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Acorn Report Raises Issues of Legality
By STEPHANIE STROM
An internal report by a lawyer for the community organizing group
Acorn raises questions about whether the web of relationships among
its 174 affiliates may have led to violations of federal laws.

The group, formally known as the Association of Community
Organizations for Reform Now, has been in the news over accusations
that it is involved in voter registration fraud, charges it says are
overblown and politically motivated.

Republicans have tried to make an issue of Senator Barack Obama's ties
to the group, which he represented in a lawsuit in 1995. The Obama
campaign has denied any connection with Acorn's voter registration
drives.

The June 18 report, written by Elizabeth Kingsley, a Washington
lawyer, spells out her concerns about potentially improper use of
charitable dollars for political purposes; money transfers among the
affiliates; and potential conflicts created by employees working for
multiple affiliates, among other things.

It also offers a different account of the embezzlement of almost $1
million by the brother of Acorn's founder, Wade Rathke, than the one
the organization gave in July, when word of the theft became public.

"A full analysis of potential liability will require consultation with
a knowledgeable white-collar criminal attorney," Ms. Kingsley wrote of
the embezzlement, which occurred in 2000 but was not disclosed until
this summer.

In a telephone interview on Monday, Ms. Kingsley and Bertha Lewis,
Acorn's top executive, said the group had begun addressing the
concerns raised in the report.

"Has everything been done yet? No," Ms. Lewis said. "We've been at
this for three months, and we have taken everything she said in the
report very seriously. It's a huge undertaking."

Over the weekend, Ms. Kingsley said, the national board adopted
several good-governance policies, like appointing an audit committee
for the first time.

Disclosure of her report, which was distributed to Acorn and 10
affiliates, increases pressure on the organization at a particularly
troublesome time. Besides the inquiries into its voter registration
efforts, Acorn faces demands for back taxes by the Internal Revenue
Service and various state tax authorities. At the same time,
foundations that have backed Acorn are withholding support.

Ms. Kingsley's concerns about the way Acorn affiliates work together
could fuel the controversy over Acorn's voter registration efforts,
which are largely underwritten by an affiliated charity, Project Vote.
Project Vote hires Acorn to do voter registration work on its behalf,
and the two groups say they have registered 1.3 million voters this
year.

As a federally tax-exempt charity, Project Vote is subject to
prohibitions on partisan political activity. But Acorn, which is a
nonprofit membership corporation under Louisiana law, though subject
to federal taxation, is not bound by the same restrictions.

"Project Vote and Acorn have a written agreement that specifies that
all work is nonpartisan," Michael Slater, Project Vote's new executive
director, wrote in answer to e-mailed questions about the
relationship.

But Ms. Kingsley found that the tight relationship between Project
Vote and Acorn made it impossible to document that Project Vote's
money had been used in a strictly nonpartisan manner. Until the
embezzlement scandal broke last summer, Project Vote's board was made
up entirely of Acorn staff members and Acorn members.

Ms. Kingsley's report raised concerns not only about a lack of
documentation to demonstrate that no charitable money was used for
political activities but also about which organization controlled
strategic decisions.

She wrote that the same people appeared to be deciding which regions
to focus on for increased voter engagement for Acorn and Project Vote.
Zach Pollett, for instance, was Project Vote's executive director and
Acorn's political director, until July, when he relinquished the
former title. Mr. Pollett continues to work as a consultant for
Project Vote through another Acorn affiliate.

"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," Ms. Kingsley said, referring to the section of the
tax code concerning rules for charities.

She also found problems with governance of Acorn affiliates. "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," she wrote.

Project Vote, for example, had only one independent director since it
received a federal tax exemption in 1994, and he was on the board for
less than two years, its tax forms show. Since then, the board has
consisted of Acorn staff members and two Acorn members who pay monthly
dues.

But George Hampton, who was listed as a board member from 1994 to
2006, said that while he had been a member of Acorn, he had never
heard of Project Vote. "I don't know anything about this," Mr. Hampton
said.

Cleo Mata, listed as a board member on tax forms from 1997 to 2006,
also said she was not aware she was on the Project Vote board. "If
that's what you say," Ms. Mata told a visitor to her home in Pasadena,
Tex. "I tell you that I didn't realize I was."

Mr. Slater said he "cannot speak to why Mr. Hampton and Ms. Mata fail
to recall their involvement on the Project Vote board." He noted that
Ms. Mata, 63, was "in poor health."

Project Vote assembled a new board this fall that Ms. Kingsley said
had greater independence, even though five of the six new members have
longstanding ties to Acorn.

Ms. Kingsley's description of the embezzlement differed from the
organization's. In an interview July 8, Ms. Lewis said 90 percent of
the $948,607 Mr. Rathke's brother embezzled came from Acorn and the
rest from its charity affiliates.

But Ms. Kingsley reported that $215,000 was charged to an Acorn
American Express card paid by the Acorn Beneficial Association, a
pension fund that has been replaced by a new Acorn pension fund. After
the embezzlement was discovered, the Acorn Beneficial Association
wrote off the embezzlement as a gift to Acorn.

Acorn contends that the fund is not covered by federal pension fund
regulations, but Ms. Kingsley wrote: "It is nonetheless the case that
a number of organizations, possibly including unions and charities,
paid funds into the A.B.A. for entirely different purposes. They did
not make those contributions in order to make a gift to Acorn."

Ms. Kingsley also found that the Acorn Fund, a health care benefits
fund, had advanced "a large amount of money" to Acorn, adding that it
appeared that the money was used to cover "the cash shortfall caused
by the embezzlement."
Thayer Evans contributed reporting for this article.
http://www.nytimes.com/2008/10/22/us/22acorn.html?_r=1&oref=slogin