Nonprofits in Fund-Raising Hoax Asked To Return Grants
A bankruptcy trustee is asking hundreds of nonprofit organizations, schools, and universities to return $174 million in grants from a foundation whose philanthropic promise turned out to be a hoax.
More than 1,200 nonprofit groups, including many private schools and charities that serve children and families, apparently were caught up in a fund-raising scheme orchestrated over two years by the now-defunct Foundation for New Era Philanthropy in Radnor, Pa.
That figure is far higher than the 300 groups first identified when the scheme was reported last year. Many groups are frantic that they may have to return money they already have spent.
In what is being likened to a pyramid scheme, John G. Bennett Jr., who founded the public charity in 1988, persuaded each of the groups to raise an agreed-upon sum and turn it over to the foundation. After six months, Mr. Bennett told them, New Era would double their money, returning the principal plus a matching grant from a pool of anonymous donors.
But the scheme collapsed when Mr. Bennett confessed that there were no anonymous benefactors, and the foundation filed for bankruptcy. (See Education Week, May 31, 1995.)
Arlin W. Adams, a federal bankruptcy trustee, is asking groups that received more than they gave to voluntarily return the matching funds, which would then be redistributed to those with a net loss. More than 600 creditors have filed more than $536 million in claims against New Era.
"We are certainly eager to do the right thing in this situation," said Burch T. Ford, the head of Miss Porter's School in Farmington, Conn., which has been asked to return $30,000. "We are consulting with our attorneys to find out what the right thing is, and what mechanism we should use to accomplish that."
Christian schools, religious youth organizations, and conservative nonprofits are among those taken in by the scheme. Most are in the Philadelphia area, but such national nonprofit groups as Young Life and Focus on the Family also are affected.
The trustee's list of those owing grant money to New Era includes several colleges and universities, including four Ivy League institutions, as well as such prestigious arts organizations as the Metropolitan Opera in New York City.
So far, very few groups have complied with Mr. Adams' request, and only about $2 million has been returned, according to Stuart M. Brown, a lawyer for the bankruptcy trustee. Mr. Brown hopes that the negotiations will be finished in the next few weeks, after which the trustee may file suit against groups that can afford to comply but have not.
No criminal charges have been filed against Mr. Bennett, who has issued statements saying he did nothing wrong.
However, an assistant U.S. attorney for the eastern Pennsylvania district confirmed last week that there is an ongoing criminal investigation of the philanthropy.
One official of a charity, who did not want to be identified, said that fbi agents interviewed him about the case last week and that others in the philanthropy world also had been questioned.
"Everyone is going to be a lot smarter," he said. "People are going to learn about finances and reading financial statements, which charities have never done."
Vol. 15, Issue 19, Page 7Published in Print: January 31, 1996, as Nonprofits in Fund-Raising Hoax Asked To Return Grants