing requirements or ERISA.
• ACORN’s inadequate management structure nurtured a breakdown of corporate
integrity, encouraged improper political walls, fostered violations of the tax code,
cultivated the illegal use of federal funds and supported an inadequate response to
corporate embezzlement. ACORN accepts federal grant funds yet lacks any
whistleblower policy, fails to comply with IRS laws and lacks an ongoing
relationship with duly qualified legal counsel. Project Vote lacks hiring standards
and routinely employs convicted felons. The executive directors of several
ACORN affiliates lack sufficient control of their own funds, ACORN affiliates
lack independent boards that they can report to, and directors wear hats that
jeopardize their ability to act solely in the interests of their organizations.
ACORN is responsible for Project Vote’s fraudulent registrations because
ACORN authorizes the selection of members engaged in voter registration.
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• An essential aspect of Project Vote, CCI, Citizens Services Inc. (“CSI”),
Communities Voting Together (“CVT”), and other ACORN affiliated 501(c)(3)s
is to promote desirable governmental policies consistent with its objectives
through legislation.
• ACORN and its affiliates cannot delineate their 501(c)(3) work from their non-
501(c)(3) work. Ignoring ACORN’s nonprofit protections reveals the same
individuals made strategic decisions about which regions do 501(c)(3) versus non-
501(c)(3) voter registration work.
• Lobbying is a substantial part of what ACORN does. It has endorsed Senator
Sherrod Brown (D-OH), Representative Albert Wynn (D-MD), and
Representative Donna Edwards (D-MD). ACORN keeps donor records from the
Clinton, Kerry and Obama campaigns with the intent to engage in prohibited
communications. ACORN receives federal funding yet engages in improper
lobbying. ACORN and its nonprofit affiliates do not have separate accounts.
Neither ACORN nor any of its affiliates have properly reported their political
activities to the IRS. These harms fly under the legal radar because the IRS rarely
checks for compliance. The “no substantial part” test is rarely enforced and the
accounts of ACORN and its affiliates are illegally commingled.
III. The ACORN Hangs from Many Branches
The Association of Community Organizations for Reform Now (“ACORN”) was
founded by Wade Rathke in 1970 in Little Rock, Arkansas.
1
Since that time, ACORN
has grown large. It now has hundreds of affiliates in 41 states and registered 1.3 million
people to vote in the 2008 election.
2
ACORN has gained a reputation in the news because of assertions that it
committed voter registration fraud, embezzled funds, mismanaged its operations and
engaged in political activity.
A. Voter Registration Fraud
One-third of the 1.3 million voter registration cards turned in by ACORN in 2008
were invalid.
3
ACORN has been investigated for voter registration fraud in Nevada,
Connecticut, Missouri, Ohio and North Carolina.
4
ACORN has faced a series of alleged
inadequacies and indictable offenses: In 1998, an Arkansas ACORN employee was
arrested for falsifying voter registration forms.
5
In 1999, Philadelphia authorities found
1 Claire Suddath, A Brief History of ACORN, TIME, Oct. 14, 2008, available at
http://www.time.com/time/politics/article/0,8599,1849867,00.html (last visited May 11, 2009).
2 Id.
3 John Fund, An Acorn Whistleblower Testifies in Court, WALL STREET J., Oct. 30, 2008, available at
http://online.wsj.com/article/SB122533169940482893.html (last visited May 11, 2009).
4 Lara Jakes Jordan, Officials: FBI investigates ACORN for voter fraud, AP, Oct. 16, 2008, available at
http://www.breitbart.com/article.php?id=D93RNJOG2&show_article=1 (last visited May 7, 2009).
5 Suddath, supra note 1.
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hundreds of fraudulent registration forms by ACORN.
6
In October 2008, ACORN’s
Nevada offices were raided by federal agents.
7
In May 2009, Nevada officials charged
ACORN, its regional director, and its Las Vegas field director with voter registration
fraud.
8
Several days later, seven ACORN employees were charged in Pittsburgh for
voter registration fraud.
9
The Wall Street Journal, quoting Nevada Attorney General Catherine Cortez
Masto, reported “Acorn’s [sic] training manuals ‘clearly detail, condone and . . . require
illegal acts,’ such as requiring its workers to meet strict voter-registration targets to keep
their jobs.”
10
Fred Voigt, Philadelphia’s deputy election commissioner, claimed ACORN
“submitted at least 1,500 fraudulent registrations last fall.”
11
According to Lake County
Elections Board administrator Ruthann Hoagland, ACORN submitted at least 2,100
fraudulent registrations in Indiana.
12
According to the Wall Street Journal, prosecutors
fined ACORN and entered into a deal requiring ACORN to either increase its oversight
or risk criminal prosecution after several Washington state-based ACORN employees
were convicted of voter registration fraud in 2007.
13
During the 2008 election, ACORN
was investigated in fourteen other states.
14
In June 2009, judge Richard Zoller, after
holding an ACORN employee liable for election law violations, stated, “[s]omebody has
to go after ACORN[.]”
15
B. Embezzlement
According to a July 9, 2008 article in the New York Times, Dale Rathke, the
brother of ACORN’s founder, Wade Rathke, “embezzled nearly $1 million from Acorn
[sic] and affiliated charitable organizations in 1999 and 2000.”
16
The Times reported
Dale Rathke embezzled $948,607.50, “carried as a loan on the books of Citizens
Consulting Inc. [“CCI”], which provides bookkeeping, accounting and other financial
6 Id.
7 Id.
8 John Fund, More Acorn Voter Fraud Comes to Light: Congressional Democrats still want the group to be
eligible for federal money, WALL STREET J. May 9, 2009, available at
http://online.wsj.com/article/SB124182750646102435.html (last visited May 11, 2009).
9 Id. See also Joe Mandak, 7 Pa. ACORN workers facing voter-form charges, AP, May 7, 2009, available
at: http://www.breitbart.com/article.php?id=D981H0JG3&show_article=1 (last visited July 7, 2009).
10 Id.
11 Fred Voigt, Economic Hard Times; Voter Registration Scandal; Global Economy Rescue; Campaign
Trail Update; Water Charity; Resale Shop Comeback, CNN NEWS TRANSCRIPT, Oct. 15, 2008, available at
http://transcripts.cnn.com/TRANSCRIPTS/0810/15/cnr.01.html (last visited May 11, 2009).
12 Ruthann Hoagland, Economic Hard Times; Voter Registration Scandal; Global Economy Rescue;
Campaign Trail Update; Water Charity; Resale Shop Comeback, CNN NEWS TRANSCRIPT, October 12,
2008, available at http://edition.cnn.com/TRANSCRIPTS/0810/12/sm.02.html (last visited May 11, 2009).
13 John Fund, Whose Ox Is Gored, WALL STREET J., July 30, 2007, available at
http://www.opinionjournal.com/diary/?id=110010400 (last visited July 8, 2009).
14 Id.
15 Walter F. Roche Jr., ‘Go after ACORN,’ judge says , PITT TRIBUNE-REVIEW, June 30, 2009, available at
http://www.pittsburghlive.com/x/pittsburghtrib/news/s_631577.html (last visited July 1, 2009).
16 Stephanie Strom, Funds Misappropriated at 2 Nonprofit Groups, N.Y. TIMES, Jul. 9, 2008, available at
http://www.nytimes.com/2008/07/09/us/09embezzle.html (last visited May 7, 2009).
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management services to Acorn [sic] and many of its affiliated entities.”
17
ACORN
“chose to treat the embezzlement of nearly $1 million eight years ago as an internal
matter and did not even notify its board.”
18
According to an October 10, 2008 New York
Times report, ACORN “had failed to disclose the theft for eight years.”
19
Dale Rathke
remained on ACORN’s payroll until June 2008, when news broke of his wrongdoing.
20
C. Organizational Mismanagement
National Public Radio (“NPR”) stated “ACORN has dozens of subsidiaries” and
“[s]ome get federal funds.”
21
NPR reported “ACORN moves money around among the
subsidiaries” and ACORN’s mismanagement “essentially gives them a cloak that
prevents people from seeing really how they're spending money that comes, in some
cases, from the taxpayers, in other cases, comes from members of their organization who
pay dues.”
22
In response to Dale Rathke’s embezzlement, ACORN’s “executives decided
to keep the information from almost all of the group’s board members and not to alert law
enforcement.”
23
According to the New York Times, Maude Hurd, the president of
ACORN, thought concealing the embezzlement and “deal[ing] with it in-house” was
“best at the time.”
24
The “in-house” remedy included firing two ACORN board members
for investigating Dale Rathke’s embezzlement and its concealment.
25
According to the New York Times, former board members Marcel Reid and Karen
Inman sought “a court order to force [ACORN] to hand over financial documents” in
addition to “seeking to sever . . . continuing ties between Acorn [sic] and its founder,
Wade Rathke” who they contend “continues to direct the staff and expenditures” even
though he resigned.
26
The paper reported ACORN is being sued for preventing Reid and
Inman from fulfilling their fiduciary responsibilities as board members. In the complaint,
the plaintiffs stated, “money is being spent improperly and that important documents are
being destroyed.”
27
According to the complaint, Wade Rathke’s continued relationship
17 Id.
18 Id.
19 Stephanie Strom, On Obama, Acorn and Voter Registration, N.Y. TIMES, Oct. 10, 2008, available at
http://www.nytimes.com/2008/10/11/us/politics/11acorn.html (last visited May 7, 2009).
20 Suddath, supra note 1.
21 Peter Overby, ACORN Has Long Been In Republicans' Cross Hairs, NAT’L PUB. RADIO, Oct. 15, 2008,
available at http://www.npr.org/templates/story/story.php?storyId=95696267 (last visited May 8, 2009).
22 Id. (quoting Tim Miller, director of the Employment Policies Institute).
23 Stephanie Strom, Funds Misappropriated at 2 Nonprofit Groups, N.Y. TIMES, Jul. 9, 2008, available at
http://www.nytimes.com/2008/07/09/us/09embezzle.html (last visited May 7, 2009).
24 Id. See Nicholas Confessore, Perspectives on the Atlantic Yards Development Through the Prism of
Race, Nov. 12, 2006, available at http://www.nytimes.com/2006/11/12/nyregion/12yards.html (last visited
May 8, 2009); But see Stephanie Strom, Head of Foundation Bailed Out Nonprofit Group After Its Funds
Were Embezzled, N.Y. TIMES, Aug. 17, 2008, available at
http://www.nytimes.com/2008/08/17/us/17acorn.html (last visited May 11, 2009).
25 Drew Griffin and Kathleen Johnston, ACORN fires two who were probing embezzlement allegations,
CNN, Nov. 13, 2008, http://www.cnn.com/2008/POLITICS/11/13/acorn.investigation/index.html (last
visited July 7, 2009).
26 Stephanie Strom, Lawsuit Adds to Turmoil for Community Group, N.Y. TIMES, Sept. 10, 2008, available
at http://www.nytimes.com/2008/09/10/us/10acorn.html (last visited May 11, 2009).
27 Id.
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with ACORN, despite his being fired, “impede[d] the ability of the interim management
committee to perform its function.”
28
ACORN passed a resolution in 2008, after the embezzlement was revealed,
creating a special investigative board, led by Marcel Reid and Karen Inman, whose
purpose was to determine how ACORN could be improved so embezzlement-like
situations could be avoided in the future.
29
Reid and Inman sued ACORN to protect the
integrity of this board.
30
According to the Wall Street Journal, ACORN’s “quality-control efforts were
‘minimal or nonexistent’ and largely window dressing.”
31
According to ACORN
organizers quoted in the Journal, ACORN lacks quality control “on purpose” and it has a
“longstanding practice to blame bogus registrations on lower-level employees who then
often face criminal charges.”
32
The Journal reported ACORN employees are told “to
engage in deceptive fund-raising tactics.”
33
D. Political Activity
It is undisputed that ACORN engages in politically partisan activity.
34
The Wall
Street Journal reported ACORN had direct involvement with the Obama campaign.
35
According to John Fund of the Journal, Citizens Consulting, Inc., which controls
ACORN’s finances, was paid $832,000 by the Obama campaign for get-out-the-vote
efforts.
36
Nonprofits participating in partisan activity are barred from receiving federal
funds, yet ACORN has received $53 million in federal funds since 1994 and could
receive up to $8.5 billion more.
37
In March 2009, ACORN became a national partner
with the U.S. Census Bureau to assist with the recruitment of 1.4 million workers needed
to go door-to-door to count every person in the United States.
38
The Wall Street Journal
reported ACORN was selected to assist the U.S. Census Bureau in “reaching out to
minority communities and recruiting census enumerators for the count next year.”
39
28 Id.
29 Id.
30 Id.
31 John Fund, supra note 3.
32 Id.
33 Id.
34 See e.g. Glenn Beck, Investigating ACORN, FOX NEWS, May 8, 2009, available at
http://www.foxnews.com/story/0,2933,519520,00.html (last visited May 8, 2009).
35 Fund, supra note 3.
36 Id.
37 Kevin Mooney, ACORN got $53 million in federal funds since 94, now eligible for up to $8 billion more,
WASH EXAMINER, May 6, 2009, available at
http://www.washingtonexaminer.com/opinion/columns/special-editorial-reports/ACORN-got-53-million-
in-federal-funds-since-94-now-eligible-for-up-to-8-billion-more-44406217.html (last visited May 8, 2009).
38 Cristina Corbin, ACORN to Play Role in 2010 Census, FOXNEWS.COM, Mar. 18, 2009, available at
http://www.foxnews.com/politics/2009/03/17/lawmakers-concerned-role-acorn-census/ (last visited May
15, 2009).
39 Fund, supra note 8.
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In a March 19, 2009 hearing, House Judiciary Committee Chairman John Conyers
called for an investigation of ACORN:
Well since we are at a hearing on ACORN is there anybody to hear
from ACORN that can testify? May I ask respectfully that the
Chairman consider such a hearing so we can get to the bottom of
this. . . . [T]his is a member of the bar here who got a successful
partial injunction against ACORN and we have our distinguished
colleague on the committee here, he’s asserted that people, they
fraudulently vote in every county in the state – that’s a pretty
serious matter, I would just like the Chairman who is a fierce
supporter of constitutional rights, civil rights and human rights to
take this matter up. I think this would be something that would be
worth our time.
40
Three months later, Representative Conyers “backed off his plan to investigate purported
wrongdoing by . . . ACORN” because “[t]he powers that be decided against it.”
41
A
provision inserted by Representative Michele Bachmann (R-MN) into the proposed
Mortgage Reform and Anti-Predatory Lending Act blocked organizations indicted for
voter registration fraud from receiving housing counseling grants and legal assistance
grants and was unanimously approved by a voice vote in the House.
42
But soon after the
Financial Services Committee, led by Representative Barney Frank (D-MA), approved
the stipulation, Frank claimed he made a mistake and planned to take out the “anti-
ACORN provision” from the Act.
43
IV. ACORN Uses Its Complex Organizational Structure to
Facilitate Fraudulent and Illegal Acts.
FINDING: Piercing ACORN’s corporate veil in order to determine which
individuals own or control the organization is a necessary step for
preventing waste, fraud and abuse of federal funds in the hands of
corporate control.
FINDING: When ACORN commits bad acts, the individuals who are harmed
are the low to moderate income workers whom ACORN was
founded to protect.
40 Lessons Learned From the 2008 Election, Hearing Before the H. Comm. on the Judiciary, 111th Cong.
(2009) (statement of Representative John Conyers, Chairman).
41 S.A. Miller, Conyers Backs Off Probe of ACORN, WASH. TIMES, June 26, 2009, available at:
http://washingtontimes.com/news/2009/jun/26/conyers-backs-off-probe-of-acorn-
practices/?feat=home_headlines&page=2 (last visited June 22, 2009); see also Kevin Mooney, Rep.
Conyers Reverses Stance on ACORN Investigation, WASH EXAMINER, May 6, 2009, available at
http://www.washingtonexaminer.com/opinion/blogs/Examiner-Opinion-Zone/Rep-Conyers-Reverses-
Stance-on-ACORN-Investigation--44485482.html (last visited May 11, 2009).
42 Id.
43 Id.
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The Association of Community Organizations for Reform Now (“ACORN”) is a
Louisiana incorporated 501(c)(4) nonprofit corporation for organizing a constituency of
low- to moderate-income people across the United States.
44
ACORN is registered to do
business in 43 states and the District of Columbia.
45
ACORN has over 1200
neighborhood chapters in 104 cities.
46
ACORN’s nonprofit corporate status grants it the
privilege of limited liability by creating a distinction between the corporate entity of
ACORN and the individuals who control its acts.
ACORN loses its tax-exempt privileges if it abuses its corporate privileges and
disregards corporate formalities.
47
By ignoring ACORN’s legal distinctions (“piercing
the corporate veil”) investigative bodies may ignore the corporate form of a nonprofit
corporation for purposes of preventing fraudulent behavior.
48
Under Louisiana law,
officers or directors, the organization, compensated employees and volunteers accused of
acting willfully or wantonly are not protected against lawsuits.
49
Piercing the veil of a nonprofit corporation in order to determine which
individuals own or control the organization is a necessary step for preventing waste, fraud
and abuse of federal funds in the hands of corporate control.
50
The Eighth Circuit is
instructive in these matters and in HOK Sport, Inc. v. FC Des Moines, L.C., the court
held, “[d]isregarding an entity’s corporate form by piercing the corporate veil is
appropriate if ‘the corporation is a mere shell, serving no legitimate business purpose,
and used primarily as an intermediary to perpetuate fraud or promote injustice.’”
51
Once
the corporate veil is pierced, officers and directors can be found liable as alter egos of the
nonprofit corporation.
52
Piercing the corporate veil is a tool for knocking down the corporate walls used to
shield those responsible for bad acts. By ignoring ACORN’s otherwise opaque corporate
structure and nonprofit legal protections, it is possible to determine how ACORN’s
leadership committed bad acts.
53
Some ACORN affiliates lobby, yet they are required to
44 ACORN WEBSITE, available at http://www.acorn.org/index.php?id=12378 (last visited May 4, 2009).
45 Ralph McCloud CCHD (Nov. 11, 2008) (ACORN 004785) at 5.
46 ACORN Grant Request to the Democracy Alliance at 2 (Mar. 24, 2006) (ACORN_004338).
47 HOK Sport, Inc. v. FC Des Moines, L.C., 495 F.3d 927 (8th Cir. 2007). In HOK Sport, Inc., the
defendant’s finances were not kept separate from the finances of other entities, which were controlled by
the defendant. The Court held that “Although The Menace and Kum & Go are corporate entities that are
nominally separate from Krause, this factor still weighs in favor of piercing TSF’s veil because a
reasonable jury could conclude Krause treated each entity as his own slush fund. TSF’s finances were not
kept separate from The Menace’s and Kum & Go’s finances, and by extension, Krause’s finances.” Id. at
942.
48 Id. See also WILLIAM MEADE FLETCHER, FLETCHER CYCLOPEDIA OF THE LAW OF CORPORATIONS ž
41.75 (2006).
49 See Matlock v. Hankel, 707 So. 2d 1016 (La. Ct. App. 1998)
50 HOK Sport, Inc. v. FC Des Moines, L.C., at 935-36; See also United States v. Bestfoods, 524 U.S. 51, 62
(1998).
51 Id.
52 ž8.30 Revised Model Non-profit Corporation Act
53 Memorandum from Harmon, Curran, Spielberg, & Eisenberg, LLP [HCSE] on Organization Review to
ACORN Beneficial Association, ACORN Housing Corporation, ACORN Institute, ACORN Votes,
American Institute for Social Justice, Association of Community Organizations for Reform Now, Citizens
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be walled off from the affiliates receiving federal funds. Likewise, ACORN’s 501(c)(3)
affiliates, which receive tax-deductible contributions, are presumably walled off from
ACORN’s political functions. As shown in this Report, there is evidence which
questions whether taxpayer money and tax-deductible contributions are being kept
separate from those resources used to endorse legislation or fund participation in the
campaigns of candidates for public office. The public interest is best served if the opacity
behind ACORN’s corporate structure and legal protections is removed.
“Piercing” through ACORN’s legal protections would remove the distinctions
between ACORN and its affiliates. This Report will show how ACORN walls off its bad
acts by creating nominal affiliates both through a separate tax structure (Project Vote is a
501(c)(3)) or a separate name and state of incorporation (e.g. ACORN Fair Housing
Corporation Orlando, FL).
54
ACORN’s walls are artificial. It fails to maintain the necessary legal formalities
required for many of its affiliated and subsidiary entities. ACORN’s opacity has allowed
it to avoid responsibility, which is why during a debate Senator Barbara Mikulski (D-
MD) stated, “ACORN has never, to my knowledge, been convicted of a Federal crime.”
55
Yet Senator Mikulski ignores how ACORN’s opacity makes the organization too
byzantine to be legally controlled. Many ACORN affiliates lack real boards or executive
directors, making the legal channel of holding individuals or organizations liable
practically un-navigable.
56
Sadly, when ACORN’s leaders commit bad acts, the
individuals who get caught tend to be low or moderate income workers – the types of
individuals ACORN was founded to protect.
57
This reality is illustrated by recent events. In June 2009, seven ACORN workers
in Pennsylvania were charged with forging 51 signatures and violating election laws in
advance of the 2008 presidential election.
58
In May 2009, two ACORN staff members
were prosecuted in Clark County, Nevada for paying bonuses to workers who registered
over 21 individuals per day.
59
In July 2008, three ACORN workers were convicted of
voter fraud in Kansas City because they flooded voter registration rolls with over 35,000
false or questionable registration forms.
60
In March 2008, an ACORN employee in West
Reading, Pennsylvania, was sentenced to up to 23 months in prison for identity theft and
Consulting, Inc., Citizens Services Inc., Communities Voting Together, Pennsylvania Institute for
Community Affairs, Inc., Project Vote/Voting for America, Inc. (June 19, 2008) [hereinafter HCSE Memo]
at 1 (ACORN_004927).
54 See Appendix 1, infra.
55 155 CONG. REC. S3822-41 (Mar. 26, 2009) (statement of Sen. Mikulski).
56 HCSE Memo (June 19, 2008) at 1 (ACORN_004927).
57 See notes 3-15, supra.
58 Walter F. Roche Jr., Another Allegheny ex-ACORN worker will stand trial, PITT. TRIBUNE-REVIEW, June
5, 2009, available at http://www.pittsburghlive.com/x/pittsburghtrib/news/pittsburgh/s_628302.html (last
visited June 11, 2009).
59 See ATTORNEY GENERAL’S COMPLAINT, available at
http://sos.state.nv.us/information/news/press/2009/pdf/complaint-acorn (last visited June 22, 2009).
60 Department of Justice Press Release, available at
http://kansascity.fbi.gov/dojpressrel/pressrel07/identitytheft010507.htm (last visited May 4, 2009)
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tampering with records,
61
and forging 29 voter registration forms in order to collect a
cash bonus.
62
In 2007, three ACORN employees pled guilty, and four more were
charged, in the worst case of voter registration fraud in Washington state history.
63
In
2007, a man in Reynoldsburg, Ohio was indicated on two felony courts of illegal voting
and false registration, after being registered by ACORN to vote in two separate
counties.
64
In 2006, eight ACORN employees in St. Louis, Missouri were indicted on
federal election fraud charges.
65
In 2005, two ex-ACORN employees were convicted in
Denver, CO of perjury for submitting false voter registrations.
66
In 2004, a grand jury
indicted a Columbus, Ohio ACORN worker for submitting a false signature and false
voter registration form.
67
In 1998, a contractor with ACORN-affiliated Project Vote was
arrested in Arkansas for falsifying 400 voter registration cards.
68
In addition to Nevada,
Missouri, Pennsylvania, Washington, Arkansas, Colorado, Kansas, and Ohio, there have
been prosecutions against ACORN workers in Connecticut, Texas, Wisconsin, and
Michigan.
69
By ignoring ACORN’s nonprofit walls, information about those members of its
Board and the board of its affiliates who had knowledge and control over its corporate
actions can be revealed. ACORN has ignored its corporate duties and has perpetuated
fraud. As a result, ACORN’s legal protections must be ignored and, as a matter of law,
federal funds must be denied to a partisan lobbying organization.
61 News Staff, West Reading man gets jail for phony forms, READING EAGLE (Mar. 1, 2008), available at
http://www.readingeagle.com/article.aspx?id=82467 (last visited July 8, 2009).
62 Editorial, RNC: Obama & Acorn Fact Sheet, FOX. BUS. NEWS, Oct. 4, 2008, available at:
http://www.foxbusiness.com/story/rnc-obama--acorn-fact-sheet/ (last visited June 1, 2009).
63 Keith Ervin, Three plead guilty in fake voter scheme, SEATTLE TIMES, Oct. 30, 2007, at B5; See also
Shaila Dewan, A Vote Drive By Democrats In Louisiana Stirs Concern, N.Y. TIMES. Jun. 15, 2008,
available at: http://www.nytimes.com/2008/06/15/us/politics/15vote.html (last visited June 10, 2009).
64 Bruce Cadwallader, Man voted in 2 counties in 1 election, COLUMBUS DISPATCH, May 9, 2007, at 04B.
65 Guilty pleas in election fraud, AP, Apr. 3, 2008, available at:
http://query.nytimes.com/gst/fullpage.html?res=9D00E7DB153DF930A35757C0A96E9C8B63&partner=r
ssnyt&emc=rss (last visited June 22, 2009).
66 Briefing, ROCKY MTN NEWS, Jan. 4, 2005 at 21A.
67 Terrence Scanlon, Democratic Deception, WASH. TIMES. Oct. 18, 2004, available at
http://washingtontimes.com/news/2004/oct/18/20041018-093522-3974r/ (last visited June 2, 2009).
68 Claire Suddath, A Brief History of ACORN, TIME, Oct. 14, 2008, available at
http://www.time.com/time/politics/article/0,8599,1849867,00.html (last visited May 11, 2009).
69 See generally Reggie Sheffield, Former temp worker accused of bogus voter registrations, THE PATRIOT-
NEWS, Jul. 24, 2008 at B02; Ken Dixon, ACORN voter signups questioned, CONNECTICUT POST, Aug 16,
2008, available at: http://www.connpost.com/news/ci_10219729 (last visited March 10, 2009); Alan
Bernstein, ACORN planting voter registrars in certain areas, HOUSTON CHRONICLE, Aug. 17, 2008 at B1;
Molly Ball, Election fraud task force formed; Investigators already looking into voter registration issues,
LAS VEGAS REVIEW-JOURNAL, Aug. 1, 2008 at 2B; Larry Sandler, Vote workers investigated, MILWAUKEE
JOURNAL-SENTINEL, Aug. 29, 2008 at B3; Larry Sandler, More voter registration workers under scrutiny,
MILWAUKEE JOURNAL-SENTINEL, Aug. 20, 2008 at B1; L.L Brasier, Bad voter applications found,
DETROIT FREE PRESS, Sept. 14, 2008 at 1.
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A. ACORN Fails to Fulfill Its Corporate Duties
Once a nonprofit organization is incorporated under the law of a state, it becomes
a corporation and is subject to state corporation laws.
70
The Uniform Management of
Institutional Funds Act, which provides guidance to the governing boards of charitable
organizations, directs, “members of a governing board of an institution shall exercise
ordinary business care and prudence.”
71
Courts apply the same standards to directors of
nonprofit corporations as those applicable to directors of for-profit corporations.
72
The Revised Model Nonprofit Corporation Act requires a director to “discharge
his or her duties as a director in good faith, with the care that an ordinarily prudent person
in a like position would exercise under similar circumstances, and in a manner the
director reasonably believes to be in the best interests of the corporation.”
73
Officers and directors of a nonprofit corporation owe a fiduciary duty to members
of the association, and their failure to assume this duty can result in liability to both the
association and the individual directors and officers.
74
As fiduciaries, board members
bear a duty of loyalty to the corporation and cannot improperly profit at the expense of
the corporation.
75
Nonprofits can breach duties of diligence
76
and duties of loyalty,
77
as
well as duties to uphold the organizational mission and bylaws.
78
In Louisiana, where
ACORN is incorporated, “[o]fficers and directors of nonprofit corporations are required
to discharge their duties in good faith, with the diligence, care, judgment and skill of an
ordinarily prudent person.”
79
70 Id.
71 Id. See also ž6 of UMIFA, codified, e.g. at Ohio Rev. Code ž 1715.56.
72 See Colin T. Moran, Why Revlon Applies to Nonprofit Corporations, 53 BUS. LAW. 373, 373-95 (2008).
73 Revised Model Nonprofit Corporation Act Section ž8.30(a).
74 Schweickart v. Powers, 613 N.E.2d 403 (Ill. App. 1993).
75 Martha Graham Sch. & Dance Found., Inc. v. Martha Graham Ctr. of Contemporary Dance, Inc., 153 F.
Supp. 2d 512, 522 (S.D.N.Y. 2001).
76 See Davis v. Black, 591 N.E.2d 11 (Oh. 1991); see also Blankenship v. Boyle, 329 F. Supp. 1089 (D.D.C.
1971).
77 See California v. Larkin, 413 F. Supp. 978 (N.D. Cal. 1976) (Trustee was sued for hypothecation of the
assets of a charitable trust as security for a $320,000 loan to the trustee’s closely held for-profit corporation
to be used by it to earn profits for the trust); see also Spitzer v. Schussel, 792 N.Y.S. 2d 798 (2005) (Dance
group director sued by New York Attorney General for self-dealing and using the organization to facilitate
a tax-avoidance scheme. Co-directors sued for failing to prevent alleged misconduct).
78 See Monroe v. Brown, 381 N.E.2d 1151 (Ohio App. 1978) (The owners of a casino-type gambling
facility, allegedly operated on behalf of charitable entities, were sued by Ohio’s Attorney General to open
their books and disclose whether the operations were conducted for the benefit of the charities or for the
private gain of the operators); see also In re Manhattan Eye, Ear & Throat Hosp., 715 N.Y.S.2d 575 (Sup.
Ct. 1999) (The board of directors of a charitable corporation was sued for violation of its duty to ensure the
mission of the corporation was carried out).
79 See La. R.S. 12:226.
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1. ACORN Breached Its Fiduciary Duties by
Covering up Dale Rathke’s Embezzlement
FINDING: Dale Rathke’s embezzlement and ACORN’s subsequent cover-up
are violations of ACORN’s corporate duties and constitute fraud.
The identities and roles of those involved must be disclosed.
According to the notes from an ACORN meeting held on August 15, 2008 in Los
Angeles, Dale Rathke, ACORN Chief Organizer Wade Rathke’s brother, embezzled at
least $948,000 between 1999 and 2000.
80
The money was alleged to have been spent on
a Concorde flight, credit cards, meals and trips.
81
This Committee obtained an internal report prepared for numerous ACORN-
entities by the Washington, D.C. law firm of Harmon, Curran, Spielberg & Eisenberg,
LLP (hereinafter “HCSE”). The firm was retained as outside legal counsel for eleven
separate ACORN affiliates to “conduct a review of the operations and inter-relationships
of the set of . . . corporations addressed on this memo.”
82
The firm was retained to
provide advice about the “legally appropriate ways of structuring their relationships.”
83
The Memo identifies numerous problems with ACORN’s management structure,
in addition to problems involving a lack of corporate integrity, improper political walls,
tax code non-compliance, concerns about the legal use of federal funds, lack of
administrative capabilities and ACORN’s inadequate response to the embezzlement by
Dale Rathke.
84
The HCSE Memo raises questions about the degree to which ACORN affiliates
that received federal funds improperly comingled those funds with other ACORN
affiliated entities.
Concerning the embezzlement, HCSE stated:
[T]here was contradictory information about who at the board level
had been told about the embezzlement and proposed handling of it
in 2000. The management council may have been told that the
information was shared with the entire executive committee when
in fact only the President had been informed. There should be
further investigation to determine who was told, and what
representations the management council relied on in taking
action.
85
80 Notes from West Regional Meeting at 1 (Aug. 15, 2008) (ACORN_000314); see also Strom, supra note
16.
81 Id.
82 HCSE Memo (June 19, 2008) at 1 (ACORN_004927).
83 Id.
84 HCSE Memo (June 19, 2008) at 1-2 (ACORN_004927-004928).
85 Id. at 12 (ACORN_004938).
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According to a memorandum from Wade Rathke on February 11, 2008, Louis
Robein was hired as special counsel to assist ACORN’s in-house legal department and to
audit “everything from reporting to record retention and compliance along with handling
a series of issues with the IRS.”
86
However, the HCSE Memo alleged “that there is also
contradictory information about the role played by legal counsel in vetting the settlement
of the Dale [Rathke] matter.”
87
The HCSE Memo stated:
In December 2000, Wade Rathke told Steve Bachmann as
attorney and the management council (as upper level
management) that the legal problems of solving Dale’s
embezzlements would be turned over to Louis Robein,
longtime counsel for Local 100, and regionally reputable labor
lawyer who could reasonably be expected to provide reliable
advice in managing this sort of situation. On June 10, 2008,
[HCSE] met with Louis Robein who informed [us] that his role
was far more limited. He related how around December 2000,
Wade had a conversation with Louis to the effect that Dale had
been caught in some embezzlement. No amount was mentioned.
The discussion was mainly over what liabilities Wade might have
to worry about, and Louis provided [some] general and preliminary
advice. Neither Louis Robein nor his firm was retained to
structure or review any sort of resolution to the Rathke
embezzlement. . . . . It appears that this settlement was never
reviewed by ACORN’s general counsel nor the attorney
supposedly retained to do so. A hostile investigator might
conclude that Wade deliberately told Steve Bachmann that he
had retained different counsel on the matter in order to
exclude legal counsel from meaningful participation in review
of the proposed plan. And unfortunately, this is an
organization that has to be prepared to be scrutinized by a
hostile investigator.
88
The Service Employees International Union (“SEIU”) Local 100 Form LM-2 filed
with the Labor Department shows that SEIU made payments to Citizens Consulting Inc.
(“CCI”) and the Elysian Fields Corporation.
89
According to the HCSE Memo, Wade
Rathke disclosed his brother Dale's embezzlement to Louis Robein of Local 100. Local
100’s Form LM-2 identifies Wade Rathke as the administrator of SEIU Local 100.
90
Yet
in filing its LM-2, Local 100, with Wade Rathke as its agent, claimed the labor
organization did not “discover any loss or shortage of funds or other assets . . . even if
86 Wade Rathke Memo (Feb. 11, 2008) at 3 (ACORN_004861).
87 HCSE Memo (June 19, 2008) at 12 (ACORN_004938).
88 Id. at 12-13. (ACORN_004938-004939) (emphasis added).
89 See Form LM-2 Labor Organization Annual Report, SEIU Local 100, DEP’T OF LABOR, (2007), SEIU
LM2 2007 at 11 (March 30, 2007) (ACORN_004912).
90 Id. at 1 (ACORN_004902-004926).
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there has been repayment or recovery.”
91
In a July 22, 2008 email, Steve Bachmann
stated:
To what extent does the Local 100 Board and Local 100
members know about the perfidy of their Chief Organizer? Do
they know how hokey their LM-2 filings are?
92
An internal ACORN press release authored by the Interim Management
Committee (“IMC”), a board-designated committee temporarily charged with managing
ACORN in Wade Rathke’s absence,
93
discussed the role played by legal counsel:
[Marcel] Reid elaborates, saying ‘the Rathkes so dominated
ACORN, that in approximately 2000, the organization’s general
counsel admittedly deferred to Wade Rathke in addressing his
brother’s alleged embezzlement.’ Indiana attorney Steve
Bachmann identifies himself as ACORN’s general counsel. He
essentially admits to washing his hands of the Dale Rathke matter
once Wade claimed to bring alternative legal counsel in on it. On
the day of Wade’s termination, he confessed to actually working
with certain ACORN staffers to conceal the embezzlement.
Maude Hurd admitted to knowing of the arrangement which a
whistleblower apparently revealed nearly one decade later.
94
A memorandum written by former members of the IMC, who were subsequently
terminated, alleged:
ACORN staff members Steven Kest, Jon Kest, Mike Shea, Zach
Pollett (sic), Helene O’Brien, Amy Schur, Liz Wolf, Beth Butler,
Mildred Brown and Bertha Lewis knew but conspired to conceal
the embezzlement and decided to keep the information from the
full Association Board and not to alert law enforcement.
Additionally, ACORN executive committee members Maude Hurd
(President) and Alton Bennett (Treasurer) knew but conspired to
conceal the embezzlement and decided to keep the information
from the full Association Board and not to alert law enforcement.
95
In a letter from James Gray, the IMC’s legal counsel, to the ACORN Association Board
(hereinafter “Board”), Gray wrote:
Unfortunately, our preliminary investigation has uncovered
evidence which indicates Senior Staff and Executive Committee
involvement in the commission and/or concealment of a variety of
91 Id. at 2, question 13 (ACORN_004903).
92 Email from Steve Bachmann (July 22, 2008) at 4 (ACORN_004328) (emphasis added and in original).
93 IMC Allegations (Jan. 7, 2009) at 10, 14, 16, 23 (ACORN_004866-004890).
94 IMC Transparency (Jan. 7, 2009) at 1 (ACORN_004864).
95 IMC Allegations (Jan. 7, 2009) at 8 (ACORN_004873).
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unlawful and criminal acts, which could result in a duty for the
Association Board members to report these acts to local or federal
law enforcement agencies. Consequently, the IMC desires to
identify and preserve all ACORN assets, and protect them from
dissipation and concealment for the benefit of the Association
Board. To that end, a Temporary Restraining Order has been
granted (a copy is attached), which prohibits Dale Rathke, Wade
Rathke Citizen’s Consulting Inc. and their agents from signing
contracts or destroying documents, and has scheduled a
preliminary hearing on August 21, 2008. The Rathkes, Senior
Staff and Executive Committee members, who knew but did not
divulge the embezzlement of funds to the full Association Board,
have placed the entire association board in legal and financial
jeopardy.
96
Gray’s memorandum informed the Board members of their liability for failing to disclose
Dale Rathke’s embezzlement to the entire Board:
Thus, the acts of Dale Rathke and the subsequent failure to divulge
this embezzlement to the entire Association Board have created
individual liability for all Association Board members. Actual
ignorance of the fraud is not an excuse. Because Executive
Committee members knew of the incident and cover-up, the entire
Association Board is legally presumed to have known about the
embezzlement in 1999 – 2000.
97
Gray recommended the Board complete individual financial audits and a forensic
examination.
98
On October 18, 2008, Gray wrote a letter to the ACORN Association
Board agreeing to withdraw a complaint against the ACORN Board, filed in a New
Orleans court, as long as ACORN conducted an internal investigation including:
96 Letter to the Board [James Gray] (Aug. 15, 2008) at 1-2 (ACORN_004896-ACORN_004897).
97 Id. at 3 (ACORN_004898).
98 Id. at 4 (ACORN_004899).
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1. Forensic Examination of the known embezzlement followed by
an –
2. Independent Audit of ACORN and related organizations
performed by a licensed CPA firm hired by, supervised by and
reporting directly to an –
3. Audit Committee composed exclusive[ly] of executive
committee members and senior staff officials.
99
The letter further stated:
The Interim Management Committee members must be given
full and complete access to all corporate records. And all board
members and staff should be directed to cooperate in any
subsequent audit or investigation. These actions are part of the
fiduciary function of the Board of Directors and are necessary to
preserve the organizational integrity of ACORN and to prevent the
commission or concealment of any other illegal acts.
100
In an email sent from Ralph McCloud of the Catholic Campaign for Human
Development (an ACORN funder) to Steven Kest, Executive Director of ACORN,
McCloud asked “[w]ho are the people who did not disclose the fraud over [ ] eight years
ago? Do they have roles with ACORN now?”
101
Kest stated, “[t]he following people
were on the management council eight years ago, and were made aware of the
embezzlement:”
102
Steve Kest
Jon Kest
Madeline Talbott
Keith Kelleher
Mike Shea
Zach Polett
Helene O’Brien
Amy Schur
Liz Wolff
Beth Butler
103
Kest stated, “[t]he following people are still working for ACORN:”
104
Steve Kest: National Executive Director
99 Letter to the Board [Withdraw Mandamus] at 1 (Oct. 18, 2008) (ACORN_004900).
100 Id. at 2 (ACORN_004901) (emphasis added).
101 Email from Marcel Reid to Michael McCray (Mar. 24, 2009) (forwarding email from Steven Kest to
Ralph McCloud) at 5 (ACORN_004785) [hereinafter “Ralph McCloud CCHD”].
102 Id. at 5-6 (ACORN_004785-004786).
103 Id.
104 Id.
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Jon Kest: NY ACORN Head Organizer
Helene O’Brien: National Field Director
Beth Butler, Southern Regional Director
105
Kest further stated, “the following people are working for affiliated organizations:
106
Mike Shea: Executive Director, ACORN Housing Corporation
Liz Wolff: Special Projects, CCI
107
Ralph McCloud asked Steve Kest to “explain Wade Rathke’s current role at ACORN?
He stepped down as ACORN's chief organizer but remains chief organizer for Acorn
International LLC? Please explain the difference”
108
Kest responded:
By action of the ACORN Board on June 3 and then on June 20,
Wade Rathke has no current role with ACORN. He is no
longer Chief Organizer, and he is no longer employed in any
capacity by ACORN. ACORN International (actually Inc, not
LLC) is a separate corporation that works solely with ACORN
affiliates outside the US, in Peru, Argentina, Mexico, the
Dominican Republic, Canada, and India. Its board is made up of
representatives from those non-US organizations. (ACORN US is
represented on the board by Maude Hurd.) As of today, the Board
of ACORN International continues to employ Wade as its chief
organizer. However, representatives from the ACORN Board
will be meeting with Wade later this month and will be asking
him to step down from this role. As well, Wade Rathke has (and
never had) any role with [the American Institute for Social Justice
(“AISJ”].
109
According to the August 15, 2008 notes of the ACORN East Regional meeting in
Washington, D.C., Wade Rathke had not yet been removed from his role with
ACORN:
110
105 Id.
106 Id.
107 Id.
108 Id. at 3 (ACORN_004783).
109 Id. at 3-4 (ACORN_004783-004784) (emphasis added).
110 Notes from East Regional Meeting (Aug. 15, 2008) at 3 (ACORN_00323).
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The internal report on ACORN by Harmon, Curran, Spielberg & Eisenberg, LLP
(“HCSE Memo”) stated, “[the embezzlement] raises major concerns about transparency
and accountability.”
111
It claimed:
[I]nvestigation is needed into questions about [Wade Rathke’s]
failure to inform the board, or possibly even the full executive
committee; the degree to which legal counsel and upper
management may have been affirmatively misled; the identities
and roles of those involved creating and implementing the
response to the embezzlement; and the inter-corporate transfers
made out of certain funds in response to the loss. These key
questions must be investigated, confronted, and disclosed to
appropriate parties.
112
The New York Times reported that “[the] embezzlement of nearly $1 million eight years
ago” was treated “as an internal matter” and ACORN “did not even notify its board.”
113
According to the Times, ACORN’s President, Maude Hurd, refused to disclose the
embezzlement to the IRS:
‘We thought it best at the time to protect the organization, as
well as to get the funds back into the organization, to deal with
it in-house,’ said Maude Hurd, president of Acorn [sic]. ‘It was
a judgment call at the time, and looking back, people can agree or
disagree with it, but we did what we thought was right.’
114
The IRS requires exempt organizations to report embezzlements on its federal tax
information return (Form 990, Form W-2, or Form 1099) or on an amended federal tax
information return.
115
Section 4958 of the Internal Revenue Code imposes an excise tax
on excess benefit transactions between a disqualified person and an applicable tax-
exempt organization.
116
A disqualified person is liable for a twenty-five percent (“25%”)
tax on the excess benefit.
117
An organization manager may also be liable for a ten
percent (“10%”) excise tax on the excess benefit transaction, if he or she “knowingly,
willfully, and without reasonable cause” participated in the excess benefit transaction.
118
According to the Congressional Research Service, tax-exempt “[o]rganizations
that owe the penalty and excise taxes . . . must file an excise tax return (e.g., Form 4720
111 HCSE Memo (June 19, 2008) at 2 (ACORN_004928).
112 Id. at 1 (ACORN_004927).
113 Stephanie Strom, Funds Misappropriated at 2 Nonprofit Groups, N.Y. TIMES, July 9, 2008, available at
http://www.nytimes.com/2008/07/09/us/09embezzle.html (last visited May 7, 2009).
114 Id. (emphasis added).
115 Economic Benefit Transactions, INTERNAL REVENUE SERVICE, available at: http://www.irs.gov/pub/irs-
tege/eotopice04.
116 Intermediate Sanctions, Tax Information for Charitable Organizations, INTERNAL REVENUE SERVICE,
available at http://www.irs.gov/charities/charitable/article/0,,id=123298,00.html.
117 2007 Instructions for Form 990 and Form 990-EZ, Tax Information for Charities & Other Non-Profits,
INTERNAL REVENUE SERVICE, available at http://www.irs.gov/pub/irs-pdf/i990-ez.
118 Id.
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or Form 1120-POL).”
119
The excise tax return includes the aggregate totals of the taxable
expenditures and taxes owed and the names of managers who approved the activities.
120
The filings identify inter-corporate transfers made out of certain funds in response to the
loss (embezzlement).
121
The IRS allows for a disqualified person to correct an excess benefit by making a
payment directly to the applicable tax-exempt organization.
122
If a disqualified person
fails to correct an excess benefit by a certain date, the tax on the excess benefit increases
to 200%.
123
Based upon the documents cited above, ACORN’s failure to report Dale Rathke’s
embezzlement to the IRS constitutes fraud. Tax fraud is intentional wrongdoing on the
part of a taxpayer with the specific intent to evade a tax known to be owed.
124
Fraud may
be inferred from conduct intended to conceal, mislead, or otherwise prevent the collection
of such taxes.
125
According to the Supreme Court, because direct proof of the taxpayer’s
intent is rarely available, fraud may be proven by circumstantial evidence and reasonable
inferences drawn from the facts.
126
In Bradford v. Commissioner,
127
the Ninth Circuit
Court of Appeals held that fraudulent intent can be inferred from various kinds of
circumstantial evidence, setting forth the “badges of fraud” demonstrating fraudulent
intent. Fraud may be presumed by: understatement of income; inadequate records;
failure to file tax returns; implausible or inconsistent explanations of behavior;
concealment of assets; and failure to cooperate with tax authorities.
128
a) ACORN Violated ERISA
ACORN violated its fiduciary responsibilities under the Employee Retirement
Income Security Act of 1974 (“ERISA”), which protects the benefit rights of
employees.
129
Stephanie Strom, in an October 22, 2008 report in the New York Times,
stated ACORN Fund, a health care benefits fund, “had advanced ‘a large amount of
119 Erika Lunder, Tax-Exempt Organizations: Political Activity Restrictions and Disclosure Requirements,
CRS RPT. FOR CONG., Sept. 11, 2007 at 24; see also IRC ž 6104(b) and (d).
120 Id.
121 Id. See also Developments Editor, Developments in the Law – Nonprofit Corporations, 105 HARV. L.
REV. 1578, at 1599 (1992) (The Internal Revenue Code “imposes an absolute prohibition on almost every
conceivable transaction between a private foundation” and an officer or director).
122 Economic Benefit Transactions, INTERNAL REVENUE SERVICE, available at: http://www.irs.gov/pub/irs-
tege/eotopice04.
123 2007 Instructions for Form 990 and Form 990-EZ, Tax Information for Charities & Other Non-Profits,
INTERNAL REVENUE SERVICE, available at http://www.irs.gov/pub/irs-pdf/i990-ez.
124 See Bradford v. Commissioner, 796 F.2d 303, 307 (9th Cir. 1986).
125 See Graves v. Commissioner, T.C. Memo 1994-616 (T.C. 1994).
126 Spies v. United States, 317 U.S. 492 (1943).
127 796 F.2d 303 (9th Cir. 1986).
128 Id. at 307-308.
129 29 U.S.C. ž1105.
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money’” to ACORN and “it appeared that the money was used to cover ‘the cash
shortfall caused by the embezzlement.’”
130
The June 19, 2008 HCSE Memo identified ACORN’s current pension fund as
“Council Beneficial Association, or CBA” and its health plan as “Council Health Plan, or
CHP.”
131
The memo stated:
Two other revelations need to be further investigated. These
pertain to ACORN Beneficial Association, or ABA, a discretionary
plan in place before the creation of CBA that was intended not to
be a true pension fund covered by the ERISA law, and to ACORN
Fund, a similar discretionary health care fund that was in place
before the creation [of] CHP. A large part of the embezzled
funds ($215,000) were charged through ACORN’s AmEx
account to ABA. When the theft was discovered, this meant
that Dale owed ACORN this amount, and ACORN in turn
owed ABA for the overpayment. [We are] told that ABA
decided to write this debt off as a gift to ACORN (though the
debt from Dale naturally was not forgiven). Although it is the
organizations’ legal position that this fund was not covered by
ERISA and therefore not subject to its rules that would prohibit
this sort of gift, it is nonetheless the case that a number of
organizations, possibly including unions and charities, paid
funds into ABA for entirely different purposes. They did not
make those contributions in order to make a gift to ACORN.
[We] have not gotten information about who authorized this
decision, but those questions need to be asked. Either the board
was involved in the decision and can explain the rationale, or they
were not, and there are serious questions to ask as to who
authorized this expenditure.
As for ACORN fund, it apparently had advanced a large amount
of money to ACORN. If the Fund was not covered by ERISA, it
may have had the discretion to do this. If it were covered by
ERISA . . . this would be a prohibited loan to a related party.
In any case, after resolution of the embezzlement and execution of
the note between Dale Rathke and CCI, the situation was that
Dale owed CCI, CCI owed ACORN, and ACORN owed
ACORN Fund. It was agreed to take ACORN out of this picture,
so that now it is CCI that owes this money to ACORN Fund.
[We] have not gotten information to determine how this decision
was made or approved, but it certainly creates concern. There is
the appearance, at least, that money was taken out of (or not
130 Stephanie Strom, Acorn Report Raises Issues of Legality, N.Y. TIMES, Oct. 22, 2008, available at
http://www.nytimes.com/2008/10/22/us/22acorn.html (last visited May 7, 2009).
131 HCSE Memo (June 19, 2008) at 12 (ACORN_004938).
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paid back to) a fund established to cover employee health care
costs in order to cover the cash shortfall caused by the
embezzlement. This decision, combined with the apparent
failure to notify the governing boards of affected organizations
or obtain adequate legal counsel, could generate significant
liabilities for the Fund and its directors. Again, there must be
inquiry into the decisions about moving these funds, the advice if
any that was relied on, and the best response now to minimize
legal concern. As with ABA, if the board of directors does not
have answers to questions about this organization, we need to ask
why not.
132
One month later, on July 22, 2008, Steve Bachmann, ACORN’s General Counsel,
confirmed HCSE’s concerns in an email suggesting:
[Wade Rathke] might be sued as a trustee under ERISA, given
his record of behavior with the ERISA funds that has been
uncovered. For better or worse this is a trigger that should not be
pulled until November or December . . . [Wade Rathke] might be
sued for his abuse of ABA and AFund, two charitable funds,
both quasi-ERISA funds. . . . The point here is that corporate
law generally says that corporate formalities and protections are
ignored when they are being abused for purposes of fraud. So to
the degree that [Wade Rathke] wants to play that game and we
show that he’s a crook, the courts will ignore his games[.]
133
Bachmann suggested a number of legal positions could be used to induce Wade Rathke,
ACORN’s historic Chief Organizer, into a limited role in ACORN.
134
Bachmann
discussed the liabilities involved with ACORN’s opaque corporate structure:
Beyond [HCSE’s] research into whether or not the [Dale Rathke]
note can be sold at a better price is the fundamental question of
whether the Rathkes got any releases signed when they signed
their promises and pledges. In other words, the theory is that
they signed them in exchange for a release for all liabilities.
There is a LOT of liability here, the money owed, the interest
owed, damages to reputation, cost of recovery, etc., etc. But it
appears that ACORN, CCI, and all the other organizations signed
nothing when they got the papers from the Rathkes. So
presumably they may still be able to sue them for losses for which
they have not yet been compensated.
135
132 HCSE Memo (June 19, 2008) at 13 (ACORN_004939) (emphasis added).
133 Email from Steve Bachmann (July 22, 2008) at 3-4 (ACORN_004327-004328) (emphasis in original
and added).
134 Id.
135 Id. (emphasis added).
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According to Bachmann, ACORN board members could have sued Wade Rathke as a
trustee under ERISA for his abuse of the ACORN Beneficial Fund (“ABA”) and
ACORN Fund (“AFund”), “two quasi-ERISA, charitable funds,” and can sue under
common law theories of negligence for Rathke’s ignoring corporate formalities and
protections, the lack thereof being abused for purposes of fraud.
136
A December 15, 2006
year end report by SEIU Local 880, an affiliate of ACORN, discusses the millions of
dollars in health care funding it received:
Childcare Health Fund - Contained within our most recent contract
covering the 40,000 childcare providers, there is a provision
guaranteeing $27 million paid out over 18 months (beginning in
July, 2007) to local 880 to set up a health benefit for the childcare
providers. We had wanted $150 million over three years, but
“only” won $27 million. We believe that we can cover thousands
of providers, depending on the plan and schedule of benefits.
Preliminary numbers show that about 8000 providers would
qualify and about 4000 would use this comprehensive benefit we
are putting together now. Toward that end, we are in the
negotiating process with United Healthcare, the largest insurer in
the world to fashion a plan like this for our members. It is scary
and hopeful at the same time, that we could fashion a health
benefit for thousands and bring much-needed health care to a
population that has been denied health care for so long.137
According to the Local 880 report, CCI performs Local 880’s legal services and ex-
ACORN head organizer Robert Bloch has helped Local 880’s political activities:
Legal Representation - In the past we have used Steve Bachmann
and the CCI legal team; SEIU counsel, Craig Becker; Art Martin
in Southern Illinois; and most recently, ex-ACORN head
organizer, Robert Bloch’s law firm. We plan to continue using
these legal resources in the future. But we have been increasingly
using Robert Bloch[’]s law firm for a lot of legal needs in 2006.
Robert[’]s firm has been a key help in FLSA and neutrality
wins. We are moving more business their way and will continue to
do so.
138
Notes from the August 15, 2008 ACORN East Regional Meeting in Washington, D.C.,
show the embezzled money was paid back through ACORN’s health fund:
139
136 Id. Negligence under 26 U.S.C. ž 6653 is defined as the lack of due care or the failure to do what a
reasonable and prudent person would do under similar circumstances. 26 U.S.C. ž 6653 (a)(1)(A) and (B);
see also Allen v. Commissioner, 925 F.2d 348, 353 (9th Cir. 1991).
137 Local 880 at 9-10 (Dec. 15, 2006) (ACORN_004358-004359).
138 Id. at 13-14 (ACORN_004362-004363) (emphasis added).
139 Notes from East Regional Meeting (Aug. 15, 2008) at 1 (ACORN_00321).
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HCSE’s June 2008 concerns about ACORN’s health fund appear to be confirmed
in the August 2008 meeting notes:
140
According to the East Regional meeting notes, Forest City Ratner provided the loan
alleged in the HCSE Memo to have been used to pay back ACORN’s health fund, not
from the accounts directly embezzled.
141
The agreement was as follows:
142
140 Id. at 2 (ACORN_00322).
141 Id.
142 Executed FCR (Aug. 19, 2008) at 1-2 (ACORN_000094-000095).
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As stated in the HCSE Memo, this transaction – where a charity grants money to a
501(c)(3) in order to pay off a debt for a health fund – is a prohibited loan to a related
party, violating the fiduciary responsibilities directors have under ERISA.
143
As stated in
the HCSE Memo, ACORN and its directors covered up the embezzlement loss by taking
money out of and failing to pay back a fund established to cover employee health care
costs, failing to notify the governing boards of the affected organizations and failing to
obtain adequate legal counsel.
144
b) ACORN Breached Its Duty of Care
Dale Rathke’s embezzlement violated ACORN’s duty of care to its members
because Rathke did not “act in good faith” nor was his transaction “inherently fair from
the corporation’s point of view.”
145
A nonprofit corporation’s duty of loyalty requires
directors to act in good faith and in a manner they reasonably believe is in the best
interests of the organization.
146
Dale Rathke was secretary-treasurer and director of internal operations of Citizens
Consulting, Inc. (CCI), a non-profit entity handling ACORN and all of its affiliates
accounting, and “actively manage[d], supervise[d] and direct[ed] the business affairs and
operations of CCI.”
147
According to an affidavit by ACORN legal counsel Brian Mellor,
ACORN and its affiliates still use CCI:
MELLOR stated that ACORN use an online payroll system
identified as CCI OMS. . . . The information from the timesheets
is then entered into the online system by the political organizers
supervising the canvassers. When a bonus is paid, there is a
comments section in the payroll system that should be used to
explain the reason for the bonus. MELLOR stated that he
caused payroll reports to be generated from the data in the
CCI payroll system. He provided me with an electronic copy of
four such reports. MELLOR opened one of the reports on his
laptop and showed the columns titled “Incentive” and ‘Comments’.
MELLOR pointed out that some of the entries reflect the payment
of ‘Blackjack’ or ‘21+’.
148
143 See ERISA Fiduciary Prohibited Transaction Rules, K&L GATES ALERT, available at
http://www.klgates.com/files/Publication/7e40b6c6-2c73-4243-b353-
ae156790b296/Presentation/PublicationAttachment/af13fd44-86ef-4b2a-8a04-b49f5e613a4c/IM-
ERISA_0806_Fiduciary_Prohibited_Transaction_Rules (last visited June 22, 2009).
144 HCSE Memo (June 19, 2008) at 13 (ACORN_004939).
145 Boston Children’s Heart Found., Inc. v. Nadal-Ginard, 73 F.3d 429, 433 (1st Cir. 1996).
146 ž8.30 Revised Model Non-profit Corporation Act.
147 Herman v. Citizens' Consulting, 1997 U.S. Dist. LEXIS 7376 at *1, 8 (D. La. 1997)
148 ACORN AFFIDAVIT, available at: http://sos.state.nv.us/information/news/press/2009/pdf/AFFIDAVIT-
ACORN.pdf, at 9, lines 14-25 (last visited June 22, 2009) (emphasis added).
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In an email between ACORN National Executive Director Steven Kest and Ralph
McCloud, of the Catholic Campaign for Human Development (“CCHD”), Kest described
CCI as follows:
Citizens Consulting, Inc. is an independent organization. It is a
non-profit corporation with no special tax status run by a self-
perpetuating board. Both AISJ and ACORN have contracts with
CCI to do their accounting work and corporate record
keeping. . . . CCI has two staff members who are assistant officers
of ACORN with authority to act on behalf of ACORN solely on
administrative matters. (For example: opening up bank accounts at
the direction of ACORN management.) This is standard corporate
practice. Paul Satriano, the national Treasurer for ACORN, is a
new board member of CCI.
149
Seven years prior to Dale Rathke’s embezzlement, Dale Rathke and CCI were sued by
the Secretary of Labor in the federal district court in New Orleans for violating overtime
and record-keeping provisions of the Fair Labor Standards Act.
150
Federal agents from
the Department of Labor were concerned about the recent suit filed against ACORN in
New Orleans, and in an October 13, 2008 letter, James Gray, writing to Maude Hurd,
ACORN’s President, and Steve Kest, ACORN’s Executive Director, stated:
You have been previously advised that due to the admission that a
felony has been committed, that other federal offenses may have
also been committed including but not limited to; Title 18 U.S.C.
1341, Mail Fraud, 18 U.S.C. (sic) 1001, Presenting a False
Document to the (sic) an Agent of the United States Government;
18 U.S.C. ž 1027 False statements and concealment of facts in
relation to documents required by the Employee Retirement
Income Security Act of 1974 and other possible offenses. Due to
which federal Agents from the Department of Labor attended the
October 2, 2008 preliminary hearing.
151
According to an October 16, 2008 Legal Report by the Interim Management Committee,
ACORN’s ERISA concerns had not been addressed.
152
149 Ralph McCloud CCHD at 3 (Nov. 11, 2008) (ACORN_004783) (emphasis added).
150 Herman v. Citizens' Consulting, 1997 U.S. Dist. LEXIS 7376 at *1 (D. La. 1997). The Department of
Labor alleged that “since November 1992, CCI and Rathke . . . have violated Sections 7, 11 (c) and 15 (a)
(2) and 15 (a) (5) of the Act, 29 U.S.C. žž 207, 211 (c), 215 (a) (2) and (5).” Id. at *8.
151 Letter to Board (Oct. 13, 2008) at 2 (ACORN_004492) (emphasis in original).
152 IMC Legal Report [Karen Inman] (Oct. 16. 2008) at 3 (ACORN_004497).
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c) The Embezzlement Is An “Excess
Benefit” Transaction Prohibited By The
IRS
Since 1996, the Internal Revenue Service (“IRS”) has been empowered to fine
and otherwise penalize executives of nonprofit corporations who receive excessive
compensation for services and benefits, as well as officers, directors or trustees who
approve such arrangements.
153
The Internal Revenue Code imposes initial taxes,
additional taxes and excise taxes on the executives who receive excess benefits, as well
as upon organization managers who participate in excess benefit transactions.
154
Under
the Code, the sale, transfer or use for the benefit of “a disqualified person” of income or
assets of the foundation are prohibited transactions.
155
According to the ACORN internal report by the law firm of Harmon, Curran,
Spielberg & Eisenberg, LLP (“HCSE Memo”), the embezzlement occurred in 1999 to
2000 and was not reported until 2008, yet the statute of limitations for an excess benefit
transaction is generally three or six years, depending upon whether the transaction was
reported.
156
Under 2 U.S.C. ž 1606, whoever knowingly fails to remedy a defective filing is
subject to a civil fine, and depending on the extent and gravity of the violation, can be
imprisoned or fined, or both, under title 18 of the United States Code.
157
The ACORN
Board, which had knowledge of and control over ACORN’s IRS reporting, did not
properly report Dale Rathke’s excess benefit transaction, i.e. the embezzlement.
2. ACORN Breached Its Corporate Duties by Failing
to Abide by its Bylaws
FINDING: ACORN failed to observe its corporate articles by loaning money
without proper legal documentation, by ignoring its duties under
the corporate bylaws, by misusing corporate funds, and by
terminating its members without honoring the process setup in its
Articles of Incorporation. ACORN has not complied with IRS
filing requirements or ERISA.
A nonprofit’s articles of incorporation or “articles . . . includes the trust
instrument, the corporate charter, the articles of association, or any other written
instrument by which an organization is created.”
158
A nonprofit fails to observe corporate
153 1-12 Liability of Corporate Officers and Directors ž12.01.
154 26 U.S.C. ž4958(c)(1)(A) and (f)(1)(A)-(B). Self-dealing transactions that would benefit an officer,
director or employee are prohibited by this statute.
155 See 26 U.S.C. žž 4941-4946.
156 I.R.C. 6501(a), (e)(3), (l). See also IRS Internal Revenue Manual ž 7.27.30.9 (Period of Limitations),
paragraphs 3 and 4, http://www.irs.gov/irm/part7/irm_07-027-030.html (last visited June 22, 2009).
157 2 U.S.C. ž1606.
158 26 CFR 1.501(c)(3)-1.
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formalities when it “loans[] money back and forth without any legal documentation[,]”
when “the ‘officers ignored their obligations under the corporate articles and bylaws’ and
‘the officers personally controlled the business and misused corporate funds.’”
159
The unreported Rathke embezzlement meets the first criterion for failing to heed
corporate formalities. ACORN insider Anita MonCrief produced a presentation from the
ACORN Board outlining the ACORN Board’s fiduciary duties and documenting the
ACORN Board’s knowledge of its fiduciary responsibilities.
160
Article 6 of the ACORN
Bylaws requires all checks drawn on the bank accounts of the corporation to be
authorized by the Board.
161
Documents produced by former ACORN employees illustrate how ACORN’s
officers ignored their duties under their corporate articles and bylaws. ACORN’s Bylaws
describe ACORN’s national operations as an outgrowth of local community
organizations affiliating on a district and statewide basis.
162
Under the Bylaws, the
ACORN board “can remove officers with . . . a vote equal in number to three-fourths of
the members sitting on the Board.”
163
After the embezzlement was disclosed, the
ACORN Board established an Interim Staff Management Committee (“ISM” Committee)
to elect three members (the Interim Management Committee “IMC”) to serve on the
Committee and report to the Board every month.
164
Karen Inman, Carol Hemingway,
and Marcel Reid were selected to the IMC.
165
The Bylaws require, “[e]ach state
Executive Board [have] a system for settling grievances within local groups in the state,
to the end that ACORN’s organizational democracy, harmony and unity might be
maintained.”
166
According to the ACORN Bylaws, the Chief Organizer serves at the
pleasure of the Board of Directors.
167
The Bylaws also require local chapters to be placed
under administratorships when necessary to ensure against corruption.
168
In a July 13, 2008 teleconference of the ACORN Association Board, the Board
approved for funds to be directed to the investigation and auditing activities of the
IMC:
169
159 Supra note 47 at 942.
160 Board of Directors Fiduciary Responsibilities (undated) at 1-16 (ACORN_004517-004532).
161 IMC Transparency (Jan. 7, 2009) at 6; ACORN Bylaws, Art. 9, at 8-9 (on file with author); IMC
Transparency (Jan. 7, 2009) at 4 (ACORN_004869).
162 Id. Art.1,3-5, 6, cl. 15, at 7.
163 Id. Art. 7, cl. 2, at 7-8.
164 Id. at 2.
165 Id. at 3.
166 Id. Art 11: Grievances.
167 Id.
168 Id. at 11.
169 ACORN Association Board Meeting (July 13, 2008) at 1 (ACORN_00391).
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The IMC, holding itself out as the ACORN 8, filed a complaint on August 12,
2008 against Wade Rathke and members of the ACORN board. An August 24, 2008
letter sent to the ACORN Board from the terminated ACORN employees (“ACORN 8”)
of the Interim Management Committee (“IMC”) stated, “(1) staff is not being paid, (2)
payroll taxes are not being paid, (3) member checking accounts have been overdrawn,
and (4) ACORN operational accounts have been depleted.”
170
According to an October
16, 2008 legal report prepared by IMC member Karen Inman, the ACORN Board failed
to provide an insurer with audited financial statements and there are ongoing issues with
IRS compliance and with state taxing authorities.
171
Although the Bylaws require three-fourths vote for removal, because members of
the IMC (“ACORN 8”) filed an action against ACORN’s Board, Maude Hurd, President
of ACORN, wrote to ACORN 8:
On November 9, 2008 the ACORN Executive Committee met and
considered the resolutions of the majority of state boards. The
feedback from the states was clear, and the Executive Committee
acted upon it by voting that any member participating in the
mandamus action, now or in the future, shall not be eligible to
hold office or serve on any Association Board committee.
Accordingly, you are hereby removed from any office or
committee position you may have held.
172
According to Maude Hurd, no member participating in the suit against ACORN,
including Karen Inman and Marcel Reid, was permitted to attend the scheduled Bylaws
Committee meeting:
[T]he membership of Karen Inman and Marcel Reid in ACORN is
cancelled, and they are removed from the Association Board, any
that any other members participating in the mandamus action shall
not be eligible to hold office or serve on any committee of the
Association Board.
173
170 TRO Summary for Association Board (Aug. 24, 2008) at 2 (ACORN_004472).
171 IMC Legal Report [Karen Inman] (Oct. 16, 2008) at 2 (ACORN_004496).
172 IMC Allegations at 13 (Jan. 7, 2009) (ACORN_004878) (emphasis added).
173 Acorn Termination Notices (Nov. 11, 2008) at 1 (on file with author).
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Hurd further stated:
These actions were taken in order to protect the Association
against the harm caused by the unauthorized and reckless lawsuit,
the insistence on airing internal disputes in the press, and the
failure to abide by the democratically-made decisions of the full
organization. Any state, region, or local group that seeks to
undermine these decisions may be subject to administratorship
according to Article 13 of the Bylaws.
174
The firings of Karen Inman, Marcel Reid and Carol Hemingway were executive
decisions made without following the three-fourths voting requirement specified in the
ACORN Bylaws.
ACORN 8 claimed the IMC lacked the authority it exercised because the board
ignored the bylaws:
175
According to a letter from ACORN 8 attorney James Gray, Liz Wolf, an ACORN
staff member, continued to receive and spend corporation money even after being told to
stop by the IMC.
176
ACORN 8’s temporary restraining order enjoined and prohibited the
defendants from continuing “to enter into contracts and waste money of the Corporation
and [make] any payments on behalf of the Corporation other than for wages already
earned until further orders of the Court.”
177
A Louisiana court required ACORN to
174 Id. at 2.
175 IMC Allegations (January 7, 2009) at 14 (ACORN_004879).
176 6-Amended TRO Petition [James Gray] at 3 (ACORN_000024).
177 Id. at 4 (ACORN_000025); See also Writ of Mandamus (Sept. 19, 2008) at 3-4 (ACORN_000040-
000041).
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“disclose the location of all banking accounts, deposits of money and contracts belonging
to ACORN.”
178
According to ACORN 8, these disclosures have not been made.
ACORN 8 claimed the Board ignored their attorney James Gray’s October 13, 2008 letter
to the ACORN Executive Board, including Maude Hurd and Steven Kest, requesting
ACORN to cease entering into any agreements or negotiating any contracts intended to
divest ACORN assets or property to Wade Rathke without the full Association Board’s
approval.
179
3. ACORN’s Financial and Structural
Mismanagement Has Led to Its Failure to Uphold
Its Corporate Duties
FINDING: ACORN’s inadequate management structure nurtured a
breakdown of corporate integrity, encouraged improper political
walls, fostered violations of the tax code, cultivated the illegal use
of federal funds and supported an inadequate response to
corporate embezzlement. ACORN accepts federal grant funds yet
lacks any whistleblower policy, fails to comply with IRS laws and
lacks an ongoing relationship with duly qualified legal counsel.
Project Vote lacks hiring standards and routinely employs
convicted felons. The executive directors of several ACORN
affiliates lack sufficient control of their own funds, ACORN
affiliates lack independent boards that they can report to, and
directors wear hats that jeopardize their ability to act solely in the
interests of their organizations. ACORN is responsible for Project
Vote’s fraudulent registrations because ACORN authorizes the
selection of members engaged in voter registration.
ACORN exercises control over housing corporations,
180
media entities,
181
labor
organizations,
182
building corporations,
183
service providers,
184
501(c)(3)’s,
185
political
action committees,
186
and health funds,
187
among others.
188
According to the Louisiana
178 Id. at 6-7 (ACORN_000027-000028).
179 Letter to Board (Oct. 13, 2008) at 1-2 (ACORN_004491-004492).
180 ACORN Corporate Structure (undated) at 2-3 (ACORN Center for Housing, Inc., Desert Rose Homes,
L.L.C.) (on file with author).
181 Id. at 4 (ACORN Television in Action for Communities, Inc.).
182 Id. at 5 (Local 100, Local 880, American Home Day Care Workers Association, Inc., United Security
Workers of America).
183 Id. at 6 (Broad Street Corporation, Elysian Fields Corporation, New York Organizing and Support
Center, Inc.).
184 Id. at 7 (ACORN Associates, Inc., ACORN Campaign Services, Inc., Citizens Consulting, Inc., Citizen
Services, Inc.).
185 Id. at 8 (ACORN Institute, Inc.; American Institute for Social Justice, Inc.; Project Vote/Voting for
America, Inc.; ACORN Law for Education Representation & Training, Inc.).
186 Id. at 9 (ACORN Political Action Committee, Inc.).
187 Id. (ACORN Beneficial Association, Inc., McLellan Multi-Family Corporation).
188 Id.
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Secretary of State database, Wade Rathke is on the board of 30 ACORN-affiliated
corporations, many of which are defunct.
189
The ACORN COUNCIL is composed of
ACORN and ACORN International.
190
Over 361 corporations compose the COUNCIL
and Dale and Wade Rathke are affiliated with over 100 of them.
191
The law firm of
Harmon, Curran, Spielberg & Eisenberg LLP (“HCSE”), ACORN’s outside counsel,
identified numerous problems with ACORN’s management structure, including a lack of
corporate integrity, the existence of improper political walls, a failure to comply with the
tax code, concerns about the legal use of federal funds, a lack of administrative
capabilities, and an inadequate response to the embezzlement.
192
According to the HCSE
Memo, ACORN accepts federal grant funds yet lacks a whistleblower policy, fails to
meet federal audit requirements, and lacks an ongoing relationship with legal counsel.
193
Private foundations, like Citizens Consulting Inc. (“CCI”) and Project Vote
(ACORN’s get-out-the-vote organization) must pay an excise tax on any lobbying
expenditures they make, yet, according to their Form 990’s, they never reported their
expenditures to the IRS.
194
On the basis of their joint representation before the United
States District Court in Louisiana, ACORN Fair Housing, CCI, and SEIU Local 100 all
share lawyers.
195
According to testimony made before the House Judiciary Committee,
all donations to ACORN or any of its approximately 361 affiliates are deposited into
bank accounts held by CCI; thereafter, CCI transfers money into various affiliate
accounts:
Project Vote in 2007 had a $28 million dollar budget which was
funded by CCI, an affiliate of ACORN. CCI is an acronym for
Citizens Consulting Incorporated. Ms. Moncrief [sic] testified:
‘CCI is basically the accounting arm for all of the money, the
payments, who gets what, the – how the organization operates
and flows and makes sure its bills are paid. All of that goes
through CCI. . . . CCI makes disbursements to them either
directly into their account or does transfers between I guess the
different organizations.’ All donations to ACORN or any of its
approximately 175 affiliates are deposited into bank accounts
held by CCI. Thereafter, CCI transfers money into various
affiliates, one being Project Vote.
196
189 Email from Steve Bachmann (July 22, 2008) at 1 (ACORN_004325).
190 ACORN Grant Request to the Democracy Alliance at 12-13 (Mar. 24, 2006) (ACORN_004348-
004349).
191 Id. See also Appendix 1, infra.
192 HCSE Memo (June 19, 2008) at 1-2 (ACORN_004927-004928).
193 Id. at 10 (ACORN_004936).
194 See 2000-2008 Form 990s (Project Vote, ACORN International, AISJ, ACORN Institute, ACORN
Housing Corporation), available at http://www.guidestar.org/ (see id. at 11, 15 and 16 where ACORN does
not disclose excess benefit transactions or political activity) (hereinafter “Form 990”); See also IRC ž4945
and Tax Reform Act of 1969 (P.L. 91-172).
195 Compare Local 100, Serv. Emples. Int'l Union v. Assumption Parish Sch. Bd., 1996 U.S. Dist. LEXIS
5577 (D. La. 1996) with Louisiana Acorn Fair Hous. v. Quarter House, 952 F. Supp. 352 (D. La. 1997).
196 What went wrong with the 2008 election?: Hearing Before the H. Judiciary Comm., 111TH CONG. 5
(2009) (statement of Heather Heidelbaugh) (emphasis added).
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HCSE stated it was difficult to determine whether ACORN’s 501(c)(3) funds were
always disbursed for 501(c)(3)-appropriate purposes:
All 501(c)(3)s must also ensure that their funds are spent only with
appropriate corporate approval. This does not mean that the board
should approve [each] expenditure. Authority may be delegated to
an appropriate staff person, and may be further delegated by that
person. Such delegation must be explicit and in writing. [Citizens
Consulting Inc., (“CCI”)], which controls the bank accounts,
must be instructed not to disburse funds without appropriate
approval. It must be given copies of the written expenditure
authority delegation, and maintain lists of authorized
individuals. The organizations must also inform CCI when a
staff person leaves, moves, or otherwise should no longer be on
the authorized list. They should have explicit written
revocation of expenditure authority in their files. All staff
must understand that CCI cannot disburse any funds without
proper approval.
An example where this comes up is when organizations have
agreements to work jointly on a project, or for one to provide grant
funding to the other. A contract or grant letter is necessary to
establish that relationship, but not sufficient to authorize a
payment. Just as with outside parties, only a person with legal
authority for a payor should disburse its funds. I have seen at
least one instance where that did not happen, although the
payment was for a 501(c)(3)-permissible project, and one that
apparently the 501(c)(3) in question was participating in. The
point is that general agreement to provide funding to a project
is not the same as making payments, and the other
organization seeking funds should not be the one to control the
making of payments. Otherwise, there is danger that we
cannot demonstrate that 501(c)(3) funds are always disbursed
for 501(c)(3)-appropriate purposes.
197
HCSE stated “[r]ecent administrative problems relating to ERISA and IRS filings and
payments further indicate the need to call in outside vendors, expand capacity, or rethink
CCI’s role.”
198
Based upon this Committee’s review of the Form 990s of several ACORN-
affiliates, Project Vote paid ACORN $10,861,825 from 2000 through 2006.
199
Project
Vote also paid ACORN affiliate CSI $1,206,942 in 2005 and 2006, and paid $1,266,967
197 HCSE Memo at 8-9 (ACORN_004934-004935) (emphasis added).
198 Id. at 11 (ACORN_004937).
199 Form 990, supra note 194.
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to ACORN affiliate CCI from 2000 through 2004.
200
Since 2000, AISJ paid ACORN
$1,926,831.
201
In 2000, AISJ paid CCI $362,464 and ACORN Associates, Inc.
202
$258,593.
203
As reported in The Washington Examiner:
Federal tax records also show the ACORN Institute paid CCI $61,443 in
2006 and $50,134 in 2007. . . ACORN Housing tax records showed a
2006 payment of $238,953 to CCI for ‘administrative services.’
204
ACORN insider Anita MonCrief said the accounts were commingled:
The money goes into accounts at CCI. CCI has dozens – dozens
and dozens of accounts. Some of them are Project Vote. Some of
them are ACORN . . . Those checks were usually copied, and [Ms.
MonCrief] would have PDF access to them. The checks that [Ms.
MonCrief] received [she] would copy and send them over to Little
Rock for processing.
205
According to documents ACORN insiders Anita MonCrief and Marcel Reid produced to
this Committee, ACORN engaged in unreported transactions between its affiliates.
According to an email by Steve Bachmann, SEIU Local 100, ACORN Institute (a
501(c)(3)), ACORN Community Labor Organizing Center (“ACLOC”),
206
ACORN
International,
207
Affiliated Media Foundation Movement (“AMFM”), the Association for
the Rights of Citizens, Inc. (“ARC”),
208
the Elysian Fields Corporation, and Citizens
Consulting Inc. (“CCI”), are interchangeably controlled by ACORN:
Local 100 was nurtured by ACORN, but I think US Labor law
prevents ACORN from interfering in Local 100 affairs. And it is
not clear that ACORN wants to bother with Local 100 anymore,
except to collect money Local 100 has borrowed from ACORN
affiliates (some $250,000). . . . Acorn Institute. I think this is
clearly an ACORN corporation, but I have to observe that it
seems to me that [Wade Rathke] has been trying to fill it with
shills. I think it is one of ACORN’s major 501c3s, and control
of it needs to be monitored . . . . ACLOC. I think control of
this organization is up for grabs, but the more critical question
is who gets business from SEIU and ACORN. . . . AINT. This
is ACORN International. [Wade Rathke] should probably start
200 Id.
201 Id.
202 Id.
203 Id.
204 Kevin Mooney, Tax documents show ACORN link to affiliates, May 19, 2009, available at
http://www.washingtonexaminer.com/opinion/columns/special-editorial-reports/Tax-documents-show-
ACORN-link-to-affiliates-45443062.html (last visited June 19, 2009).
205 Id.
206 A-CLOC, available at: http://www.acloc.org/ (last visited June 13, 2009).
207 Acorn International, available at: http://www.acorninternational.org/ (last visited June 13, 2009).
208 ARC WEBSITE, available at: http://www.arc.org/ (last visited June 13, 2009).
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his own darn international org. If he wants this one, he has to use
it without the ACORN name. . . . AMFM. This was founded as
a media resource corporation. I thought there was nothing to
this corporation until I found out that it is, in theory, owed
some $45,000 once the $750,000 [Dale Rathke] moneys are
distributed. WR has no moral right to this money—or the
corporation, for that matter. In any case, he has been scrambling to
make this corporation “real” and had some Board meeting on July
2. . . . ARC. This used to be a key 501c3 feeder for labor
projects. Right now the Board supposedly consists of Steve
Bachmann and Mildred Edmond. And Dale Rathke and Cornelia
have supposedly left this Board. ACORN should advise Wade
Rathke that this corporation is going to be cleaned up, and
should probably be closed down. . . . CCI. The point here is
that if ACORN wants nothing to do with [Wade Rathke], then
presumably CCI needs to terminate its contracts with any WR
tainted organization. These conflict of interest issues are about
to come to a head with CCI attorneys. . . . In the present crisis
the CCI lawyers may have to face these issues shortly. As an
ethical if not a legal matter, the whole of CCI will have to face
these issues also. . . . COUNCIL. If ACORN wants to have
nothing to do with [Wade Rathke], then any [Wade Rathke]
organization is going to have to be ejected from the COUNCIL, in
particular, Local 100 and its subsidiaries. . . . EFC. There may
be problems with other building corporations, but this is the
Big Mama because there is so much property held by EFC.
[Elizabeth Kingsley] is working hard to get on top of this
situation which is a byzantine empire until itself. However, it
does appear that it has been misused and abused by the Rathke
brothers, and ACORN may have some self-help options available
to it.
209
According to a petition for a temporary restraining order, preliminary
injunction and permanent injunction filed against ACORN’s board, CCI,
which functions as a management center for ACORN, facilitated
ACORN’s mismanagement:
Defendant CCI is either an affiliate of or a contractor for ACORN
and provides paycheck and cash management services for
ACORN. Defendant Mike Jones is a principal of CCI. On
information and belief, all assets belonging to ACORN or its
affiliates are administered in some way by CCI. CCI knew or
should have known that it was obligated to disclose to Acorn’s full
Board of Directors Dale Rathke’s embezzlement and the Rathke
family’s subsequent assumption of the debt. Further, CCI
209 Email from Steve Bachmann (July 22, 2008), at 2-3 (ACORN_004326-004327) (emphasis added).
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breached its duties and its trust to ACORN, ACORN’s affiliates,
and ACORN’s contributors by deceptively carrying the agreement
with [the] Rathke family as a loan to an officer on its books when
no such loan occurred without knowledge or authority of
ACORN’s full Board of Directors. Such clandestine and deceptive
practices were continued when CCI, through its principal, Mike
Jones, informed a disinterested ACORN Board member that she
was prohibited from reviewing the financial records of ACORN or
its affiliates because CCI was an independent payroll service with
no connection to ACORN or its affiliates (despite the fact that all
of ACORN’s assets were administered by CCI). CCI and
ACORN’s respective brochures and marketing materials refer to
each other as interrelated entities. Moreover, the records of the
Louisiana Secretary of State show that at least seventy-five
corporations have boards of directors interlocking with ACORN,
many of which list a principal place of business identical to that of
ACORN.
210
A 2008 CCI organizational chart provided to Committee staff identifies Michael
Jones, CPA as the Chief Financial Officer,
211
and Steve Bachmann as the General
Counsel of the CCI Legal Department.
212
According to HCSE’s analysis, “CCI has no
chief organizer, nor any agreement with any other entity with such a person that would
allow them to exercise such authority.”
213
A July 22, 2008 memorandum prepared by Bachmann reflected CCI’s control of
400 bank accounts for 170 ACORN affiliates, many of them defunct.
214
CCI provides
consulting services, including administrative, financial, bookkeeping, and legal support,
primarily to nonprofit organizations.
215
CCI controls ACORN and its affiliates’ bank
accounts.
216
CCI controls the account of CVT, whose funds are readily available to
ACORN.
217
This Committee obtained internal ACORN financial documents reflecting cross-
over financial transfers between ACORN and its affiliates. These documents reflect
transactions between ACORN local chapters, the American Institute for Social Justice
(“AISJ”), and Citizens Consulting Inc. (“CCI”), in addition to a number of corporate and
governmental vendors:
218
210 Petition for Temporary Restraining Order, Preliminary Injunction, and Permanent Injunction, Acorn v.
Rathke, 08-8342 (La. Dist. Ct. 24 Dist. 8/21/08); __ So. 2d. __, at 2 (ACORN_00375).
211 CCI-ACORN Entities (July 29, 2008) at 2 (ACORN_004506).
212 Id. at 11 (ACORN_004515).
213 HCSE Memo (June 19, 2008) at 3 (ACORN_004929).
214 Email from Steve Bachmann (July 22, 2008) at 1 (ACORN_004325); See also Notes from West
Regional Meeting (August 15, 2008) at 1 (ACORN_000314).
215 HCSE Memo (June 19, 2008) at 8-9 (ACORN_004934-004935).
216 HCSE Memo (June 19, 2008) at 8 (ACORN_004934).
217 Id.
218 AISJ-LA-03.21.01 – Political ops at 1-11 (Mar. 21, 2001) (ACORN_00106).
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The HCSE Memo described one of ACORN’s affiliates, Communities Voting Together
(“CVT”), a political organization, as lacking independent control:
CVT may have been treated like a pot of money available to
ACORN to carry out state-level political work. Funds were
committed and activities undertaken in its name without the
knowledge of the CVT officers or key staff person.
219
According to the HCSE Memo, CVT, if not operated as a “properly ‘nonconnected’
organization,” can not legally make communications about federal candidates, “which it
continues to do.”
220
HCSE then warned: “[i]f it does so anyways, it will create
tremendous liability for itself, and likely for both ACORN and ACORN Votes.”
221
According to the memo, CCI “must not allow any CVT funds to be disbursed without
proper authorization.”
222
According to HCSE’s analysis, ACORN affiliates lack
independent control because CCI has actual authority over them.
223
According to HCSE,
CCI cannot simultaneously authorize decisions over federally-funded organizations and
lobbying organizations: “If [CCI allows CVT funds to be disbursed without
authorization], CVT should be moved out of CCI.”
224
According to ACORN insiders, the Service Employees International Union
(“SEIU”) has given ACORN $4 million.
225
A December 10, 2006 report from Wade
219 HCSE Memo (June 19, 2008) at 8 (ACORN_004934).
220 Id.
221 Id.
222 Id.
223 Id.
224 Id.
225 IMC Transparency (January 7, 2009) at 4 (ACORN_004869).
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Rathke describes a building services partnership between ACORN and SEIU.
226
Rathke
stated ACORN’s incentive in using CCI to control accounts:
[M]y inability to convince SEIU 880 not to leave the shared
collective of our family of organizations around the shared
services of CCI was my major disappointment of the year and
represents . . . the largest internal threat to our family of
organizations.
227
According to HCSE, CCI lacks a legitimate board and yet it is the “nerve center” of
ACORN’s administrative functions.
228
CCI has no in-house or third-party capabilities for
monitoring its own problems.
229
HCSE presented concerns about CCI’s capacity and
performance, citing “administrative problems relating to ERISA and IRS filings:”
230
Recent administrative problems relating to ERISA and IRS filings
and payments further indicate the need to call in outside vendors,
expand capacity, or rethink CCI’s role . . . CCI itself needs to put a
real Board in place ASAP.
231
State-based ACORN chapters share funds with ACORN COUNCIL and CCI.
232
The
American Institute for Social Justice (“AISJ”) has wired money to ACORN, which then
transferred the money to CCI accounts, without making any disclosures to the IRS.
233
Additionally, American Express has a $125,000 garnishment action against Dale
Rathke.
234
Any sort of fraud committed by a nonprofit is subject to federal and state
securities laws.
235
A March 11, 2003 memo from Nathan Henderson-James, Development Director
of ACORN-California to Amy Schur, Management Council member of ACORN,
discuses the political issues involved with CCI and its ACORN accounts, as well as the
charitable donation account for the Catholic Campaign for Human Development
(“CCHD”):
If part of the problem is that CCI doesn’t get accurate reporting
from the field on income, then why don’t we create a system that
ensures accuracy? . . . Many cities have more than one account.
For example, Sacramento has the ACORN account, the CCHD
account, and the Sacramento Living Wage Campaign account.
226 Chief Organizer Report 2006 (Dec. 10, 2006) at 7 (ACORN_004824).
227 Id. (emphasis added).
228 HCSE Memo (June 19, 2008) at 2 (ACORN_004928).
229 Id.
230 Id. at 10, n.7. See e.g. id. at 11.
231 Id. at 11.
232 AISJ-LA-03.21.01 – Political ops at 1-11 (Mar. 21, 2001) (ACORN_00106).
233 Id.
234 Email from Steve Bachmann (July 22, 2008) at 1 (ACORN_004325).
235 Timothy L. Horner & Hugh. H. Makens, Nonprofit Symposium: Securities Regulation of Fundraising
Activities of Religious and Other Nonprofit Organizations, 27 STETSON L. REV. 473, 474 (1997).
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We need accurate accounting for each account, independently
of the other. Not having this causes some measure of political
trouble with allies in Sacramento (though this has now been
more or less resolved).
236
On June 20, 2008, at an ACORN Association Board meeting in Detroit, HCSE
told ACORN President Maude Hurd, “there are at least 100 separate corporations within
ACORN and . . . corporate relationships should be re-examined and regularized.”
237
In a
July 22, 2008 memorandum, ACORN General Counsel Steve Bachmann stated, “[t]he
fact that [Wade Rathke] and his brother [Dale Rathke] used their positions as ACORN
agents to insinuate themselves into positions of power in [affiliate] corporations
suggest[s] the degree to which fiduciary duty requires them to leave.”
238
Bachmann
identified the ACORN Institute as a 501(c)(3) but claimed, “control of it needs to be
monitored.”
239
Despite the apparent abuses of federal funds by CCI, HCSE claimed these abuses
persisted because ACORN lacked a whistleblower policy:
First and foremost, any entity receiving government funding
should have in place a serious and enforced whistleblower policy.
Any employee, or an employee of another organization, or a
member of the public, who has any information about the misuse
of grant funds or related conduct should have a clear avenue to
report the concern without fear of reprisal.
240
a) ACORN Lacks Quality Control in Hiring
and Supervision of Employees
Nonprofit 501(c)(3)’s, like Project Vote – an ACORN affiliate – have fiduciary
duties.
241
According to the Wall Street Journal, Project Vote purposefully lacks hiring
standards so allegations of wrongdoing ensnare low-level employees, not directors.
242
According to a former Justice Department attorney involved in ACORN investigations,
ACORN hired ex-convicts to conduct voting registrations and ACORN volunteers had a
history of not turning in Republican registrations.
243
According to the Eighth Circuit
Court of Appeals, ACORN not only has a history of hiring those with arrest records, but
hiring embezzlers as well:
236 CCI Memo (Mar. 11, 2003) at 2-3 (ACORN_004308-004309) (emphasis added).
237 ACORN Association Board Meeting (July 13, 2008) at 1 (ACORN_00391).
238 Email from Steve Bachmann (July 22, 2008) at 1 (ACORN_004325).
239 Id.
240 HCSE Memo (June 19, 2008) at 10 (ACORN_ 004936).
241 1-12 Liability of Corporate Officers and Directors ž12.01.
242 John Fund, An Acorn Whistleblower Testifies in Court, WALL STREET J., Oct. 30, 2008, available at
http://online.wsj.com/article/SB122533169940482893.html (last visited May 11, 2009).
243 Interview with Asheesh Agarwal, former Deputy Assistant Attorney General, Department of Justice, in
Wash., D.C. (Mar. 30, 2009) [hereinafter Agarwal Interview].
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Pending sentencing in federal court, Hipenbecker was released
on bond. While free on bond, Hipenbecker became employed by
the Minnesota Association of Community Organizations for
Reform Now (ACORN). Soon after being hired, Hipenbecker
embezzled approximately $ 1500 from ACORN. Upon learning
of Hipenbecker's latest crime, the district court revoked
Hipenbecker's bond and informed her that the district court was
contemplating an upward sentencing departure.
244
In response to voter registration fraud during the 2004 General Election, the
Special Investigations Unit of the Milwaukee Police Department reported:
[T]wo persons who had entered guilty pleas to misdemeanor
charges of Election Fraud within one year of the November
General Election also were employed as Election Inspectors for
the Election Commission on November 2, 2004. . . . These
reviews lead the Task Force to find that 18 persons were sworn in
as Deputy Registrars in 2004 that were convicted felons and
under Department of Correction supervision. Of the 15 felons
that listed a sponsoring organization, eight named ACORN as
their sponsoring agency.”
245
ACORN disregarded the risks of hiring those with criminal records to register
voters. ACORN attorney Brian Mellor, writing to King County, Washington prosecutor
Norm Maleng concerning a voter registration fraud case, wrote “my review of the [voter
registration] applications has led me to decide to refer these three employees to your
office to investigate them for possible voter-registration fraud[.]”
246
According to testimony before the House Judiciary Committee:
[ACORN] knew there was a problem with “the quality of the
people they were getting. Some of the people didn’t know how to
use basic office . . . systems, which made it very hard for copying
244 United States v. Hipenbecker, 115 F.3d 581, 583 (8th Cir. 1997) (emphasis added).
245 Milwaukee Police Dep’t, Special Investigations Unit, Report of the Investigation into the November 2,
2004 General Election in the City of Milwaukee, available at:
http://graphics2.jsonline.com/graphics/news/MPD_2004voterfraudprobe_22608.pdf (emphasis added).
246 Mike Carter, King County investigates apparent forgery of hundreds of voter cards, SEATTLE TIMES,
Mar. 16, 2007, available at:
http://seattletimes.nwsource.com/html/localnews/2003621500_webfraud17m.html (last visited June 16,
2009); See also Settlement Agreement from Sam Reed, Washington Secretary of State and Daniel
Satterberg, King County Prosecuting Attorney, to Brian Mellor, ACORN Senior Counsel and Steve
Bachmann, ACORN General Counsel (July 25, 2007), available at:
http://www.secstate.wa.gov/office/pdf/Settlement%20and%20Compliance%20Agreement.pdf.
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the registration card and making sure that they were turning in
accurate counts and work ethic issues.”
247
On February 24, 2009 Project Vote General Counsel Brian Mellor told a Nevada
state criminal investigator the following concerning bonuses for voter registrations:
In regard to “Blackjack,” MELLOR stated that it was not ACORN
policy to pay performance related bonuses to their staff. MELLOR
stated that back in 2003, ACORN engaged in a voter registration
drive during which they compensated their canvassers through
bonuses linked to the number of voter registration forms collected
by each canvasser. This policy turned out to be a bad policy and
since then, ACORN has not compensated canvassers based on
performance.
248
According to notes produced from former ACORN insider Anita MonCrief, the federally-
funded Project Vote actively maintained registration quotas and provided monetary
incentives based on registrations:
Standards for canvassers – 20 cards/day – is this a realistic
number? In Cincinnati, canvassers tended to stop at the number
instead of go on; problems with duplicates (voters registering with
ACORN multiple times), Missouri (KC and St. Louis) had lots of
people who did this; saturation leads to duplicates; not because
standard is unrealistic but because not enough people working on
developing new sites; 20 standard can create practical equivalent
of pay-per-card, legal concern . . . .
249
A 2004 ACORN voter registration manual stated, “[a]nyone who performs at less than
three voter registrations per hour should not be on the staff [sic].”
250
Heather Heidelbaugh testified before the House Judiciary Committee that
ACORN’s voter registration programs lacked on-going training of canvassers
251
as well
as other problems such as a practice ACORN encouraged of its canvassers turning in
duplicate registrations.
252
Regarding voter registration, Anita MonCrief testified,
247 What went wrong with the 2008 election?: Hearing Before the H. Judiciary Comm., 111TH CONG. 1-17
(2009) (statement of Heather Heidelbaugh).
248 ACORN AFFIDAVIT, available at: http://sos.state.nv.us/information/news/press/2009/pdf/AFFIDAVIT-
ACORN.pdf, at 8, lines 17-22 (last visited June 22, 2009).
249 POLOPS VR NOTES (undated) at 1-2 (ACORN_000372-000373).
250 Brad Bumsted & Walter F. Roche Jr., Reform association's manual suggests use of quota system, PITT.
TRIBUNE REVIEW, June 14, 2009, available at:
http://www.pittsburghlive.com/x/pittsburghtrib/news/regional/s_629482.html (last visited July 6, 2009).
251 What went wrong with the 2008 election?: Hearing Before the H. Judiciary Comm., 111TH CONG. 7
(2009) (statement of Heather Heidelbaugh).
252 Id. at 8. See also Lara Lakes Jordan, Officials: FBI Investigates ACORN for voter fraud, ABC NEWS,
Oct. 17, 2008, available at http://abcnews.go.com/Politics/wireStory?id=6054185 (last visited Apr. 29,
2009).
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“ACORN was more interested in the total number of submitted registrations than the total
number of valid registrations.”
253
While ACORN aspires to institute quality control mechanisms for its voting
efforts, these guidelines failed on a regular basis.
254
Documents obtained by the
Committee show ACORN authorizing the selection of members charged with voter
registration. Accordingly, ACORN can be held responsible for any fraudulent conduct
having arisen from Project Vote’s registration efforts.
255
A nonprofit corporation’s legal protections are disregarded if “its finances are not
kept separate from individual finances . . . the corporation is used to promote fraud or
illegality,” or “corporate formalities are not followed.”
256
If just one of these factors is
proven, then the tax-exempt privileges of ACORN and its affiliates are dissolved and
what remains is the absolute uncertainty about ACORN’s having complied with election
and tax laws, among others.
257
In a settlement agreement between ACORN and the King
County prosecutor in Seattle, Washington, ACORN acknowledged its liability “as a
corporate entity” for the submission of “fraudulently collected” voter registrations “not
reviewed pursuant to the quality control procedures” and “willfully turning in fraudulent
cards.”
258
B. ACORN and Its Affiliates Are Not in Compliance
With The IRS
Nonprofits are exempt from taxation because corporations organized and operated
exclusively for charitable or educational purposes benefit the public.
259
Based upon the
legislative history behind 501(c)(3), tax-exempt status was designed to serve an economic
benefit: “the Government is compensated for the loss of revenue by its relief from
financial burden which would otherwise have to be met by appropriations from public
funds.”
260
Compliance with tax laws was assumed to ensure the effective management of
nonprofit corporations.
261
253 Id. (Page 51, line 1-4).
254 Quality Control (Jan. 2004) (ACORN_000397-000405); See also PV Voter Registration Organizing
Manual (Jan. 2004) (ACORN_004310-004319).
255 See e.g. New York Central R. Co. v. U.S., 212 U.S. 481 at 493-494 (1909).
256 HOK Sport, supra note 47 at 936. (quoting Lakota Girl Scout Council, Inc. v. Havey Fund-Raising
Mgmt., Inc., 519 F.2d 634, 638 (8th Cir. 1975).
257 Id.
258 Settlement Agreement from Sam Reed, Washington Secretary of State and Daniel Satterberg, King
County Prosecuting Attorney, to Brian Mellor, ACORN Senior Counsel and Steve Bachmann, ACORN
General Counsel (July 27, 2007), available at:
http://www.secstate.wa.gov/office/pdf/Settlement%20and%20Compliance%20Agreement.pdf.
259 Christian Echoes Nat’l Ministry v. United States, 470 F.2d 849, 853-854 (10th Cir. 1972).
260 H.R. Rep. No. 1860, 75th Cong., 3d Sess. 19 (1939).
261 United Cancer Council, Inc. v. Comm’r, 165 F.3d 1173, 1179 (7th Cir. 1999).
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1. Congress, In Regulating Nonprofits, Intended
Nonprofits As Not-For-Politics
FINDING: An essential aspect of Project Vote, CCI, Citizens Services Inc.
(“CSI”), Communities Voting Together (“CVT”), and other
ACORN affiliated 501(c)(3)s is to promote desirable governmental
policies consistent with its objectives through legislation.
Section 501(c)(3) is limited to activities whose purpose is to neither influence
legislation nor support participation or intervention in political campaigns on behalf of
candidates for public office.
262
This limitation in Section 501(c)(3) originated from the
Revenue Act of 1934, which allowed organizations tax exempt status if “no substantial
part of the activities of which is carrying on propaganda, or otherwise attempting, to
influence legislation.”
263
The legislation was drafted after the decision in Slee v.
Commissions of Internal Revenue, where the Second Circuit upheld the IRS’s denial of
an exemption to a group whose purposes were not exclusively charitable, educational or
scientific.
264
Section 501(c)(3) was further limited when, in 1954, Congress barred
participation or intervention in political campaigns on behalf of candidates for public
office.
265
Based upon the legislative history of Section 501(c), when a corporate activity has
a political purpose, the corporation is no longer “exclusively” charitable or educational.
Congress intended nonprofit political activity to be interpreted broadly.
266
According to
this interpretation, a nonprofit influences legislation whenever it makes “appeals to the
public to react to certain issues.”
267
If an “essential part of the program” is “to promote
desirable governmental policies consistent with its objectives through legislation” then a
substantial part of the corporation’s activities are “influencing or attempting to influence
legislation.”
268
“[A]ttempts to elect or defeat certain political leaders” reflect an
“objective to change the composition of the federal government.”
269
2. ACORN And Its Affiliates Violate Their
Restrictions as Nonprofits
FINDING: ACORN and its affiliates cannot delineate their 501(c)(3) work
from their non-501(c)(3) work. Ignoring ACORN’s nonprofit
protections reveals the same individuals made strategic decisions
about which regions do 501(c)(3) versus non-501(c)(3) voter
registration work.
262 See Dickinson v. United States, 346 U.S. 389 (1953).
263 26 U.S.C. ž501(c)(3).
264 42 F.2d 184 (2nd Cir. 1930).
265 See Christian Echoes, supra note 259 at 854.
266 Id. at 856.
267 Id.
268 Id.
269 Id.
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According to a March 24, 2006 funding request prepared by ACORN’s Executive
Director Steve Kest and Political Director Zach Polett, ACORN receives funding from
membership dues, fundraising initiatives and contributions, foundation support, corporate
contributions, and individual high donor contributions.
270
In 2007, ACORN raised
$4,171,000 in small-dollar unrestricted non-(c)3 dues and other income from their
membership.
271
By the end of 2008, ACORN increased this annual amount to over $7
million.”
272
According to the internal report on ACORN by the law firm of Harmon, Curran,
Spielberg & Eisenberg, LLP (“HCSE Memo”), it is absolutely uncertain whether
ACORN and its affiliates, including CCI and Project Vote, have “done things right:”
[L]ack an adequately documented delineation of 501(c)(3) from
non-501(c)(3) work . . . However, [we] cannot confirm that
strategic decisions about which regions do 501(c)(3) versus
non-501(c)(3) voter engagement work are not being made by
the same person or people. At a minimum, there is not
adequate demonstrable separation between these functions. As
a result, we may not be able to prove that 501(c)(3) resources
are not being directed to specific regions based on
impermissible partisan considerations. Remember, it is the
IRS that enforces the rules for 501(c)(3)s. In general the
government has the burden of proving you have done
something wrong, but when it comes to tax compliance, the
burden is on the organization to maintain records to document
it has done things right.
273
If ACORN is improperly managing its inter-corporate relations, it is difficult to
determine whether ACORN has complied with federal tax laws.
HCSE’s analysis shows ACORN failed to properly account for its disbursements:
Just as with outside parties, only a person with legal authority
for a payor should disburse its funds. [We] have seen at least
one instance where that did not happen, although the payment
was for a 501(c)(3)-permissible project, and one that apparently the
501(c)(3) in question was participating in. . . . Otherwise, there is
danger that we cannot demonstrate that 501(c)(3) funds are
always disbursed for 501(c)(3)-appropriate purposes.
274
270 ACORN Grant Request to the Democracy Alliance at 12 (Mar. 24, 2006) (ACORN_004348); Note that
“membership dues” refers to the service fees ACORN charges its low and moderate income constituents.
271 Id. at 5 (Mar. 24, 2006) (ACORN_004341).
272 Id.
273 HCSE Memo (June 19, 2008) at 7 (ACORN_004933) (emphasis added).
274 Id. at 9 (emphasis added).
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According to HCSE, ACORN, a 501(c)(4), has actual control over the decisions of
Project Vote, a 501(c)(3):
Project Vote has on paper a procedure to select regions where
it will do voter registration, but [we] have heard reports in the
past that in practice those decisions may be communicated to
[Project Vote] from ACORN. . . . Project Vote (and PICA, the
other voter registration corporation) needs to really be in charge of
deciding where 501(c)(3) resources will be focused. The [Project
Vote] and PICA Executive Director(s) must be charged with
implementing the procedures (or supervising that work) to set
strategic priorities for the organization without answering to any
other entity or person. These corporations and their chief staff
people must control their own funds; the ED must report only to
her/his own board, unless a formal, legally vetted written
agreement appropriately delegates that authority elsewhere. And
the ED must not be wearing other ‘hats’ that jeopardize her
ability to act solely in the interest of these 501(c)(3)s.
275
Project Vote is a 501(c)(3) organization.
276
Project Vote’s revenue in 2008 was
$28,676,637.
277
Project Vote does business with ACORN Voter Registration, Citizens
Consulting Inc. (“CCI”), CCI Legal, and Citizens Servicing Inc. (“CSI”).
278
In 2005,
there were over a thousand transactions, amounting to nearly $12 million between
ACORN and its affiliates.
279
In a March 11, 2003 memorandum from Nathan
Henderson-James of the California ACORN chapter to Amy Schur, ACORN
Management Council member, Henderson-James summarized the financial difficulties at
CA ACORN and recommended CCI change its budgetary practices with respect to local
ACORN chapters.
280
Henderson-James has held simultaneous titles at ACORN and
CSI.
281
According to the HCSE Memo, ACORN and one of its affiliates, American
Institute of Social Justice (“AISJ”) failed to meet the IRS reporting back requirements
necessary for grantors to demonstrate how their money was spent by the grantees.
282
HCSE found problems with ACORN’s compliance with ž 501(c)(3) of the tax code,
suggesting:
[We] have recently provided documents for [American Institute for
Social Justice (hereinafter “AISJ”)] to use governing its
275 Id. at 7; IMC Allegations (Jan. 7, 2009) at 5 (Project Vote is a 501(c)(3) that hires ACORN to perform
voter registration drives) (ACORN_004870) (emphasis added).
276 Project Vote 501(c)(3) IRS letter (Nov. 8, 2004) (ACORN_00103).
277 Project Vote Revenues 07-08 (undated) (ACORN_000356).
278 Project Vote 2004-2005 (undated) (ACORN_005063-005105).
279 Id.
280 CCI Memo (Mar. 11, 2003) at 2-3 (ACORN_004308-004309) (emphasis added).
281 Email from Nathan Henderson-James to Anita MonCrief (Dec. 8, 2006) (on file with author).
282 HCSE Memo (June 19, 2008) at 8 (ACORN_ 004934).
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relationship with ACORN. There is an overall agreement, and two
transmittal letters that can be used for specific types of funding.
Similar documents should be used by [ACORN International
(hereinafter “AI”)], and any other 501(c)(3) that makes grants to
ACORN.
We believe those documents have been or will be implemented.
However, merely papering the transfer of money is not sufficient.
The c3s must be able to demonstrate that their funds were
actually used as intended, for c3 purposes. Any grant to a non-
501(c)(3) requires reporting back to the grantor can prove how
its money was spent by the grantee. Historically, this has not
happened. The new grant documents require this reporting,
and if it does not happen, [We] would advise the [ACORN
International] and [American Institute for Social Justice]
boards and key staff that no further grants should be made to
any office that has outstanding reports on previous grants.
283
HCSE advised ACORN concerning the importance of protecting corporate formalities in
its financial transactions amongst affiliates, finding:
Many of the corporate entities in the COUNCIL would have
not operated with sufficient formalities. Staff roles have not
been clearly delineated, and in various instances funds have
been raised and spent by people with no official relationship to
a given corporation. Boards have not always been maintained,
much less met and exercised their governance role. Board
meetings are not held, or if they are, minutes are not kept, or if
minutes are kept, they never make it into the files at CCI. There is
no point in having these different corporations in place if they are
not respected. If not properly operated, they create difficulties
(e.g., potential conflicts of interest for lawyers, non-trivial
administrative burden of state filings, and the appearance that
someone is trying to hide something under a byzantine corporate
structure) without generating the desired benefits, whatever those
may be.
284
ACORN’s insufficient screening off of separate entities from one another makes it
difficult to ensure compliance. For instance, Local 100 made a $15,941 loan to SEIU
Local 880.
285
Local 100 paid $122,346 to ACORN and Project Vote’s accounting firm of
Duplantier, Hrapman, Hogan, and Maher LLP, $73,984 to Elysian Fields Corporation,
and $48,188 to Citizens Consulting Inc.
286
Local 100 received $14,214 in loans from
283 Id. (emphasis added).
284 Id. at 2-3 (ACORN_004928-004929) (emphasis added).
285 See Form LM-2 Labor Organization Annual Report, SEIU Local 100, DEP’T OF LABOR, (2007), SEIU
LM2 2007 at 6 (March 30, 2007) (ACORN_004907).
286 Id. at 11 (ACORN_004912).
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CCI.
287
Local 100 provided $71,899 in gifts to the Service Workers Action Team and
$5,000 to the SEIU Local 1991.
288
Local 100 paid legal counsel Karim Shabazz
$5,184.
289
An additional $5,670 was paid to CCI.
290
The Local 100 Political Action
Committee files Form 8872 with the IRS, reflecting its status as a 527 political
organization.
291
According to the Congressional Research Service (“CRS”), the IRS lacks the
resources and administrative diligence necessary to investigate illicit activities.
292
Because the IRS assumes 501(c)(3) funds are not used by affiliated 501(c)(4)’s for
lobbying purposes, the IRS is unlikely to detect a violation of the Lobbying Disclosure
Act by a 501(c)(4) such as ACORN.
293
Because the IRS chooses which organizations it
audits, a scheme used in which private foundation money goes into a social welfare
organization’s lobbying expenditures could be promulgated without detection under the
IRS’s legal radar.
294
According to CRS, Internal Revenue Code (“IRC”) 501(c)(3)
organizations are required to report “their aggregate political expenditures and any excise
taxes imposed during the year on their lobbying and political expenditures.”
295
3. ACORN And Its Affiliates Engage In Substantial
Lobbying Activities
FINDING: Lobbying is a substantial part of what ACORN does. It has
endorsed Senator Sherrod Brown (D-OH), Representative Albert
Wynn (D-MD), and Representative Donna Edwards (D-MD).
ACORN keeps donor records from the Clinton, Kerry and Obama
campaigns with the intent to engage in prohibited communications.
ACORN receives federal funding yet engages in improper
lobbying. ACORN and its nonprofit affiliates do not have separate
accounts. Neither ACORN nor any of its affiliates have properly
reported their political activities to the IRS. These harms fly under
the legal radar because the IRS rarely checks for compliance. The
“no substantial part” test is rarely enforced and the accounts of
ACORN and its affiliates are illegally commingled.
287 Id. at 12 (ACORN_004913).
288 Id. at 20 (ACORN_004921).
289 Id. at 21 (ACORN_004922).
290 Id. at 22 (ACORN_004923).
291 Id. at 25(ACORN_004926).
292 Interview with Erika Lunder, Attorney, Congressional Research Service, in Wash., D.C. (May 14,
2009); See also Email from Erika Lunder, CRS attorney, to Oversight and Government Reform minority
staff (Mar. 17, 2009, 12:06 PM EST) (on file with author).
293 Id.
294 Id. Donald Tobin, The Law of Politics: The Role of Law in Advancing Democracy: Political
Campaigning by Churches and Charities: Hazardous for 501(c)(3)s, Dangerous for Democracy, 95 GEO.
L.J. 1313, 1318-19.
295 Erika Lunder, Tax-Exempt Organizations: Political Activity Restrictions and Disclosure Requirements,
CRS RPT. FOR CONG., Sept. 11, 2007 at 28.
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The tax code permits 501(c)(4)s and 501(c)(3)s to lobby, although lobbying may
not be a “substantial part” of a 501(c)(3)'s (Project Vote, ACORN Institute, American
Institute for Social Justice (“AISJ”)) activities.
296
Internal Revenue Code (“IRC”)
ž501(c)(3) organizations may conduct nonpartisan voter registration and get-out-the-vote
drives.
297
The activities may not indicate a preference for any candidate or party.
298
The
communication must not identify any candidates for a given public office.
299
Candidates
must be named or depicted on an equal basis.
300
The activity is limited to urging acts
such as voting and registering and to describing the hours and places of registration and
voting, and all registration and get-out-the-vote drive services are made available without
regard to the voter’s political preference.
301
501(c)(4) organizations such as ACORN
may participate in an unrestricted amount of lobbying so long as the lobbying is related to
the organization’s exempt purpose.
302
Section 18 of the Lobbying Disclosure Act of
1995
303
prohibits organizations described in IRC ž501(c)(4) from receiving “federal
grants, loans, or other awards if they engage in lobbying activities”
304
Participating in
political campaigns cannot be the organization’s primary activity.
305
A 501(c)(4) can participate in lobbying activities, but under the U.S. Code, a
501(c)(4), such as ACORN Housing, cannot lobby if it receives federal funding.
306
A
501(c)(4) must have separate accounts from 501(c)(3)’s under Section 18 of the
Lobbying Disclosure Act, which placed restrictions on “lobbying activities” by certain
nonprofit groups, as a condition to receiving federal grants and loans.
307
In other words,
CCI cannot control the accounts of both ACORN Housing Corporation and Project Vote,
which the HCSE Memo alleges to be the case. Section 18 of the Lobbying Disclosure
Act of 1995 places statutory restrictions upon the lobbying activities of nonprofit civic
and social welfare organizations, such as ACORN, which are tax-exempt under section
501(c)(4) of the Internal Revenue Code.
308
Section 501(c)(4) civic leagues and social
welfare organizations are prevented from engaging in any “lobbying activities,” if the
organization receives any federal grant, loan, or award even with their own private
296 See Rev. Rul. 2007-41, 2007-25 I.R.B. 1421
297 Id.
298 Id; See also Judith E. Kindell and John Francis Reilly, Election Year Issues, IRS 2002 EO CPE Text,
448-451 (2002).
299 Rev. Rul. 2007-41, 20087-25 I.R.B. 1421; 20082 EO CPE Text, at 376-77.
300 IRS 2002 EO CPE Text, 448-451 (2002); Judith E. Kindell and John Francis Reilly, Election Year
Issues, FY 2002 IRS EXEMPT ORGANIZATIONS TECHNICAL INSTRUCTION PROGRAM, at 379, available at
http://www.irs.gov/pub/irs-tege/eotopici02.pdf (last visited June 22, 2009).
301 Id.
302 Erika Lunder and L. Paige Whitaker, 501(c)(4) Organizations and Campaign Activity: Analysis Under
Tax and Campaign Finance Laws, CRS RPT. FOR CONG., Mar. 30, 2009, at 5.
303 P.L. 104-65.
304 Erika Lunder, Tax-Exempt Organizations: Political Activity Restrictions and Disclosure Requirements,
CRS RPT. FOR CONG., Sept. 11, 2007, at 14.
305 See also Treas. Reg. ž 1.501(c)(4)-1(a)(2)(ii); Gen. Couns. Mem. 34233 (December 30, 1969).
306 Email from Erika Lunder, CRS attorney, to Oversight and Government Reform minority staff (Mar. 17,
2009, 12:06 PM EST) (on file with author).
307 Id.
308 P.L. 104-65, 109 Stat. 691, 703-704, as amended by P.L. 104-99, Section 129, 110 Stat. 34; see also
H.Rept. 104-339, 104TH CONG. 24 (1995).
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funds.
309
There is a presumption that ACORN used federal funds for lobbying because
the HCSE Memo stated it is undeterminable whether federal funds were commingled
with lobbying accounts and was addressed to ACORN Housing, which received federal
funds.
Under section 501(c)(3) of the Internal Revenue Code, organizations may not
make statements endorsing or opposing a candidate, publish or distribute campaign
literature, or make any type of contribution, monetary or otherwise, to a political
campaign.
310
Section 501(c)(3) prohibits charitable organizations from “participat[ing]
in, or interven[ing] in (including the publishing or distributing of statements), any
political campaign on behalf of (or in opposition to) any candidate for public office.”
311
While 501(c)(4) social welfare organizations are not barred from engaging in
campaign activity,
312
“[t]he promotion of social welfare does not include direct or
indirect participation or intervention in political campaigns on behalf of or in opposition
to any candidate for public office.”
313
Because under the tax code, a 501(c)(4)
organization’s primary activity must be promoting social welfare, campaign activity (and
any other activities not in furtherance of an exempt purpose) cannot be the organization’s
primary activity.
314
So long as ACORN’s primary activity is promoting social welfare,
their lawful participation in campaign activity does not affect their 501(c)(4) status.
315
However, according to ACORN’s 2005-2007 Strategic Plan, ACORN might be in every
respect a political organization:
But just as important as our organizations’ role in mobilizing
existing progressive voters, ACORN and similar groups actually
create new progressive voters. We reach out to people who are
perhaps apolitical, or whose connection to politics is mediated
through right-wing media, and their experiences in organizations
like ACORN turn them into politically engaged citizens who
cast their votes based on what they learn through their work
with the organization. They join a campaign to increase the
minimum wage, or to win more affordable housing, or to end
predatory financial practices – and they find out which
political leaders are on their side on these issues, and which
ones aren’t. Candidates who purport to stand with low and
moderate income voters by promoting tax cuts and so-called
“family values” are then measured against a different
yardstick – and are caught short when voters realize they are
309 See 2 U.S.C. ž 1611; See also Jack Maskell, Lobbying Regulations on Non-Profit Organizations, CRS
RPT. FOR CONG., May 7, 2008 at 7.
310 Erika Lunder, Tax-Exempt Organizations: Political Activity Restrictions and Disclosure Requirements,
CRS RPT. FOR CONG., Sept. 11, 2007 at 11.
311 Id.
312 Id.
313 Treas. Reg. ž 1.501(c)(4)-1(a)(2).
314 Erika K. Lunder and L. Paige Whitaker, 501(c)(4) Organizations and Campaign Activity: Analysis
Under Tax and Campaign Finance Laws, CRS RPT. FOR CONG., Mar. 30, 2009 at 8.
315 See Rev. Rul. 81-95, 1981-1 C.B. 332.
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really standing with the corporate interests. In summary, groups
like ACORN are creating an expanded progressive electorate.
316
While section 501(c)(4) organizations are permitted to engage in campaign
activity, they are subject to tax if they make an expenditure for a section 527 “exempt
function” defined under the Code as “influencing or attempting to influence the selection,
nomination, election, or appointment of any individual to any federal, State, or local
public office or office in a political organization, or the election of Presidential or Vice-
Presidential electors.”
317
Both the tax and campaign finance laws are relevant for
determining whether 501(c)(3)s and 501(c)(4)s may engage in campaign activity.
318
Under the Code, 501(c)(4) organizations are required to file an annual information
return (Form 990) with the IRS.
319
The IRS has revised the form in order to encourage
tax compliance, accountability, and transparency.
320
Filing organizations are now
required to report information regarding their political activities on the new Schedule
C.
321
According to the IRS, section 501(c)(4) organizations filing the Form 990 must:
(1) Describe their direct and indirect political campaign activities;
(2) Report the amount spent conducting campaign activities and
the number of volunteer hours used to conduct those activities;
(3) Report the amount directly spent for ž 527 exempt function
activities;
(4) Report the amount of funds contributed to other organizations
for ž 527 exempt function activities;
(5) Report whether a Form 1120-POL (the tax return filed by
organizations owing the section 527 tax) was filed for the year;
and
(6) Report the name, address, and employer identification number
of every section 527 political organization to which a payment
was made and the amount of such payments, and indicate
whether the amounts were paid from internal funds or were
contributions received and directly transferred to a separate
political organization.
322
Section 501(c)(4) organizations must also report the names and addresses of
donors who contributed at least $5,000 during the year on the Schedule B of the Form
990.
323
Because ACORN has delayed its reporting to the IRS, as evidenced by the HCSE
316 ACORN Strategic Plan at (Apr. 2005) at 1 (ACORN-00278) (emphasis added and in original).
317 I.R.C. ž 527(f); I.R.C. ž 527(e)(2); Erika Lunder, Tax-Exempt Organizations: Political Activity
Restrictions and Disclosure Requirements, Sept. 11, 2007, at 19.
318 See Erika K. Lunder and L. Paige Whitaker, 501(c)(4) Organizations and Campaign Activity: Analysis
Under Tax and Campaign Finance Laws, CRS RPT. FOR CONG., Mar. 30, 2009 at 8.
319 See I.R.C. ž 6033.
320 IRS Form 990, available at http://www.irs.gov/charities/article/0,,id=185561,00.html (last visited May
4, 2009).
321 IRS SCHEDULE C, available at http://www.irs.gov/pub/irs-pdf/f990sc.pdf (last visited June 22, 2009).
322 See I.R.C. ž 6033(e).
323 I.R.C. ž 6104(b) and (d).
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Memo and the email from Steve Kest to Ralph McCloud, ACORN used its funds for
impermissible political purposes. According to an article in the Quarterly Journal of
Economics, not all those entities whose noncompliance has been discovered will be
subject to enforcement action because the IRS does not have the resources to proceed
against every known transgressor.
324
According to the notes from ACORN’s August 15,
2008 East Regional meeting, ACORN owes over $800,000 to the IRS.
325
According to
CRS, the IRS does not actively investigate violations of its reporting rules and does not
enforce the “no substantial part” test, giving ACORN a free pass to violate these
regulations.
326
Under the Lobbying Disclosure Act, ACORN, a 501(c)(4), must be separately
incorporated, keep separate books, and spend and use resources which are not part of or
otherwise paid for by the tax-deductible contributions to its 501(c)(3) affiliate
organizations.
327
According to CRS, “[i]n cases where an organization creates an IRC
ž501(c)(4) organization and an IRC ž501(c)(3) organization, the organizations must be
legally separate entities, and their activities and funds must be kept separate.”
328
Under the Lobbying Disclosure Act, lobbying activities include direct “lobbying
contacts and efforts in support of such contacts” such as preparation, planning, research
and other background work intended for use in such direct contacts.
329
A “lobbying
contact” under the Lobbying Disclosure Act is an “oral or written communication
(including an electronic communication) to a covered executive branch official or a
covered legislative branch official” which concerns the formulation, modification or
adoption of legislation, rules, regulations, policies or programs of the federal
government.
330
According to the Wall Street Journal, ACORN and its affiliates operate as a
political organization:
Acorn [sic] – made up of several legally distinct groups under that
name – has become an important player in the Democrats’ effort to
win the White House. Its voter mobilization arm is co-managing a
$15.9 million campaign with the group Project Vote to register 1.2
million low-income Hispanics and African-Americans, who are
among those most likely to vote Democratic. Technically
nonpartisan, the effort is one of the largest such voter-registration
drives on record. The organization’s main advocacy group lobbied
324 Jennifer F. Reinganum and Louis L. Wilde, A Note on Enforcement Uncertainty and Taxpayer
Compliance, Q. J. OF ECON (1998).
325 Notes from East Regional Meeting (Aug. 15, 2008) at 1 (ACORN_000321).
326 Erika Lunder, Tax-Exempt Organizations: Political Activity Restrictions and Disclosure Requirements,
CRS RPT. FOR CONG., Sept. 11, 2007 at 7; See also Jack Maskell, Lobbying Regulations on Non-Profit
Organizations, CRS RPT. FOR CONG., May 7, 2008 at 7.
327 Jack Maskell, Lobbying Regulations on Non-Profit Organizations, CRS RPT. FOR CONG., May 7, 2008 at
6.
328 Id.
329 Lobbying Disclosure Act, 2 U.S.C. ž 1602(7), P.L. 104-65, ž3(7).
330 2 U.S.C. ž 1602(8), P.L. 104-65, ž 3(8).
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hard for passage of the housing bill, which provides nearly $5
billion for affordable housing, financial counseling and mortgage
restructuring for people and neighborhoods affected by the housing
meltdown. A third Acorn [sic] arm, its housing corporation, does a
large share of that work on the ground.
331
According to the finance plan of the Friends of Sherrod Brown,
332
ACORN sought to:
Raise $1.5 million out of Cleveland over the next 10 months. This
is based on what past US Senate races raised as well as the target
populations that exist in Cleveland and who is capable of giving
and raising.
333
In its year end report dated on December 15, 2006, the Local 880 chapter of the
Service Employees International Union (“SEIU”) stated:
Because we were key in the early organizing and moving this
national campaign by both ACORN and SEIU, we were well-
positioned to win. Our early support of Governor Blagojevich
and his commitment to support an Executive Order allowing
homecare and home child care workers to organize put us far
ahead of the other states.
334
In discussing SEIU’s joint campaigns with ACORN, the document stated:
This year, thanks to a flawless campaign led by Illinois ACORN,
Local 880, and the SEIU Illinois Council and our allies, on July
1st, 2007 the Illinois minimum wage will rise to $7.50 per hour
and then rise in three other steps to $8.25 by 2010. This is a $1.75
increase over the present state minimum wage of $6.50 and $3.10
over the present federal minimum wage of $5.15. This increase
will do more than raise over 600,000 Illinoisans over the current
minimum wage. It will also force the state to raise reimbursement
rates for thousands of homecare and other workers and trigger
increases in all of our contracts. If not for the work of our sister
organization, ACORN, this would never have happened.
335
331 Elizabeth Williamson and Brody Mullins, Democratic Ally Mobilizes In Housing Crunch, WALL STREET
J, July 31, 2008, at A1.
332 “Friends of Sherrod Brown” is a fundraising committee for U.S. Senator Sherrod Brown (D-OH). See
http://www.sherrodbrown.com/ (last visited July 7, 2009).
333 SB Finance Plan at 1 (undated) (ACORN_00294).
334 Local 880 at 5 (Dec. 15, 2006) (ACORN_004354) (emphasis added); Illinois Governor Rod Blagojevich
was arrested on federal corruption charges on December 9, 2008. See Press Release, Department of
Justice, Illinois Gov. Rod R. Blagojevich and His Chief of Staff John Harris Arrested on Federal
Corruption Charges, (Dec. 9, 2008), available at:
http://chicago.fbi.gov/dojpressrel/pressrel08/dec09_08.htm (last visited July 7, 2009).
335 Id. See also id. at 7-8, discussing several joint SEIU-ACORN campaigns (emphasis added).
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According to the year end report, SEIU shares lawyers with CCI, an ACORN affiliate
which, as alleged previously, manages the accounts of 501(c)(3) nonprofits which must
be separated from political activities:
Legal Representation - In the past we have used Steve
Bachmann and the CCI legal team; SEIU counsel, Craig Becker;
Art Martin in Southern Illinois; and most recently, ex-ACORN
head organizer, Robert Bloch’s law firm. We plan to continue
using these legal resources in the future.
336
It further states, “[h]igh level Blagojevich staff credited us later with helping move the
vote that allowed him to win”
337
The Local 880 document also lists Keith Kelleher as the Head Organizer.
338
In
the email ACORN Executive Director Steven Kest wrote to CCHD director Ralph
McCloud, he stated “[t]he following people were on the management council eight years
ago, and were made aware of the [Dale Rathke] embezzlement:” and lists Keith
Kelleher.
339
HCSE stated, “[it] cannot confirm that strategic decisions about which regions do
501(c)(3) versus non-501(c)(3) voter engagement work are not being made by the same
person or people.”
340
HCSE also stated, “[f]ences need to be erected to wall off types of
election-related activity that must be kept completely separate.”
341
ACORN does not
have strict walls of separation between its 501(c)(3) activities and its 501(c)(4) activities.
HCSE stated, “ACORN lacks the protective ‘walls’ needed to ensure that various types of
activity are kept sufficiently separate.’”
342
In a November 22, 2006 memorandum, Zach
Polett, ACORN’s political director, stated his organizational plans for Project Vote, a
501(c)(3):
Develop and promote a Project Youth Vote, as a branded project of
Project Vote/Voting for America, Inc., thus taking advantage of the
fact that Project Vote and its work with ACORN were, by far, the
largest Youth voter registration program in the country in 2004 . . .
Expand Project Vote’s 2005 – 2006 anti-voter suppression work by
raising the funds to enable Project Vote to serve as the national
clearinghouse for voter suppression state legislation (stopping the
bad bills) and begin the work of expanding the franchise by
introducing Voter Bill of Rights legislation in a targeted set of
states.
343
336 Id. at 13-14. (emphasis added).
337 Id. at 18.
338 Id. at 1.
339 Ralph McCloud CCHD at 5-6 (Nov. 11, 2008) (ACORN 004785-004786).
340 HCSE Memo (June 19, 2008) at 7 (ACORN_004933).
341 HCSE Memo (June 19, 2008) at 1 (ACORN_004927).
342 Id. at 6 (ACORN_004932).
343 PolOps 2007-2008 Projects (Nov. 22, 2006) at 3 (ACORN_004322).
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As stated in a 2006 ACORN National Political Operations report (hereinafter
“ACORN Political Report”), ACORN controls the accounts of Project Vote:
[T]hrough a joint effort with ACORN National Operations,
Political Operations migrated our database functions to
DonorPerfect. [ACORN National Political Operations Strategic
Writing and Research Department (“SWORD”)] has provided the
administrative support to this project and provides the on-going
development associate-level of support for tracking our grant-
based fundraising for our various 501c3 voter participation
efforts.
344
Another instance of the lack of separation between activities involves CCI. In an
email between ACORN National Executive Director Steven Kest and Ralph McCloud, of
the Catholic Campaign for Human Development (“CCHD”), Kest described CCI as
follows:
Citizens Consulting, Inc. is an independent organization. It is a
non-profit corporation with no special tax status run by a self-
perpetuating board. Both [American Institute for Social Justice
(“AISJ”)] and ACORN have contracts with CCI to do their
accounting work and corporate record keeping . . . CCI has two
staff members who are assistant officers of ACORN with authority
to act on behalf of ACORN solely on administrative matters. (For
example: opening up bank accounts at the direction of ACORN
management.) This is standard corporate practice. Paul Satriano,
the national Treasurer for ACORN, is a new board member of
CCI.
345
As stated in the IRS Form 990 filed by Project Vote, CCI performs Project Vote’s
accounting services as well.
346
HCSE found ACORN’s lack of clearly delineated staff
roles created “the appearance that someone is trying to hide something under a byzantine
corporate structure,” further noting, “funds have been raised and spent by people with no
official relationship to a given corporation.”
347
The lack of separation is problematic, for,
according to HCSE, 501(c)(3) funds are being used for ACORN’s political activities.
According to the Associated Press, ACORN and its affiliates have received over
$31 million of taxpayer dollars from 1998 to 2007.
348
ACORN affiliates received nearly
344 ACORN Political Operations Report at 2 (2006) (ACORN_4788).
345 Ralph McCloud CCHD at 3 (Nov. 11, 2008) (ACORN 004783).
346 Project Vote 2007 990, supra note 194 at 10.
347 HCSE Memo (June 19, 2008) at 2-3 (ACORN_004928-004929).
348 Jim Abrams, House GOP leader asks Bush to cut off ACORN funds, AP, Oct. 23, 2008, available at
LEXIS.
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$10 million in federal taxpayer funding in 2008 alone.
349
ACORN’s 2008 budget was
estimated at $110 million.
350
ACORN Executive Director Steven Kest and Political Director Zach Polett,
writing in a 2006 grant request to the Democracy Alliance, stated:
ACORN’s core organizational budget for 2006 – not including our
voter participation work – is just over $38 million. (Note: this total
includes budgets of c3 organizations that share ACORN’s
mission.) Income sources are a mix of small-dollar self-financing
through membership dues and other membership fundraising and
contributions; foundation support; contributions from corporations
with whom we have entered into partnerships; and individual high
donor contributions. We have concrete plans for growing each of
these sources over the next three years; in particular, we are
significantly expanding our development department, and are
working with allies in the foundation and individual donor
communities on these strategies.
351
The ACORN Housing Corporation (AHC), an ACORN affiliate, received $7.8
million in federal grant funding in 2008.
352
AHC received $687,000 from the Fannie
Mae Foundation in 2007 alone.
353
AHC received over forty percent of its funding from
taxpayers.
354
As stated in documents produced to the Committee by former ACORN
insiders, government grants constituted forty percent of ACORN’s operational
funding.
355
The Department of Housing and Urban Development (“HUD”) gave $8.2
million to ACORN from 2003 to 2006 and $1.6 million to ACORN affiliates.
356
The ACORN Political Report describes ACORN’s federal funding as follows:
In 2006, we helped win grant awards for $912,378 in federal
funding from HUD. Overall, we helped write and
submit 13 federal grants to HUD for FY2006, four of which are
still outstanding. With Valerie Coffin, Fair Housing Director, we
helped raise $450,000 in FY2006 FHIP funding for fair housing
education and outreach. This year New Orleans also received an
additional $100,000 in new funding from reallocated FY2005
349 Id.
350 James Terry, Ensuring the Integrity of the U.S. Electoral System, Testimony, JUDICIARY SUBCOMM. ON
THE CONST., CIVIL RIGHTS AND CIVIL LIBERTIES AND H. ADM. SUBCOMM. ON ELECTIONS, Joint Hearing on
Federal, State and Local efforts to Prepare for the General 2008 Election, Sep. 24, 2008, at 4.
351 ACORN Grant Request to the Democracy Alliance at 12 (Mar. 24, 2006) (ACORN_004348).
352 Kim Horner, ACORN helping many keep homes: Nonprofit group provides counseling, assists with
mortgage payment plans, DALLAS MORNING NEWS, May 2, 2008, at 12B.
353 2007 FANNIE MAE GRANTS & SPONSORED EVENTS/CONFERENCES, ACORN HOUSING CORPORATION INC
1 (2007), http://www.fanniemae.com/aboutfm/pdf/2007giving_report.pdf.
354 Peter J. Parisi, ACORN, meet RICO: Let the prosecution begin, WASH. TIMES, Dec. 9, 2008, at A04.
355 IMC Allegations (January 7, 2009) at 3 (ACORN_004868).
356 Id. at 4 (ACORN_004869).
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FHIP funding. In Dallas, the ACORN Institute received a ROSS
grant for $362,378 over three years from reallocated FY2005 funds
to provide services and training to public housing residents in that
city. We have also continued to provide support on reporting and
other requirements for approximately $4 million in LEAP grant
funds (FY2004 and FY2005).
In a June 4, 2007 email from Nathan Henderson-James, Director, Strategic
Writing and Research Department, Project Vote wrote the following to Apryl Walker,
Head Organizer, Delaware ACORN:
Apryl,
I[n] an effort to ensure that we are in compliance with
government regs about these [Election Assistance Commission
(“EAC”)] grants and whatnot, I'm going to ask you to take the
report you did back in December about the DE poll worker
project (which I am attaching) on ACORN letterhead with a
cover letter saying something like "Here's the report of our
activities for the Poll Worker Project." [ . . . ] Actually here's some
suggested language:
‘Please find enclosed a summary of the work undertaken by DE
ACORN for the Young Poll Worker Recruitment Project. As you
can see we met or exceeded our numeric goals for numbers of
workers recruited. We consider this project a success. It was great
to partner with Project Vote on this project and we look forward to
working with you again when circumstances warrant it. If you
have any comments or questions do not hesitate to contact me at
(number) or (e-mail).
Regards,
Apryl Walker
Head Organizer
Delaware ACORN.’
357
ACORN staff have used federal Election Assistance Commission (“EAC”) grants
interchangeably between the 501(c)(4) and 501(c)(3) affiliates.
358
According to an
internal Project Vote report, “Project Vote’s Poll Worker Recruitment Project in
Delaware, part of the EAC’s Help America Vote College Program, was a success.”
359
The email above reflects ACORN’s attempt to create the impression ACORN was
357 Email from Nathan Henderson James (June 4, 2007) (on file with author) (emphasis added).
358 DE ACORN Stud. Pollworker Proj. 12-22-06 Report (Dec. 22, 2006) at 1-2 (ACORN_004377-
004378).
359 PV-Pollworkers Report (May 7, 2007) at 1 (ACORN_004828).
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separating its federal funds from Project Vote’s activities, when, in essence, ACORN
staff used federal EAC grants interchangeably between the 501(c)(4) and 501(c)(3)
affiliates. Project Vote won grants of $912,378 in federal funding from HUD.
360
ACORN’s 2005-2007 Strategic Plan stated:
Issue campaigns play the dual role within ACORN of attracting
new members, and educating or politicizing existing members (in
addition to their obvious value in winning concrete improvements
in the lives of our members and our broader constituency). Over
the next three years we plan to continue our work on a set of issues
where we have a proven track record: increasing state and
local minimum wages; combating predatory financial
practices, ranging from predatory mortgage lending to rip-off
tax-prep services to abusive credit card scams; working to
improve public schools; promoting the development of
affordable housing; protecting the franchise/making every vote
count; and fighting key elements of the national Republican
program, including social security privatization, cuts to
Medicaid and other critical programs, and additional tax
breaks for the rich.
361
A January 2009 complaint by several ACORN insiders stated ACORN receives
millions in federal funding:
Grants have been issued to ACORN by the Department of
Housing and Urban Development, which gave $8.2 million to
ACORN in the years between 2003 and 2006, as well as $1.6
million to ACORN affiliates. The Environmental Protection
Agency gave a $100,000 grant to ACORN in 2004 for a
Louisiana Justice Project, which removed lead from the homes of
low income families. The Justice Department also gave a grant
to ACORN in 2005 for a juvenile delinquency program.
362
ACORN has a national political operations capability called Strategic Writing and
Research Department that, according to the complaint, directs “demographic and
elections research, development of major fundraising proposals and supporting materials,
policy analysis support for the Election Administration program, and . . . telling the story
of the COUNCIL’s involvement in the electoral process.”
363
According to Nathan
Henderson-James, ACORN National Political Operation’s director:
In 2006 SWORD had five main priorities: fundraising,
developing local political plans, eligible voter demographic
360 ACORN Political Operations Report at 2 (2006) (ACORN_4788).
361 ACORN Strategic Plan (Apr. 2005) at 2 (ACORN-00279) (emphasis added).
362 IMC Allegations (Jan. 7, 2009) at 3 (ACORN_004866-004890) (emphasis added).
363 ACORN Political Operations Report at 4 (2006) (ACORN_004790).
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research, presentations, and reports and other forms of telling
the story of electoral participation by ACORN members and
staff. . . . Almost all of the work supported the election
administration and voter participation programs of various
COUNCIL organizations.
364
In the same document where Henderson-James reported on Project Vote’s
research activities in relation to its Election Assistance Commission
(“EAC”) grants, ACORN’s partisan activities:
As 2006 draws to a close, we are completing the compilation of a
document that will give us a list of all the upcoming elections in
every county with an ACORN office or that is on the official
Expansion List. This list includes elections at all levels and
covers both primaries, generals, and run-offs. The information
on this list will be made available generally as soon as it is
completed and by request until that point.
365
According to USASpending.gov, a federal government website for tracking government
grants, ACORN Housing Corporation received $1,623,570 in Fiscal Year 2009.
366
According to the ACORN political report, ACORN Housing and several affiliates have a
history of receiving federal grants:
Federal Funding: In 2006, we helped win grant awards for
$912,378 in federal funding from HUD. Overall, we helped write
and submit 13 federal grants to HUD for FY2006, four of which
are still outstanding. With Valerie Coffin, Fair Housing Director,
we helped raise $450,000 in FY2006 FHIP funding for fair
housing education and outreach. This year New Orleans also
received an additional $100,000 in new funding from reallocated
FY2005 FHIP funding. In Dallas, the ACORN Institute received a
ROSS grant for $362,378 over three years from reallocated
FY2005 funds to provide services and training to public housing
residents in that city. We have also continued to provide support on
reporting and other requirements for approximately $4 million in
LEAP grant funds (FY2004 and FY2005).
367
According to a 1995 Report from the Office of the Inspector General of the Corporation
for National and Community Service, the federal government audited and investigated
the ACORN Housing Corporation’s activities and stated:
364 ACORN Political Operations Report at 1 (2006) (ACORN_004787) (emphasis added).
365 Id. at 2 (ACORN_004788) (emphasis added).
366 Grants to ACORN Housing, USA SPENDING.GOV, available at:
http://www.usaspending.gov/faads/faads.php?reptype=r&detail=-
1&datype=T&sortby=t&database=faads&recip_id=5920&fiscal_year=2009&record_num=f500 (last
visited June 17, 2009).
367 ACORN Political Operations Report at 6 (2006) (004792) (emphasis in original).
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We determined that AHC and ACORN are separate corporate
entities, but that they do not always operate at ‘arms length.’
Finally, we questioned approximately $95 thousand of costs
charged to the grant because the documentation and
information to support the costs was inadequate to establish
that they were allowable under the grant and applicable
regulations. CNS terminated the grant because evidence
obtained in a separate OIG investigation . . . indicated that
AHC violated the National and Community Service Act, as
amended, CNS Regulations and policies as well as the grant
agreement.
368
Allegations that ACORN has been inappropriately involved in partisan politics
have dogged the nonprofit for years. As far back as 1997, the former House Committee
on Economic and Educational Opportunities identified numerous problems with
ACORN-affiliated entities involving improper participation in partisan political activities.
The Report stated:
Most notable in this regard is . . . the apparent cross-over
funding between ACORN, a political advocacy group and
ACORN Housing Corp. (AHC), a non profit, AmeriCorps
grantee . . . . [I]t was learned that AHC and ACORN shared office
space and equipment and failed to assure that activities and funds
were wholly separate . . . . [I]t was revealed that AmeriCorps
members of AHC raised funds for ACORN, performed voter
registration activities, and gave partisan speeches. In one
instance, an AmeriCorps member was directed by ACORN staff to
assist the White House in preparing a press conference in support
of legislation. AmeriCorps members were also directed to
encourage their clients to lobby on behalf of legislation.
369
These problems still exist. Anita MonCrief’s cited testimony before the House Judiciary
Committee suggested that the federally-funded 501(c)(3) Project Vote and the politically
partisan, active lobbyer ACORN were practically inseparable. She testified:
Project Vote is basically considered ACORN political operations.”
Ms. MonCrief testified: [page 44, line 1-25] “There was active
cooperation between ACORN’s political wing and Project
Vote…[They] basically had the same staff. Nathan Henderson
James was the strategic writing and research department…director
of ACORN and he was the research director of Project Vote. Zach
368 OFFICE OF THE INSPECTOR GENERAL, CORPORATION FOR NATIONAL AND COMMUNITY SERVICE,
SEMIANNUAL REP. TO THE CONGRESS, at 3-4 (1995) (emphasis added).
369 SUBCOMM. ON OVERSIGHT AND INVESTIGATIONS, 104TH CONG., “Report on the Activities of the
Committee on Economic and Educational Opportunities,” H. REP. NO. 104-875, at 69-70 (Comm. Print
1997) (emphasis added).
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[Polett] was the executive director of Project Vote and the
executive director of ACORN political. All of the organizations
and the entities worked together. We shared the same space.”
Further, Ms. MonCrief testified: “…there’s no real separation
between the organizations for real. So when you have the same
people that are working, that are—like, I was getting paid through
Project Vote’s checkbook, but I was working on ACORN stuff. I
even did PowerPoints during the midterm elections for Jeffrey
Robinson where they were like, okay, don’t vote for Albert Win
[sic] (ph) or vote for this person. And they had doorknob – door
hangers that they would go and put on people’s doors, and we
turned this into a PowerPoint presentation. So there was never any
division between the staff where you would say, okay, this is (2)(3)
stuff and this (c)(4) stuff. It was just—I don’t want to say business
as usual, but it was a lot of collaboration between the
organizations.” [page 89, lines 21-25, page 90 1-25, page 91, lines
1-3].
370
More factually, former Oklahoma Congresswoman Cleta Mitchell was concerned about
ACORN violating the Federal Election Campaign Act of 1971:
A not-for-profit corporation is treated no differently from a for-
profit corporation for purposes of the federal campaign finance
laws, which absolutely prohibit corporate contributions to
campaigns of federal candidates and / or corporate expenditures to
support or oppose a federal candidate. The FECA further prohibit
expenditures by non-profit corporations such as ACORN and
Project Vote which are made in coordination with, at the request,
behest, suggestion or with the material involvement of a federal
campaign (such as the Obama presidential campaign). The
solicitation of funds by an organization for purposes of engaging in
partisan campaign activities or to support or assist a federal
campaign and/or candidate convert the organization into a Section
527 political organization and further [instantiate] a federal
political committee required to register with the Federal Election
Commission (“FEC”). Contributions to such an organization are
limited to $5,000 per calendar year and may not be received /
accepted from corporations. Further, expenditures made by an
organization in coordination with a candidate or political
committee are considered contributions to that committee and are
subject to the $5,000 per election limit.
371
370 What went wrong with the 2008 election?: Hearing Before the H. Judiciary Comm., 111TH CONG. 1-17
(2009) (statement of Heather Heidelbaugh).
371 Id. at 15-16.
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With over 360 ACORN-affiliated organizations,
372
ACORN’s counsel, the law firm of
Harmon, Curran, Spielberg & Eisenberg LLP (“HCSE”), advised:
Corporate forms must be maintained and respected . . . This
includes having real boards and a real principal staff
person/Executive Director for each.”
373
HCSE stated ACORN’s lack of clearly delineated staff roles created “the appearance that
someone is trying to hide something under a byzantine corporate structure,” further
noting, “funds have been raised and spent by people with no official relationship to a
given corporation.”
374
The American Institute for Social Justice, Inc.’s (“AISJ”) 2006
990 shows AISJ paid ACORN $566,136
375
and $4,952,288.
376
According to HCSE:
ACORN’s communications director is on the payroll of AISJ, and
another AISJ employee manages the building on Canal Street
where many different corporations reside. This is not
appropriate.
377
HCSE stated, “[f]ences need to be erected to wall off types of election-related activity
that must be kept completely separate.”
378
HCSE stated, “ACORN lacks the protective
‘walls’ needed to ensure that various types of activity are kept sufficiently separate.’”
379
In a March 24, 2006 grant request from ACORN director Steven Kest and political
director Zach Polett to The Democracy Alliance, both Kest and Polett write about
ACORN’s political activities in the same context in which they discuss ACORN Housing
and get out the vote initiatives – both of which receive federal funding:
Each ACORN office carries out multiple issue campaigns at all
times. Among our current priorities: campaigns to raise the
minimum wage or enact living wage policies, through state or
local legislation or ballot initiatives (see below); campaigns to
eliminate predatory financial practices by mortgage lenders,
payday lenders, and tax preparation companies; campaigns to
win the development of affordable housing through
inclusionary zoning policies and community benefits
agreements; campaigns to improve the quality of and funding
for urban public schools; and a campaign that has organized
displaced New Orleans residents and is fighting for the
equitable rebuilding of that city. . . . ACORN and its affiliated
organizations provide extensive services to our members and
372 ACORN Universe of Corporations (undated) (ACORN_00001-000012).
373 HCSE Memo (June 19, 2008) at 1 (ACORN_004927).
374 Id. at 2-3.
375 AISJ 2006 990 at 10, supra note 194.
376 Id. at 20.
377 HCSE Memo (June 19, 2008) at 5 (ACORN_004931).
378 Id. at 1.
379 Id. at 6.
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constituency, as a vehicle for building and strengthening our local
chapters. These include: free tax preparation focusing on the
Earned Income Tax Credit; screening for eligibility for federal
and state benefit programs; and, through the ACORN Housing
Corporation, first time homeowner mortgage counseling and
foreclosure prevention assistance, and low income housing
development. . . . Building on our success with a statewide
ballot initiative to raise the minimum wage in Florida in 2004,
we have initiated similar campaigns to place minimum wage
increases on the November 2006 ballot in OH, MI, AZ, MO
and CO. . . . Finally, ACORN runs one of the most extensive
voter participation projects in the country, as a fully integrated
component of our overall community organizing program.
380
In the grant request, Kest and Polett describe ACORN’s political wins:
Among the hundreds of victories over the past 4 years, here are a
few of the most significant . . . . Won increases in the state
minimum wage, through legislation or ballot initiative, in FL, IL,
NJ, NY. . . . Won huge reforms in the subprime/predatory
mortgage industry, including a $500 million-plus settlement with
Household Finance, significant reforms by Citigroup, Wells, and
many others; and the passage of anti-predatory lending legislation
in CA, NM, NJ, NY, and additional states. . . . Forced the nation’s
largest tax preparation companies (H&R Block, Jackson-Hewitt,
and Liberty) to reform their pricing and practices for low income
consumers. . . . Expanded access to prime credit for low income
home-buyers, and helped over 25,000 families directly get first-
time mortgages. . . . Over the last two election cycles (2001-02
through 2003-04), we registered 1,353,473 low- and moderate-
income and minority voters and in 2004 we targeted a GOTV
universe of 2.3 million low- and moderate-income and minority
voters with over 8.7 million contact attempts.
381
According to a SEIU Local 880 report dated December 15, 2006, ACORN maintains
Political Action Committees (“APACs”) and has volunteer committees of members who
raise funds for to participate in partisan electoral work and communicate messages in
support of candidates to the ACORN membership and constituency.
382
According to internal ACORN documents produced to the Committee, ACORN
has performed political work for former Illinois Governor Rod Blagojevich and several
Senate Democrats:
380 ACORN Grant Request to the Democracy Alliance at 2-3 (Mar. 24, 2006) (ACORN_004338-004339)
(emphasis added).
381 Id. at 7 (ACORN_004343).
382 ACORN Grant Request to the Democracy Alliance at 12-13 (Mar. 24, 2006) (ACORN_004348-
004349).
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Local 880 2006 Legislative/Political Analysis - We have had a
great year on the legislative front - which is directly related to
our past political work with Blagojevich and the Senate Dems. .
. . With the elections in 2007 (Aldermen and Mayor) just around
the corner, we will need to build and maintain a much bigger
political infrastructure statewide in ’07. And we need to get ready
for the big one in ’08 – OBAMA FOR PRESIDENT! . . .
Although Governor Blagojevich did not have a serious
challenger, Cook County Board President Stroger, who had a
massive stroke right before the election, did. It was a very tight
race and turnout was key. Local 880 moved between 50-100
members and staff to work the precincts for Blago and Stroger
in March, and while Blago blew out his challenger, Stroger, in the
hospital and close to death, barely squeaked by with 52% of the
vote and 880’s and SEIU’s and APAC’s volunteers in the high
turnout precincts on the south side, brought it home. High level
Blagojevich staff credited us later with helping move the vote
that allowed him to win. Later, in the general election, we had
even more success. . . . Local 880 Political Director, Rochelle
Prather, in coordination with Local 880 organizing staff statewide,
trained and turned out hundreds of our members and staff for the
final push – not only in the Governor’s race, but in five targeted
races in southern and western Illinois the Dems needed to defend
or pick up. We won all of the races we worked in and received
a lot of credit for our work.
383
The document continues with:
Because we were key in the early organizing and moving this
national campaign by both ACORN and SEIU, we were well-
positioned to win. Our early support of Governor Blagojevich
and his commitment to support an Executive Order allowing
homecare and home child care workers to organize put us far
ahead of the other states.
384
In the 2006 Democracy Alliance request, Kest and Polett explicitly discuss the cross-over
of funding between ACORN’s 501(c)(4), 501(c)(3), and 527 affiliates:
ACORN’s voter participation budget varies with the election cycle,
from a high of $24 million in the 2004 cycle to expenditures of $4
million in 2005 and a projected $12 million in 2006. (Note: these
totals include support for ACORN and c3 and 527 organizations
that share ACORN’s mission) Funding comes largely from
foundation and high-donor sources. As with ACORN’s core
383 Local 880 at 17-18 (Dec. 15, 2006) (ACORN_004366-004367) (emphasis added).
384 Local 880 at 5 (Dec. 15, 2006) (ACORN_04354) (emphasis added).
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organizational budget, we have recently expanded our
development department working on voter participation
fundraising, and are aggressively seeking to diversify the number
of funders who support our work.
385
According to a press release from the Department of Justice, ACORN’s labor affiliate,
the Service Employees International Union (“SEIU”), was involved in a discussion with
Blagojevich concerning his potential Senate appointment.
386
ACORN directly lobbied political officers, and there is a credible presumption
that ACORN induced its constituent members to subscribe to partisan ideological
preferences.
387
Such circumstances might have contributed to numerous incidences of
illegal political activity in the 2008 election. According to the Campaign Finance
Institute, section 501(c) organizations, including section 501(c)(4) groups, spent
approximately $400 million attempting to influence federal elections in 2008, which the
Institute described as “a big step up from the last two elections.”
388
During the 2008
election cycle, a nonprofit tax law specialist at the IRS claimed the agency planned to
take a closer look at the campaign activities of ž 501(c)(4) organizations.
389
Public
concern about violations of the campaign intervention prohibition by ž 501(c)
organizations prompted the IRS to develop the Political Activity Compliance Initiative
(PACI).
390
ACORN’s political plan for Ohio (hereinafter “Ohio Political Plan”), authored by
Katy Gall, Ohio ACORN Head Organizer, Mark Engelhardt, ACORN Political Director,
Midwest, and Jeremy Mitchell, Ohio ACORN Legislative Director, stated that ACORN’s
voter education efforts have overtly partisan goals:
ACORN will target three competitive Ohio congressional districts
as well as a half dozen state rep seats nested within the districts.
Our electoral work will mobilize and educate voters about
candidates who support issues important to working families. Our
paid professional canvass will execute tightly managed Voter ID
and GOTV canvasses moving our core constituency of base and
385 ACORN Grant Request to the Democracy Alliance at 13 (Mar. 24, 2006) (ACORN_004349).
386 DOJ Press Release, available at http://chicago.fbi.gov/dojpressrel/pressrel08/dec09_08.htm (last visited
May 3, 2009).
387 See Erika Lunder and L. Paige Whitaker, 501(c)(3) Organizations and Campaign Activity: Analysis
Under Tax and Campaign Finance Laws, CRS RPT. FOR CONG., Jan. 14, 2009, at 6.
388 Campaign Finance Institute, Outside Soft Money Groups Approaching $400 Million in Targeted
Spending in 2008 Election, Oct. 31, 2008, available at
http://www.cfinst.org/pr/prRelease.aspx?ReleaseID=214 (last visited June 22, 2009).
389 See Diane Freda, IRS Considering Project to Examine Political Activity of 501(c)(4) Groups, BNA
DAILY TAX REPORT, May 13, 2008.
390 The 2004 report is available at http://www.irs.gov/pub/irs-tege/final_paci_report.pdf (last visited June
22, 2009). The 2006 report, which includes updated 2004 statistics, is available at
http://www.irs.gov/pub/irs-tege/2006paci_report_5-30-07.pdf.
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swing voters to the polls to vote for the candidates who most
closely align with a progressive Working Families Agenda.
391
According to the Ohio Political Plan, ACORN paid for poll research in Ohio’s
congressional districts:
392
A spreadsheet provided to this Committee by former ACORN employee Anita MonCrief
shows ACORN’s analysis of 14 nationwide congressional districts where the 2006
winning margin of Republican members were less than the amount of voters produced by
ACORN voter registration drives.
393
Documents produced to this Committee reflect
ACORN’s meticulous research into Project Vote’s new registration numbers,
394
analyses
of campaign spending by Republicans,
395
an internal memorandum from Sanford
Newman, one of Project Vote’s founders, on voter registration drives,
396
donor lists from
the Democratic National Committee (DNC), the Democratic Senatorial Campaign
Committee (DSCC) and the Democratic Congressional Campaign Committee (DCCC),
397
donor lists of unions, lists of contributors to Senator John Kerry (D-MA),
398
documents
391 2007-08 OHIO Pol Plan-Draft2b – Copy at 10 (Apr. 2007) (ACORN_000368).
392 Id. at 10.
393 Project Vote Registration Projections, Appendix 2, 14 CD (Apr. 11, 2007) at 1-2 (ACORN_000357-
00358).
394 2005 PV new registration summary-2 (ACORN_004452-004453).
395 Campaign spending at 1 (ACORN_000107).
396 Project Vote Registration Projections (Apr. 14, 2007) at 1-14 (ACORN_000298-000311).
397 DSCC DNC SCCC 10k and up (2004) (ACORN_004084-004293) (listing 5,054 donations of above
$10,000 to the DSCC, DNC, and SCCC).
398 JFK List (ACORN_000406-000489).
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reflecting over 37,000 campaign contributions to former President Bill Clinton, as well as
information about 347 donations to Clinton campaign coffers from 61 different unions.
399
ACORN maintains a list of 59,995 campaign contributors to President Barack
Obama’s election efforts.
400
The Obama campaign made a substantial contribution to
Citizens Services Inc. (“CSI”), a nonprofit corporation. However, in notes dated April 6,
2006 about ACORN affiliate America Votes, the document stated:
We prefer that political money go to us in the form of a vendor,
which would be CSI, our for-profit business, which doesn’t have to
report the cash because it’s a business, like the phone company.
401
In a memorandum from Zach Polett to the ACORN Political Operations Senior Staff,
Polett wrote, “[h]ave CSI play a major field role in the general election and, possibly, in the
primaries.”402 In the memo, Polett discussed ACORN’s congressional district strategy,
coordination with Project Vote, and lobbying strategies:
Working with ACORN Research Dept, Campaign Department
and others, identify a set of potential “asks” for gubernatorial
and mayoral candidates that directly impact ACORN’s
membership growth goals . . . . Work with a targeted set of
ACORN Head Organizers and their Regional Field Directors to
develop long-term political power-building plans for those cities
and states, including development and training of full-time state
political directors in those states. . . . Register 1,000,000 voters in
the 2007 – 2008 election cycle . . . . Develop and promote a
Project Youth Vote, as a branded project of Project Vote/Voting
for America, Inc., thus taking advantage of the fact that Project
Vote and its work with ACORN were, by far, the largest Youth
voter registration program in the country in 2004. . . . Establish
and fund a "Voter Participation Research Institute" for doing
voter engagement experiments and then writing plans and
methodologies based on the results of that research. . . .
Expand Project Vote’s 2005 – 2006 anti-voter suppression work
by raising the funds to enable Project Vote to serve as the national
clearinghouse for voter suppression state legislation (stopping the
bad bills) and begin the work of expanding the franchise by
introducing Voter Bill of Rights legislation in a targeted set of
states. . . . Define a national ACORN-identified values and
policy issue that defines ACORN’s policy and political work this
election cycle. . . . Get candidates from the presidency on down
to identify themselves as supporters of the issue[.] Use the issue
to increase turnout among base voters and to get independent and
399 Clinton 2nd Q (ACORN_000490-004059) and union donors (ACORN_004060-004083).
400 Obama 2nd Q (on file with author).
401 America Votes Overview Notes (Apr. 6, 2006) at 1 (ACORN_000312).
402 PolOps 2007-2008 Projects (Nov. 22, 2006) at 2 (ACORN_004321).
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swing voters to support candidates who actively support the
issue and campaign on it. . . . Congressional District Strategy:
Develop a plan, for 2007 implementation and funding, that targets
organizing, communications and political work in a set of
marginal CDs that changed party in the 2006 election. [Also
develop list of seats in which current party holds a seat that went
the opposite way in the last presidential election – these will
contain a number of seats likely to be closely contested in 08.] . . .
Identify issues (generally federal) around which to conduct earned
media grasstips [sic] issue advocacy campaigns with a goal of
providing support for the new Congressperson when they take
stands on popular progressive issues. . . . Build a political
operation, perhaps using 2007 elections when they exist, that
puts in place electoral field capacity and lists that can be used
in 2008. . . . Establish a federal PAC and a funding plan for it .
. . Expand our CSI campaign consulting business . . . Develop
CSI as a profit center for the work of Political Operations. . . .
Expand ACORN’s power and reach by creating the in-house
capacity to deliver political capacity when it’s needed: managing
ballot measure campaigns; collecting signatures; running large
electoral field campaigns; running campaigns of local
candidates for office; conducting grasstips [sic] lobbying
campaigns; etc. . . . Write a business plan for CSI, including
marketing plan and pricing plan. . . . Identify or hire a Managing
Director for CSI’s external business. . . . Identify a list of
potential funded ballot measure campaigns that CSI should
pursue for full-service and/or signature collection management
contracts. . . . Identify a list of 2007 and 2008 candidate
campaigns that CSI should pursue for contracts and
relationships. . . . Secretaries of State: Identify 2007 and 2008
Secretary of State races in which we should play, with the goal
of getting responsible, pro-voter, competent people in these
offices.
403
An internal document shows ACORN Political Director Zach Polett controlling the
activities of ACORN, Communities Voting Together (“CVT”) and Citizens Services Inc.
(“CSI”):
Story for Election Day will be makeup of the House. Places where
voter mob can be a factor in these races is where we should think
pushing a strong program. CVT (527) is one of the ways that this
could be done smartly and legally. Did work in Corzine 2005
and in Wynn 2006. CSI ran Edwards field under contract.
403 PolOps 2007-2008 Projects (Nov. 22, 2006) at 3-5 (ACORN_004321-004323) (emphasis added).
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CVT could do something similar to its 2005/06 work in other
CD’s where it makes sense.
404
According to a document provided by former ACORN employees, the ACORN
Community Labor Organizing Center (“ACLOC”) led important campaigns including the
Texas for Obama Campaign.
405
According to the document, ACLOC raised 1.3 million
dollars from political campaigns and delivered the funds directly to ACORN offices.
406
The document noted, “[d]oes the ACORN association board want Wade to be this
intimately involved in coordinating campaigns this close to ACORN?”
407
ACORN
readily acknowledged its partisan behavior.
V. Conclusion
American nonprofits generate $1.3 trillion in revenues, have assets over $2
trillion, and employ 15 million people.
408
Nonprofits represent a substantial portion of
the activities directed toward public service, a mission obstructed by the fraud of groups
like ACORN. On the basis of this Report, the legal protections distinguishing ACORN
and its affiliates must be ignored because the ability to ascertain whether federal moneys
are being walled off from ACORN’s political activities is impracticable. As a result,
ACORN and its Council of affiliates represent a politically partisan lobbying
organization. ACORN and its affiliates’ nonprofit exemptions and receipt of federal
grants must therefore bear greater scrutiny.
404 Notes-Pol Ops Mgt Mtg (Sept. 15, 2006) at 1 (ACORN_004371) (emphasis added).
405 02-04-2009 (Feb. 4, 2009) at 1-4 (ACORN_000018-000021).
406 Id.
407 Id. at 2.
408 INTERNAL REVENUE SERVICE, CHARITIES & OTHER TAX-EXEMPT ORGANIZATIONS STATISTICS,
available at http://www.irs.gov/taxstats/charitablestats (follow Charities & Other Tax-Exempt
Organizations link) (last visited June 22, 2009).
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VI. Appendix 1: ACORN Council
The following 361 entities compose the ACORN COUNCIL
1. Association of Community Organizations for Reform Now (“ACORN”)
2. ACORN National Office: Brooklyn, NY
3. ACORN Bronx, NY
4. ACORN Brooklyn, NY
5. ACORN Buffalo, NY
6. ACORN Hempstead, NY
7. ACORN HOUSING CORPORATION Brooklyn, NY
8. PROJECT VOTE Brooklyn, NY
9. MHANY Brooklyn, NY
10. ACORN National Office: Washington, D.C.
11. ACORN Washington, DC
12. ACORN HOUSING CORPORATION Washington, DC
13. ACORN Political 1334 G St, NW Suite B Washington, DC 20005
14. AISJ Washington, DC
15. ACORN National Office: Little Rock, AR
16. ACORN Pine Bluff, AR
17. ACORN Housing Corporation Little Rock, AR
18. ACHC Little Rock, AR
19. ANP Little Rock, AR
20. PROJECT VOTE Little Rock, AR
21. KABF Little Rock, AR
22. SEIU LOCAL 100 Little Rock, AR 72206
23. ACORN National Office: Phoenix, AZ
24. ACORN Glendale, AZ
25. ACORN Mesa, AZ
26. ACORN Tucson, AZ
27. ACORN Housing Corporation Phoenix, AZ
28. ACORN National Office: Dallas, TX
29. ACORN Arlington, TX
30. ACORN Dallas, TX
31. ACORN El Paso, TX
32. ACORN Ft. Worth, TX
33. ACORN Houston, TX
34. ACORN Irving, TX
35. ACORN San Antonio, TX
36. ACORN Research Dallas, TX
37. ACORN HOUSING CORPORATION Dallas, TX
38. ACORN HOUSING CORPORATION Houston, TX
39. ACORN HOUSING CORPORATION San Antonio, TX
40. AGAPE Dallas, TX
41. SEIU LOCAL 100 Corpus Christi, TX
42. SEIU LOCAL 100 Dallas, TX
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43. SEIU LOCAL 100 Houston, TX
44. SEIU LOCAL 100 San Antonio, TX
45. ACORN National Office: Boston, MA
46. ACORN Boston, MA
47. ACORN Brockton, MA
48. ACORN Springfield, MA
49. ACORN HOUSING CORPORATION Boston, MA
50. ACORN HOUSING CORPORATION Springfield, MA
51. ACORN National Office: New Orleans, LA
52. ACORN Baton Rouge, LA
53. ACORN Lake Charles, LA
54. ACORN New Orleans, LA
55. ACORN HOUSING CORPORATION New Orleans, LA
56. Louisiana ACORN Fair Housing Organization New Orleans, LA
57. ALERT New Orleans, LA
58. AISJ New Orleans, LA
59. SEIU LOCAL 100 Baton Rouge, LA
60. SEIU LOCAL 100 Lake Charles, LA
61. SEIU LOCAL 100 New Orleans, LA
62. SEIU LOCAL 100 Shreveport, LA
63. HOTROC New Orleans, LA
64. ACORN Bay Point, CA
65. ACORN Fresno, CA
66. ACORN Los Angeles, CA
67. ACORN Oakland, CA
68. ACORN Sacramento, CA
69. ACORN San Bernardino, CA
70. ACORN San Diego, CA
71. ACORN San Francisco, CA
72. ACORN San Jose, CA
73. ACORN Santa Ana, CA
74. ACORN HOUSING CORPORATION Fresno, CA
75. ACORN HOUSING CORPORATION Los Angeles, CA
76. ACORN HOUSING CORPORATION Oakland, CA
77. ACORN HOUSING CORPORATION Sacramento, CA
78. ACORN HOUSING CORPORATION San Diego, CA
79. ACORN HOUSING CORPORATION San Jose, CA
80. ACORN HOUSING CORPORATION Santa Ana, CA
81. ACORN Aurora, CO
82. ACORN Denver, CO
83. ACORN HOUSING CORPORATION Denver, CO
84. ACORN Bridgeport, CT
85. ACORN Hartford, CT
86. ACORN Waterbury, CT
87. ACORN HOUSING CORPORATION Bridgeport, CT
88. ACORN HOUSING CORPORATION New Haven, CT
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89. ACORN 408 East 8th St. Wilmington, DE
90. ACORN Ft. Lauderdale, FL
91. ACORN Hialeah, FL
92. ACORN Jacksonville, FL
93. ACORN Lake Worth, FL
94. ACORN Miami, FL
95. ACORN Orlando, FL
96. ACORN St. Petersburg, FL
97. ACORN c/o the Progressive Center Tallahassee, FL
98. ACORN Tampa, FL
99. ACORN HOUSING CORPORATION Miami, FL
100.
ACORN HOUSING CORPORATION Orlando, FL
101.
Floridians For All Miami, FL
102.
ACORN Atlanta, GA
103.
ACORN HOUSING CORPORATION Atlanta, GA
104.
ACORN Honolulu, HI
105.
ACORN Chicago, IL
106.
ACORN Springfield, IL
107.
ACORN HOUSING CORPORATION Chicago, IL
108.
ACORN HOUSING CORPORATION of IL
109.
SEIU LOCAL 880 Chicago, IL
110.
SEIU LOCAL 880 East St. Louis, IL
111.
SEIU LOCAL 880 Harvey, IL
112.
SEIU LOCAL 880 Peoria, IL
113.
SEIU LOCAL 880 Rock Island, IL
114.
SEIU LOCAL 880 Springfield, IL
115.
ACORN Indianapolis, IN
116.
ACORN IA
117.
Peace and Social Justice Center of South Central Kansas Wichita, KS
118.
ACORN Louisville, KY
119.
ACORN Baltimore, MD
120.
ACORN Hyattsville, MD
121.
ACORN HOUSING CORPORATION Baltimore, MD
122.
ACORN Detroit, MI
123.
ACORN HOUSING CORPORATION Detroit, MI
124.
Edison Neighborhood Center Kalamazoo, MI
125.
ACORN St. Paul, MN
126.
ACORN HOUSING CORPORATION St. Paul, MN
127.
ACORN Financial Justice Center St. Paul, MN
128.
ACORN Kansas City, MO
129.
ACORN St. Louis, MO
130.
ACORN HOUSING CORPORATION Kansas City, MO
131.
ACORN HOUSING CORPORATION St. Louis, MO
132.
SEIU LOCAL 880 East St. Louis, MO
133.
SEIU LOCAL 880 St. Louis, MO
134.
ACORN Jersey City, NJ
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135.
ACORN Newark, NJ
136.
ACORN Paterson, NJ
137.
ACORN HOUSING CORPORATION Jersey City, NJ
138.
ACORN Albuquerque, NM
139.
ACORN Las Cruces, NM
140.
ACORN HOUSING CORPORATION Albuquerque, NM
141.
ACORN Charlotte, NC
142.
ACORN Cincinnati, OH
143.
ACORN Cleveland, OH
144.
ACORN Columbus, OH
145.
ACORN Toledo, OH
146.
Lagrange Village Council Toledo, OH
147.
ACORN Portland, OR
148.
ACORN HOUSING CORPORATION Portland, OR
149.
ACORN Allentown, PA
150.
ACORN Harrisburg, PA
151.
ACORN Philadelphia, PA
152.
ACORN Pittsburgh, PA
153.
ACORN HOUSING CORPORATION Philadelphia, PA
154.
ACORN HOUSING CORPORATION Philadelphia, PA
155.
ACORN HOUSING CORPORATION Pittsburgh, PA
156.
ACORN Providence, RI
157.
ACORN HOUSING CORPORATION Providence, RI
158.
ACORN Memphis, TN 38104
159.
ACORN Norfolk, VA
160.
ACORN Richmond, VA
161.
ACORN Burien, WA
162.
ACORN Milwaukee, WI
163.
ACORN HOUSING CORPORATION Milwaukee, WI
164.
ACORN Beverly, L.L.C.
165.
ACORN Center for Housing, Inc.
166.
Arkansas Community Housing Corporation
167.
ACORN Community Land Association, Inc.
168.
ACORN Community Land Association Albuquerque NM
169.
ACORN Community Land Association of Louisiana Baltimore MD
170.
ACORN Community Land Association of Louisiana New Orleans LA
171.
ACORN Community Land Association of Pennsylvania, Inc.
172.
ACORN Community Land Association of IL.
173.
ACORN Community Labor Organizing Center, Inc.
174.
ACORN Fair Housing, A Project Of American Institute Washington DC
175.
Arkansas ACORN Fair Housing, Inc.
176.
New Mexico ACORN Fair Housing Albuquerque NM
177.
ACORN Fair Housing Washington DC
178.
ACORN Housing 1 Associates, LP (limited partnership)
179.
ACORN Housing 2 Associates, LP (limited partnership)
180.
ACORN Housing 2, Inc.
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181.
ACORN Housing Affordable Loans, LLC
182.
ACORN Housing Corporation, Inc.
183.
Desert Rose Homes, L.L.C.
184.
Franklin ACORN Housing, Inc.
185.
Mott Haven ACORN Housing Development Fund
186.
Mutual Housing Association of New York, Inc.
187.
New Orleans Community Housing Organization, Inc.
188.
ACORN Community Land Association of Illinois
189.
Massachusetts ACORN Housing Corporation
190.
Broad Street Corporation
191.
Elysian Fields Corporation
192.
ACORN 2004 Housing Development Fund Corporation
193.
ACORN 2005 Housing Development FUND CORPORATION
194.
ACORN Dumont-Snediker Housing Development Fund Corporation
195.
Dumont Avenue Housing Development Fund
196.
Elysian Fields Partnership
197.
Fifteenth Street Corporation
198.
New York ACORN Housing Company Inc
199.
Development Fund Corporation
200.
New York Organizing and Support Center, Inc
201.
Baltimore Organizing and Support Center, Inc.
202.
Chicago Organizing and Support Center, Inc.
203.
Houston Organizing and Support Center, Inc.
204.
5301 McDougall Corporation
205.
New Mexico Organizing and Support Center, Inc.
206.
New York Organizing and Support Center, Inc.
207.
Phoenix Organizing and Support Center, Inc.
208.
385 Palmetto Street Housing Development Fund Corporation
209.
Sixth Avenue Corporation
210.
4415 San Jacinto Street Corporation
211.
St. Louis Organizing and Support Center, Inc.
212.
St. Louis Tax Reform Group, Inc.
213.
Greenwell Springs Corporation
214.
Austin Organizing and Support Center, Inc.
215.
Boston Organizing and Support Center, Inc.
216.
American Home Day Care Workers Association, Inc.
217.
American Workers Association
218.
Baton Rouge Association of School Employees, Inc.
219.
Hospitality Hotel and Restaurant Organizing Council
220.
Illinois Home Child Care Workers Association, Inc.
221.
Labor Link, Inc.
222.
Labor Neighbor Research and Training Center, Inc.
223.
Missouri Home Child Care Workers Association, Inc.
224.
Middle South Home Day Care Workers Association, Inc.
225.
Wal-Mart Alliance for Reform Now, Inc.
226.
Wal-Mart Association for Reform Now
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227.
Working Families Association, Inc.
228.
Wal-Mart Workers Association, Inc.
229.
People Organizing Workfare Workers/ACORN/CWA, Inc.
Workers/ACORN/CWA, Inc.
230.
Texas United City-County Employees, Inc.
231.
Texas United School Employees, Inc.
232.
United Labor Foundation of Greater New Orleans, Inc.
233.
United Security Workers of America
234.
Orleans Criminal Sheriffs
235.
SEIU Local 100
236.
SEIU Local 880
237.
Arkansas Broadcasting Foundation, Inc.
238.
Agape Broadcasting Foundation, Inc.
239.
Affiliated Media Foundation Movement, Inc.
240.
Allied Media Projects, Inc.
241.
ACORN National Broadcasting Network, Inc.
242.
Alabama Radio Movement, Inc. (Dissolved)
243.
ACORN Television in Action for Communities, Inc.
244.
California Community Television Network
245.
Flagstaff Broadcasting Foundation, Inc.
246.
Iowa ACORN Broadcasting Corporation
247.
Maricopa Community Television Project, Inc.
248.
Montana Radio Network, Inc.
249.
Radio New Mexico, Inc.
250.
Shreveport Community Television, Inc.
251.
Crescent City Broadcasting Corporation
252.
KABF Radio
253.
KNON Radio
254.
ACORN Institute, Inc.
255.
ACORN Institute Inc. Washington DC
256.
ACORN Institute Dallas TX
257.
ACORN Institute Inc. New Orleans LA
258.
American Institute for Social Justice, Inc.
259.
Association for Rights of Citizens, Inc.
260.
New York Agency for Community Affairs, Inc.
261.
Pennsylvania Institute for Community Affairs, Inc.
262.
Project Vote/Voting for America, Inc.
263.
ACORN Tenant Union Training & Organizing Project, Inc.
264.
ACORN Law for Education Representation & Training, Inc.
265.
American Environmental Justice Project, Inc.
266.
ACORN International, Inc.
267.
Environmental Justice Training Project, Inc.
268.
Movement for Economic Justice, Education & Training Center, Inc.
269.
Missouri Tax Justice Research Project, Inc.
270.
ACORN Beneficial Association, Inc.
271.
ACORN Canada
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272.
ACORN Children's Beneficial Association, Inc.
273.
ACORN Campaign to Raise the Minimum Wage, Inc.
274.
ACORN Cultural Trust, Inc.
275.
ACORN Dual Language Community Academy
276.
ACORN Fund, Inc.
277.
ACORN Foster Parents, Inc.
278.
ACORN Institute Canada
279.
ACORN Political Action Committee, Inc.
280.
ACORN Tenants' Union, Inc.
281.
Community Training for Environmental Justice, Inc.
282.
Connecticut Working Families
283.
Democracy for America
284.
Hammurabi Fund, Inc.
285.
McLellan Multi-Family Corporation
286.
Metro Technical Institute, Inc.
287.
New Party National Committee, Inc.
288.
Volunteers for America, Inc.
289.
Volunteers for California, Inc.
290.
Volunteers for Missouri, Inc.
291.
ACORN Management Corporation
292.
Associated Regional Maintenance Systems
293.
ACORN Associates, Inc.
294.
ACORN Associates Inc. Albuquerque NM
295.
ACORN Campaign Services, Inc.
296.
ACORN Services, Inc.
297.
Citizens Consulting, Inc.
298.
Chief Organizer Fund, Inc.
299.
Citizens Services, Inc.
300.
People's Equipment Resource Corporation, Inc.
301.
National Center for Jobs & Justice
302.
Service Workers Action Team
303.
Living Wage Resource Center
304.
American Home Childcare Providers Association
305.
Association for the Rights of Citizens Inc
306.
California Community Network
307.
Child Care Providers for Action Franklin
308.
Citizens Action Research Project
309.
Citizens Campaign for Work, Living Wage & Labor Peace
310.
Citizens for Future Progress
311.
Citizens Campaign for Finance Reform
312.
Floridians for All PAC
313.
Greenville Community Charter School Inc
314.
Student Minimum Wage Action Campaign
315.
Site Fighters
316.
Social Policy
317.
Southern Training Center
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318.
ACORN Votes
319.
Communities Voting Together
320.
Arkansas ACORN Political Action Committee
321.
Arkansas New Party
322.
California APAC
323.
Citizens for April Troope
324.
Colorado Organizing and Support Center, Inc.
325.
Citizens Campaign for Fair Work
326.
Citizens Services Society, Inc.
327.
Clean Government APAC
328.
Community Voices Together
329.
Community Real Estate Processing, Inc.
330.
Council Beneficial Association
331.
Council Health Plan
332.
Desert Rose Homeowners' Association
333.
District of Columbia APAC
334.
Friends of Wendy Foy
335.
Illinois APAC
336.
Illinois New Party
337.
Institute for Worker Education
338.
Jefferson Area Public Employees
339.
Jefferson Area School Employees
340.
Local 100 Health & Welfare Fund
341.
Local 100 Political Action Committee
342.
Local 100 Retirement Fund
343.
Local 880 PAC
344.
Local 880 Political PAC
345.
Louisiana APAC
346.
Maryland APAC
347.
Massachusetts APAC
348.
Missouri APAC
349.
Mutual Housing Association of New York Neighborhood Restore
350.
Neighbors for Arthelia Ray
351.
Neighbors for Maria Torres
352.
Neighbors for Ted Thomas
353.
New Mexico APAC
354.
New Orleans Campaign for Living Wage Committee
355.
New York APAC
356.
Oregon APAC
357.
Orleans Criminal Sheriffs Workers Organization, Inc.
358.
Pennsylvania APAC
359.
Progressive Houston
360.
Progressive St. Louis
361.
Rhode Island APAC
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VII. Appendix 2: RICO Analysis
ACORN 8 alleged RICO violations under 18 U.S.C. ž1962(c):
(1) the defendant persons (2) were employed by or associated with
an enterprise (3) that engaged in or affected interstate commerce
and that (4) the defendant persons operated or managed the
enterprise (5) through a pattern (6) of racketeering activity, and (7)
the complaints [sic] were injured in its business or property by
reason of the pattern of racketeering activity. Thus, the
complainants feel that a formal RICO investigation is also
warranted.
409
In 2004, Asheesh Agarwal, a Justice Department attorney, was assigned to write a
memorandum (“Agarwal Memo”) analyzing whether the Justice Department could
prosecute Project Vote under the civil provisions of the Racketeer Influenced Corrupt
Organization Act (“RICO”). The Agarwal Memo concluded, “such a claim would face a
very high hurdle in satisfying the ‘business or property’ element of a [civil] RICO claim.
We could probably get by a Rule 11 motion, but probably not a motion to dismiss.”
410
The Memo analyzed the predicate offenses of mail and wire fraud, stating
“[a]lthough the federal mail and wire fraud statutes do not themselves establish a private
right of action, such a claim is permitted under the [criminal] RICO statute itself.”
411
The federal civil RICO provision provides, “[a]ny person injured in his business
or property by reason of a violation of section 1962 of this chapter may sue therefor in
any appropriate United States district court…”
412
While the Memo analyzed whether
“voters [had] been ‘injured in… business or property[,]’ it did not analyze whether
Project Vote, or its affiliate, ACORN, caused taxpayers or donors to be injured in their
business or property.
413
The Agarwal Memo characterized the “right to vote or to a fair
election process” as “property”.
414
The Memo analyzed “property” under the Supreme Court’s decision in McNally
v. United States
415
and the Sixth Circuit decision, United States v. Debs.
416
In McNally,
decided five years before Debs, the Court limited the definition of “property” under the
mail and wire fraud statutes. The McNally Court considered whether a patronage scheme
by a Kentucky public official had deprived the citizens of Kentucky of the property right
to have the state government’s affairs conducted honestly. Under McNally, “property”
under the mail and wire fraud acts did not include intangible rights such as “the right of
409 IMC Allegations (Jan. 7, 2009) at 2 (ACORN_004867).
410 Agarwal Memo (received March 30, 2009) at 1 (ACORN_004776).
411 Id. (emphasis added).
412 18 U.S.C ž 1964.
413 Agarwal Memo (received March 30, 2009) at 2 (ACORN_004777).
414 Id. (ACORN_004777).
415 McNally v. United States, 483 US 350 (1987).
416 949 F. 2d 199 (6th Cir. 1992).
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the citizenry to good government.”
417
However, the Debs Court interpreted the Hobbs
Act to hold the loss of the opportunity to vote as a loss of property not a “deprivation of
rights.”
418
The Agarwal Memo analyzed the distinction as follows:
After discussing the implications of McNally’s holding in some
detail, the Debs court nonetheless concluded that ‘property’ under
the Hobbs Act included the right to elect union officials. The Debs
court argued that the McNally decision could be explained by the
fact that there, the Court had been motivated by concerns of
federalism and had not wanted to interfere with ‘setting standards
of disclosure and good government for local and state officials.’
See Debs at 202 (quoting McNally at 360). The Debs Court found
these same federalism concerns were not implicated in union
elections.
419
According to the Agarwal Memo, the McNally case was later explicitly overturned by 18
U.S.C. ž1346, which held that a “scheme or artifice to defraud” under the mail and wire
fraud statutes included the deprivation of the “intangible right of honest services.”
420
The Agarwal Memo addressed the criminal provisions of RICO under 18 U.S.C.
ž1962. The criminal RICO statute instructs:
It shall be unlawful for any person employed by or associated with
any enterprise engaged in, or the activities of which affect,
interstate or foreign commerce, to conduct or participate, directly
or indirectly, in the conduct of such enterprise's affairs through a
pattern of racketeering activity or collection of unlawful debt.
421
According to the Agarwal Memo, ACORN can be easily established as an “enterprise”
under the RICO statute “as that term is defined to include ‘any individual, partnership,
corporation, association, or other legal entity, and any union or group of individuals
associated in fact although not a legal entity[.]’”
422
The Memo also held, “we should be
able to demonstrate that [ACORN’s] racketeering constitutes a ‘pattern’ which, under the
statute, is ‘at least two acts of racketeering activity,’”
423
The Agarwal Memo claimed
ACORN’s activities constituted “racketeering” under ž1341 (mail fraud) and ž1343 (wire
fraud) of the code.
424
18 U.S.C. ž1341’s requirements are met if the mail is used to execute a scheme
involving money or property. 18 U.S.C. ž1341 specifies:
417 McNally at 356.
418 Id. at 201 (emphasis in original).
419 Agarwal Memo (received March 30, 2009) at 2 (ACORN_004777).
420 See United States v. Ames Sintering Co., 927 F.2d 232 (6thCir 1990) (recognizing that section 1346
overturned or superseded McNally).
421 18 U.S.C. ž 1962(c).
422 Agarwal Memo (received March 30, 2009) at 3 (ACORN_004778), citing 18 U.S.C. ž1961.
423 Id.
424 18 U.S.C. žž 1341, 1343.
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Whoever, having devised or intending to devise any scheme or
artifice to defraud, or for obtaining money or property by
means of false or fraudulent pretenses, representations, or
promises, or to sell, dispose of, loan, exchange, alter, give away,
distribute, supply, or furnish or procure for unlawful use any
counterfeit or spurious coin, obligation, security, or other article, or
anything represented to be or intimated or held out to be such
counterfeit or spurious article, for the purpose of executing such
scheme or artifice or attempting so to do, places in any post office
or authorized depository for mail matter, any matter or thing
whatever to be sent or delivered by the Postal Service, or
deposits or causes to be deposited any matter or thing whatever to
be sent or delivered by any private or commercial interstate carrier,
or takes or receives therefrom, any such matter or thing, or
knowingly causes to be delivered by mail or such carrier according
to the direction thereon, or at the place at which it is directed to be
delivered by the person to whom it is addressed, any such matter or
thing, shall be fined under this title or imprisoned not more than 20
years, or both.
425
18 U.S.C. ž1343 is analogous to the mail fraud language but refers to the use of wire
transmission:
Whoever, having devised or intending to devise any scheme or
artifice to defraud, or for obtaining money or property by
means of false or fraudulent pretenses, representations, or
promises, transmits or causes to be transmitted by means of
wire, radio, or television communication in interstate or
foreign commerce, any writings, signs, signals, pictures, or
sounds for the purpose of executing such scheme or artifice,
shall be fined under this title or imprisoned not more than 20 years,
or both. If the violation occurs in relation to, or involving any
benefit authorized, transported, transmitted, transferred, disbursed,
or paid in connection with, a presidentially declared major disaster
or emergency (as those terms are defined in section 102 of the
Robert T. Stafford Disaster Relief and Emergency Assistance Act
(42 U.S.C. 5122)), or affects a financial institution, such person
shall be fined not more than $1,000,000 or imprisoned not more
than 30 years, or both.
426
The Agarwal Memo claimed “[ACORN] engaged in a scheme to defraud voters
of their intangible right to honest government services.”
427
425 Agarwal Memo at 3-4 (ACORN_004778-004779), citing 18 U.S.C. ž 1341 (emphasis in original).
426 18 U.S.C. ž1343 (emphasis added).
427 Agarwal Memo at 4 (ACORN_004779).
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The federal criminal RICO statute defines property as real property “including
things growing on, affixed to, and found in land” and tangible and intangible personal
property “including rights, privileges, interests, claims, and securities.”
428
In discussing
“money or property” the Agarwal Memo stated, “Congress specifically accepted
McNally’s invitation to clarify the definition of ‘property’ when it passed section
1346.”
429
ž1346 states:
For the purposes of this chapter, the term ‘scheme or artifice to
defraud’ includes a scheme or artifice to deprive another of the
intangible right of honest services.
430
“[I]ntangible personal property” under ž1964 is thus defined to include “a scheme or
artifice to deprive another of the intangible right of honest services.” The Agarwal
Memo concluded, “[t]hus, the property requirement under section 1346 is explicitly an
easier hurdle than the property requirement under the civil provision of RICO more
broadly.”
431
The Agarwal Memo stated, “If [American Coming Together]/ACORN used
the mails in any way to facilitate the scheme, their conduct should fall under these
provisions.”
432
ACORN would therefore be liable under RICO if it used mail or wire
transmissions which deprived others of their money or rights.
While the Agarwal Memo focused on the use of the mail to further Project Vote’s
alleged fraudulent voter registrations, the Memo did not discuss whether ACORN or any
of its affiliates used mail or wire transmissions to further other forms of fraud depriving
individuals of their money or “intangible right of honest services.” Dale Rathke’s
embezzlement violated RICO because, according to the Harmon, Curran, Spielberg &
Eisenberg, LLP (“HCSE”) Memo, it involved a fraudulent wire-based transfer of funds
violating first, ACORN’s fiduciary duties to its donors, second, ERISA, third, the Internal
Revenue Code, and potentially fourth, FEC regulations.
This Report cites evidence showing ACORN to have committed two forms of
misconduct, organizational and purposeful, which have triggered fraudulent and
potentially illegal acts.
433
According to this Report, ACORN’s organizational
misconduct involved:
1. Failed to regard corporate formalities and fiduciary duties,
failed to report Dale Rathke’s embezzlement to the Board;
2. Wade Rathke lied to the Board about ACORN’s legal counsel
(Louis Robein);
3. Wade Rathke filed a fraudulent LM-2 form;
4. Failed to comply with its own board-created Interim
Management Committee;
428 18 U.S.C. ž 1963.
429 Id.
430 18 U.S.C. ž 1346.
431 Agarwal Memo at 4 (ACORN_004779).
432 Id.
433 Id.
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5. Violated ERISA because Citizens Consulting Inc.’s (CCI)
removal of money from a charity-sponsored health fund
(ACORN Fund) is a prohibited loan to a related party under
ERISA and a large part of the embezzled funds ($215,000)
were charged through ACORN’s American Express account to
the ACORN Beneficial Association;
6. Breached its duty of care to its donors because CCI approved
the use of donor funds to cover the debt caused by
embezzlement;
7. Violated the Internal Revenue Code by failing to report the
embezzlement to the IRS;
8. Ignored its bylaws;
9. Terminated members of its Interim Management Committee
without cause;
10. Mismanaged the organization because CCI controls the
accounts of federally funded ACORN affiliates as well as
politically active affiliates;
11. Organized the ACORN Council as a web of affiliates with no
real boards or oversight; and
12. Lacked quality control because ACORN lacks hiring standards,
negligently supervised its employees and lacked a
whistleblower policy.
According to this Report, ACORN’s purposeful misconduct involved:
1. Ignored its responsibilities under the Internal Revenue Code;
2. Engaged in illegal partisan activity because Project Vote,
ACORN Housing Corporation, the American Institute for
Social Justice, the ACORN Institute, and the Pennsylvania
Institute for Community Affairs, Inc. received federal funds,
yet ACORN lobbied in support of legislation and candidates
for public office by having endorsed Senator Sherrod Brown
(D-OH), Representative Albert Wynn (D-MD) and
Representative Donna Edwards (D-MD) and by using donor
records from the Clinton, Kerry and Obama presidential
campaigns;
3. Failed to supervise those ACORN employees prosecuted for
filing fraudulent voter registrations; and
4. Failed to wall off its political activities from the organizations
receiving federal funds or tax-deductible charitable
contributions, thus potentially violating FEC rules.
If these allegations are true, ACORN financially deprived its donors by wiring their funds
to cover the debt caused by Dale Rathke’s embezzlement, it deprived federal taxpayers
and the government of money and the right to honest services by wiring federal grant
money to political accounts and mailing fraudulent forms to the Labor Department and
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the IRS, and it deprived its former employees of money by mailing them notice of their
termination in violation of ACORN’s bylaws.
ACORN acknowledged these violations and their connection to the RICO statute.
In an email from Steve Bachmann to Steven Kest of ACORN, Karen Inman, formerly of
ACORN, and Elizabeth Kingsley, of the law firm Harmon, Curran, Spielberg &
Eisenberg (“HCSE”), Bachmann quoted a New York Times article released about
ACORN and responded to its claims:
The New York Times stated:
The brother, Dale Rathke, embezzled nearly $1 million from
Acorn and affiliated charitable organizations in 1999 and 2000,
Acorn officials said, but a small group of executives decided to
keep the information from almost all of the group’s board members
and not to alert law enforcement.
434
Bachmann commented:
As I say, check [Wade Rathke]'s blog, and we need to get tight
on what happened precisely on this matter--WR says he
recused himself and put it to the management council. I dont'
[sic] know about the politics of the board, but as to the solution
to the embezzelement [sic] he told me that Louis Robein was
going to solve it. Isn't that what he told the management
council when he supposedly recused himself? I THINK THIS
THIS [sic] A CRITICAL ISSUE AND WILL HAVE TO
COME OUT AT SOME POINT...Sidley Austin needs to read
that WR blog, because--at the risk of repeating myself--if I
were a rightwing prosecutor I would think "RICO, coverup,"
blah blah blah--and WR is fingering the management council,
claiming he had nothing to do with it, and not mentioning his
promises regarding Robein
435
Moreover, minutes from a July 2008 ACORN Board meeting reflect the degree to which
the ACORN’s donors felt their fiduciary duties were violated:
436
434 Stephanie Strom, Funds Misappropriated at 2 Nonprofit Groups, N.Y. TIMES, Jul. 9, 2008, available at
http://www.nytimes.com/2008/07/09/us/09embezzle.html (last visited May 7, 2009).
435 Email from Steve Bachmann to Steve Kest, Karen Inman, and Elizabeth Kingsley (July 9, 2008) at 1-4
(on file with author) (emphasis in original).
436 ACORN Association Board Meeting (July 13, 2008) at 2 (ACORN_00392).
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About the Committee
The Committee on Oversight and Government Reform is
the main investigative committee in the U.S. House of
Representatives. It has authority to investigate the subjects
within the Committee’s legislative jurisdiction as well as
“any matter” within the jurisdiction of the other standing
House Committees. The Committee’s mandate is to
investigate and expose waste, fraud and abuse.
Contacting the Committee
For information regarding this report:
Daniel Z. Epstein, Counsel
(202) 225-5074
For press inquiries:
Frederick R. Hill, Director of Communications
(202) 225-0037
For general inquires or to report waste, fraud or abuse:
Phone: (202) 225-5074
Fax: (202) 225-3974
http://republicans.oversight.house.gov
Committee on Oversight and Government Reform
Ranking Member, Darrell Issa (CA-49)
B350A Rayburn House Office Building
Washington, DC 20515
Phone: (202) 225-5074 • Fax: (202) 225-3974