A.G. Schneiderman Announces $1.025 Million Settlement with Trustees of Nonprofit That Squandered Assets Intended For Underprivileged Children
At The Hands Of Two Trustees And Lax Board, Perley Fund Lost Millions To Risky Investments, Unreasonable Pay And The Purchase Of Southampton House
Schneiderman: We Have Zero Tolerance For Those Who Use Charitable Assets For Their Own Personal Benefit
NEW YORK – Attorney General Eric T. Schneiderman announced today that his office has reached a $1.025 million settlement with the trustees and former trustees of the Victor E. Perley Fund (the Perley Fund), a private foundation established by Victor E. Perley in 1959 for the benefit of underprivileged children. An investigation by the Attorney General’s Office found that, beginning in 2009, the Perley Fund’s board allowed the foundation’s new leader, Richard A. Basini, to shift the nonprofit’s focus to fund his own interests and those of a fellow trustee, James J. Cahill, resulting in the Perley Fund’s purchase of a million-dollar Southampton home that Basini used as his private residence, and, ultimately, the waste of the nonprofit’s entire investment portfolio. Under today’s settlement, the Perley Fund’s board will also be completely reconstituted, with the approval of the Attorney General’s Office.
“The breakdown in governance at the Perley Fund was shocking, bringing a longtime charity serving New York’s underprivileged children to the brink of financial ruin,” said Attorney General Schneiderman. “My office has zero tolerance for trustees who use charitable assets for their own personal gain. We will hold them accountable, and we will hold their fellow trustees accountable when they enable that wrongdoing.”
The Attorney General’s investigation, which began in 2012, found that the Perley Fund’s operations changed dramatically in 2009 after Basini, a long-time trustee, took control, with all other existing trustees resigning. Basini recruited Cahill, an investment banker, to join the new board. As required by Mr. Perley’s will, three clergy trustees were also added: Rabbi Jill Hausman, Monsignor Michael Crimmins and Reverend Peter Larsen. Following this reconstitution, the trustees met only rarely, and when they did, failed to observe basic principles of sound governance, such as reviewing budgets, monitoring investments, and circulating and approving minutes.
Prior to Basini and Cahill taking control, the Perley Fund had focused almost exclusively on making grants to settlement houses and other institutions serving children in New York City, issuing approximately $250,000 per year in grants. After the reconstituted Board was in place, the fund shifted its focus from making generous annual grants directly for needy children to sponsoring a children’s choir, a change engineered by Basini to further his own interests. Basini also convinced the board to purchase a house in Southampton, purportedly as a retreat for the choir, and to let him live there for a substantially below-market rent or, at times, no rent at all. In addition, Basini paid himself tens of thousands of dollars a year for fundraising and marketing services, even though the Perley Fund conducted virtually no fundraising and received few contributions.
Although the clergy trustees claimed to be unaware that Basini was paying himself, they could have discovered this fact by exercising reasonable care: the payments to Basini were reported to the Perley Fund’s accountants and were listed on the Perley Fund’s tax returns and financial statements.
The board also delegated responsibility for the fund’s investment portfolio to Basini and Cahill without taking any steps to ensure that it was reasonable to make that delegation, without imposing any restrictions on the type of investments they could make and without monitoring their investments.
The lack of oversight was disastrous for the Perley Fund. During the period from 2009 through the end of 2012 – when the wrongdoing was brought to light as a result of the Attorney General’s investigation – the fund’s approximately $3.7 million investment portfolio was almost completely lost, with the exception of the $1.1 million value of the Southampton house. The Perley Fund’s losses were primarily from four sets of highly risky investments proposed and mismanaged by Cahill, whose investment advice was clouded by various conflicts of interest, including his collecting payments from at least two of the companies in which he had invested the foundation’s money.
Although Cahill and Basini were the driving forces behind the improper and imprudent transactions that wasted the Perley Fund’s assets, the clergy trustees also bear responsibility for the losses because the transactions that they did approve – the purchase of the house and Basini’s use of it for his own benefit – were improper. If the trustees had exercised reasonable care, particularly with respect to the decision to delegate responsibility for investments and the monitoring of those investments, Basini and Cahill would not have been able to waste the assets of the Perley Fund as they did.
Under New York’s Estates, Powers and Trusts Law, trustees have a legal responsibility to properly administer the charitable assets entrusted to their care and to invest assets prudently. Basini, Cahill and the clergy trustees all failed to meet these clear obligations under the law, from Cahill’s lack of skill and caution in making the Fund’s investments to the clergy trustees’ lack of oversight over the Fund’s investments and their permitting Basini to waste assets, by, among other things, purchasing the Southampton house and living in it for a below-market rent.
After the Attorney General’s investigation brought this wrongdoing to light, the clergy trustees terminated Basini’s employment with the Perley Fund and his lease of the house in Southampton. Basini died in April 2013. Shortly thereafter, Cahill resigned.
Pursuant to the settlement, Cahill, Msgr. Crimmins, Rabbi Hausman and Rev. Larsen have paid $1 million to the Attorney General’s Office, in satisfaction of the potential claims against them. Cahill, individually, has paid an additional $25,000. The Attorney General’s Office turn over these payments, less costs, to the Perley Fund, whose entire board of trustees will be replaced by new trustees, acceptable to the Attorney General’s Charities Bureau.
Cahill will be banned for life from service as a fiduciary of any not-for-profit organization incorporated, registered, operating or soliciting contributions in New York. Each of the clergy trustees has accepted a three-year ban from such service, but may serve in their congregations, provided that they report to a board that has fiduciary responsibility for overseeing the religious organization’s finances. The clergy trustees may serve on the board of a nonprofit after the three-year period if they complete a course providing training on the duties of fiduciaries of nonprofit organizations.
The Charities Bureau’s investigation in this matter was conducted by Assistant Attorney General Steven Shiffman, with assistance from Investigator Sylvia Rivera and Chief Investigator Dominick Zarrella. Sean Courtney is the Charities Bureau’s Enforcement Section Chief and David Nachman is the former Enforcement Section Chief. James Sheehan is the Charities Bureau Chief, and Alvin Bragg is the Executive Deputy Attorney General for the Division of Social Justice.
