Cable Guy

Bill Daniels made a fortune bringing cable to the West. But would he agree with how his legacy is being spent?

Singular remembers being at Daniels & Associates two years ago as a series of corporate scandals dominated the news, beginning with Enron and then moving into the massive alleged fraud at Adelphia Communications. The latter's founder, John Rigas, and his family are accused of looting as much as $3 billion from the cable company; they'll stand trial later this month.

"People were saying, 'Bill would be rolling in his grave if he saw this,'" Singular says. "It was extremely important to him to try and do things the right way."

The recent appointment of Steve Schuck to the Daniels Fund board of directors has added fuel to the speculation over ethics. Schuck is still paying back the money that Daniels loaned him -- a bill Brown estimates to still be about $1 million.

Daniels's estate is separate from the foundation, but John Saeman is both the chairman of the board and the executor of the estate, leading to the ethical conundrum of whether he should be overseeing a fellow boardmember's loan repayment.

"It sure as hell is a gray zone," says a former staffer.

Schuck, however, is adamant that the two are not related. "The debt is current and is not delinquent," he says. "It will be paid when it is due. It has nothing to do with the foundation; it goes to the estate."

Even more serious questions have been raised about the fund investing $10 million in a California housing project backed by Denver developer Bill Pauls, one of the original developers of the Denver Tech Center, since Saeman holds a significant stake in the development. Under IRS rules, a boardmember who owns more than 35 percent of a business the foundation invests in would be guilty of "self-dealing" -- steering assets to the businesses of boardmembers and other insiders -- and at risk of prosecution.

Peter Droege, spokesman for the fund, says Saeman reduced his interest in Paul's project to meet the IRS guideline. "He actually did have to back out to meet that threshold," Droege says. "The board gave its approval to the investment, but under the condition that legal counsel evaluate it."

"There was full disclosure; everybody on the investment committee was fully informed of John's investment," Brown adds. "Legal counsel assured the fund there was no self-dealing, and it was approved unanimously by the board."

The Daniels Fund also took a 9.62 percent stake in Aloha Partners, a wireless company that has been spending millions buying the rights to the wireless spectrum in major cities like Los Angeles. Brown says the Daniels Fund has invested $5 million in Aloha, another endeavor in which Saeman has a large interest.

"I don't know who originally recommended [the investments] to the fund," says Brown, who adds that the value of the two investments together make up about 1.5 percent of the fund's total assets.

Even though the investments seem to follow legal guidelines, foundation watchdogs say allowing the fund's money to flow into such ventures is wrong because the temptation to use tax-exempt monies to enrich the portfolios of boardmembers is great.

"To me, it's self-dealing, whether or not it meets the exact definition," Cohen says.

"The IRS definition of self-dealing is so large you can drive a truck through it," says the Center for Public and Nonprofit Leadership's Eisenberg. "They don't ask what's the relationship between trustees and investment firms. It's hard to get that stuff."

But the concerns plaguing the Daniels Fund are minor compared with a series of Enron-level scandals in the philanthropic world during the past few years. The most notorious recent case was at the James Irvine Foundation in California, one of the most prominent foundations in that state. At the same time the foundation was laying off staff and cutting $20 million out of its grant program, its longtime president, Dennis Collins, was receiving $717,000 per year in total compensation. When Collins announced that he was stepping down, the foundation spent $104,000 on a farewell party and gave him $25,000 in cash for a trip around the world. Then, after he left the presidency, Collins earned more than $900,000 as a "part-time transition advisor" to the foundation. In addition, the San Jose Mercury News reported that Collins's wife, Mollie, had been hired as a consultant by several colleges and nonprofits that applied for or received grants from the foundation.

The Bielfeldt Foundation in central Illinois was revealed to have spent $21 million over seventeen years for investment advice -- all of it given by members of the Bielfeldt family. At the local United Way in Washington, D.C., it was revealed that the director had taken $1.5 million in questionable payments over more than twenty years.

Such scandals are particularly onerous because, in return for helping to support their communities, non-profit foundations are largely exempt from paying taxes. The only legal requirement is that they spend 5 percent of their funds every year -- which can include the foundation's administrative expenses.

Under federal law, the only information foundations have to publicly disclose is the salaries of top executives, where their funds are invested, and the names of recipients of much of the grant money. The IRS is in charge of monitoring the non-profit sector, which includes more than 900,000 charities and foundation assets of more than $477 billion, but the bureau has only 800 employees assigned to the task.

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