Foundation Scheme Leaves Schools in Shock
Until recently, the Delaware County Christian School in Newtown Square, Pa., was anticipating a year of tremendous growth: It planned to invest $125,000 in computers next year, buy more land to expand its facilities, and increase enrollment.
But now the private K-12 school is looking at a $300,000 deficit in its $5 million annual budget, and its expansion plans are on hold--all because it got involved with a foundation that had promised to help the school but apparently ended up only taking its money.
Earlier this month, the Radnor, Pa.-based Foundation for New Era Philanthropy declared bankruptcy, leaving 300 schools, colleges, churches, and other nonprofit groups that had invested money with it in shock.
Over the past two years, the foundation, a public charity established in 1988, had convinced dozens of groups that it had access to a pool of anonymous donors who wanted to give matching grants to worthy organizations.
All the groups had to do, they were told, was raise an agreed-upon sum and turn it over to the foundation for six months. New Era would use the interest to pay its administrative costs, and after six months it would return the original funds along with a matching grant from one of the anonymous donors.
It all sounded too good to be true, said many groups that hoped to double their money through New Era's "New Concepts in Philanthropy Fund." And it was.
No Donors, No Money
Over the past two weeks, the story of the Foundation for New Era Philanthropy has been unraveling in a series of front-page stories in The Wall Street Journal. Apparently, the foundation was little more than a cover for a pyramid investment scheme that built up rapidly but toppled hard.
After New Era filed for bankruptcy last week, its founder, John G. Bennett Jr., told the staff that there was no group of anonymous donors. Nor is there enough money for New Era to pay its commitments. The foundation has estimated assets of $30 million, but it had pledged to match up to $225 million that charities had invested, a spokeswoman for a bankruptcy-court-appointed trustee said.
The U.S. Attorney's Office in Philadelphia is conducting a criminal investigation of New Era. The philanthropy is also the subject of several lawsuits, including those filed by the state, the U.S. Securities and Exchange Commission, and several charities.
Schools and charities were not the only ones hurt. Dozens of wealthy philanthropists--including Laurance S. Rockefeller; John C. Whitehead, a former co-chairman of Goldman, Sachs & Company; and the singer Pat Boone--apparently had used New Era as a conduit for their gifts to charity, believing that their contributions to a favorite group would be matched with a gift from one of New Era's anonymous donors.
"If the allegations are true," said James A. Joseph, the president of the Washington-based Council on Foundations, "this is a violation of the public trust that should be dealt with quickly and forthrightly by the appropriate authorities."
But Mr. Joseph said the apparent scheme was a departure from the usual role of foundations and should not "reflect badly on the millions of charitable organizations that are not only doing good in their communities, but are doing it openly and effectively."
Looking back, the words that appear in New Era's 1993 annual report seem ironic: "We do not fall within the generally accepted model of an organization that provides financial support in a typical fashion," the report's introduction says. "We have embarked upon a mission that in a few short years has resulted in remarkable transformation and progress among the organizations we have touched. Based upon these evident successes, we are convinced our future impact can be monumental."
Its impact is likely to be monumental--but probably not in the way many hoped.
Though a relatively low-profile organization, New Era was well known in some circles, particularly Philadelphia-area Christian schools and colleges, and arts and cultural organizations.
And recently the Delaware Valley Grantmakers Association had started receiving inquiries about New Era from across the country.
"I told them all I knew about it, which wasn't very much at this point," said Alexandra Wolf Fogel, the executive director of the grantmakers' group. "I advised caution, but I couldn't tell them not to [invest with New Era]. I had no legal leg to stand on."
About a dozen Christian schools, many of them in the Philadelphia area, lost varying amounts of money. Most lost in the $50,000 to $100,000 range, but some lost as much as $1 million, according to Alan W. Graustein, a regional director for the Association of Christian Schools International.
No Philadelphia public schools were affected directly, but New Era had pledged $1.5 million to build a high school for the creative and performing arts that was slated to open in 1997, according to Pamela Weddington, a spokeswoman for the schools. Now the district will have to look for another donor to help its meet its $5 million private fund-raising goal.
Many are still scratching their heads over how so many organizations--including such nationally prominent youth groups as the One to One mentoring program and Cities in Schools--could have been taken in.
But until the Journal articles appeared, New Era seemed to be legitimate. When the group applied for membership in the Council on Foundations last year, the council requested a Form 990 federal tax-return form, which noted that the group had given away $7 million in 1992.
Kenneth Tanis, the headmaster of the Delaware County Christian School, said his board of directors paid for a credit check of New Era, which turned up no problems.
Most important, many said, they had heard from people they trusted that the foundation had always paid out promised grants.
But others say the groups should have been more skeptical.
"These charities did not do the kind of investigative work that sound investment would call for," said Steven Lawrence, a research associate at the Foundation Center in New York City.
"I've never heard of a matching grant that required someone to put up money and turn it over to someone," said Robert Bothwell, the executive director of the National Committee for Responsive Philanthropy. "That should have set the bells ringing. But it did not."
Vol. 14, Issue 36, Page 6Published in Print: May 31, 1995, as Foundation Scheme Leaves Schools in Shock