Along the Dixie Highway in Louisville, Ky., thousands congregate at bingo halls for a chance at easy money.
Players can win big here in the heart of Kentucky’s charitable gaming industry, or at least go home knowing that their money went to a good cause: a church looking to fix its roof, a youth baseball league trying to buy uniforms.
But in one hall, the players don’t realize that almost all of their cash goes to the people behind one nonprofit – the National Child Safety Council, whose operations are under investigation in several states for alleged misuse of charitable funds.
The players don’t know this because, although the games are run under the names of at least nine charities, seven of those charities are affiliated with the council and send it their money – thus sidestepping state regulations limiting the number of bingo sessions a charity can run.
The bingo hall operators don’t mind: They are also involved with running the council and the charities, all of which are ostensibly geared toward youth.
While some of the council’s charities have been disciplined by regulators for illegal fund-raising, the council itself has steered clear of legal trouble. So clean is its reputation that last year it garnered a $3.6 million grant from the U.S. Department of Justice.
“If you look at the fund-raising entities associated with the council, it appears they stay one step ahead, and when it gets too hot, they close up shop,” says bankruptcy lawyer Andrew McNamee, the trustee for one of the charities – the Florida-based Missing Children … Help Center, which recently went bankrupt.
But the bankruptcy this year of the 20-year-old Help Center, whose finances and fund-raising were essentially controlled by the safety council, has prompted investigations by regulators, bankruptcy lawyers and attorneys general in several states. (See “Missing Kids’ Center Vanishes,” September.) Last month, attorneys general in Michigan, Alabama and New York filed claims to get back money donated by the public to the council, and McNamee filed a motion charging that council founder H.R. Wilkinson “caused the [Help Center] to transfer millions of dollars to Mr. Wilkinson and his associates.”
Wilkinson and other council executives and representatives did not respond to repeated interview requests over the past several weeks.
Although regulators have taken only minor actions in the past within the limits of their state borders, this time several states are working simultaneously. “In this case,” McNamee says, “I don’t see jurisdiction [among states] being an issue.”
Profitable Leases
How does the head of a youth safety agency in Jackson, Mich., end up overseeing a bingo hall 350 miles away in Kentucky? It started when Wilkinson saw a new way to make money.
Founded by Wilkinson 47 years ago, the National Child Safety Council has built a solid reputation among law enforcement agencies for its printed child safety materials. The council has distributed some of those materials through a plethora of smaller nonprofits that it helped to create or that it brought under its wing.
The boards of directors of several of those charities are completely or primarily made up of safety council employees and contractors (including attorneys). Some of them sit on several of the boards.
Their declared missions: Raise money for child safety or otherwise support child safety efforts. They raise that money largely through street solicitations operated by for-profit fund-raisers and through charitable gaming.
That’s where Dixie Highway comes in.
In 1990, Wilkinson and his wife, Glennis, signed a lease for the Valley Bingo property on Dixie Highway, according to leases filed with the Kentucky Department of Charitable Gaming. The annual rental payment started at about $5,000 and increased a few hundred dollars a year.
Five years later, according to documents from the gaming department, Wilkinson assigned that lease to H&T Rentals, a Delaware-based rental company, for a total of $547,000 over two years.
Signing the lease for H&T were Tony Horton, a safety council representative, and Alan Dye, a Washington, D.C., lawyer who is president of the United Children’s Fund (UCF) and has served on the board of the National Drug and Safety League (NDSL). Both organizations are council-affiliated nonprofits that run games at Valley Bingo.
(More recent lease agreements are not on file with the state agency, but H&T continues to rent the hall to charities for bingo.)
Through this arrangement, charities aligned with the safety council would pay H&T to run games at Valley Bingo, and H&T would pay rent to the Wilkinsons – at a lease rate that, according to the documents on file with the gaming department, was far above the rent the Wilkinsons paid.
According to leases and reports filed with the gaming department, H&T rents to nine charities, one of which is the council and six of which are nonprofits affiliated with the council: the NDSL, the UCF, Kids Missing in America, American Children’s Fund, National Institute for Children’s Environments and the International Child Safety Council.
Are they just different names for the same group?
Rosemary Smith, the safety council’s Kentucky coordinator for the past eight years, says her job entails providing print materials to law enforcement in the names of some of these organizations. If the local police need drug awareness materials, for example, she might provide them in the names of the National Drug and Safety League.
But Smith says all of her safety products and literature come from the Jackson office. She also sits on the board of six council-affiliated organizations that conduct charitable gaming at Valley Bingo, and says her job as the safety council’s state coordinator requires her to pay bills (like utilities and security) for the bingo hall.
If all the organizations are just offshoots of the larger safety council, what’s the advantage?
Network Boosts Income
Kentucky charitable gaming regulations allow a nonprofit to conduct only two gaming sessions in the state per week. By creating a network of seven nonprofits in Kentucky (itself and its six affiliates), the safety council can run seven times as many games.
There’s a catch: Kentucky law requires each organization to be active in the state for at least three years before running the games. But it doesn’t take much to be active. Most of the council affiliates share leases for small suites in a Louisville office building.
Gaming department counsel Scott Jones says that to provide proof that it had operated in Kentucky, an organization can show literature bearing its name.
The network also allows the council to spread out some salaries among different organizations. For instance, in a two-year period from 1999 to 2001, Jerry Kaufman, John Carty and David Wrobel were listed on federal tax returns as fund-raising staff for three nonprofits: the Help Center, the UCF and American Children’s Safety Source. According to those returns, they were paid a total of $1,339,292, for an average annual salary of $223,215 each.
These and other practices have come to light largely because of the Help Center bankruptcy.
Under a deal negotiated 14 years ago with Help Center founder Ivana DiNova (initiated by Wilkinson), the council took over the center’s finances and fund-raising. The council raised $20 million on behalf of the center from 1997 to 2000, according to tax returns and bankruptcy court documents – more than seven times what DiNova says the Help Center needed to operate.
But last year the council suddenly handed control of the center back to DiNova, leaving her with what amounted to more than $300,000 in debt.
While investigators and regulators in several states believe some activities of the council and its nonprofits are cause for legal action, the few legal actions taken in the past appear to have had little impact on the overall operation.
Lawyers Move In
The New York state attorney general banned UCF in 2001 from fund raising there, saying the agency lied about the amount of funds that went to charity. Attorney Dye disputes that claim. The UCF was also fined $25,000 by Pennsylvania’s attorney general in 1999 for “misleading and confusing donors.”
In Tennessee, the Better Business Bureau issued a warning in 2000 about the American Children’s Safety Source, charging that it fabricated claims about finding missing children.
Now more challenges are coming from more directions. The Kentucky Department of Charitable Gaming recently reprimanded five of the council-related organizations – the UCF, the National Drug and Safety League, Kentucky Child Safety Council, Kids Missing in America and American Children’s Fund – for failing to use more than 40 percent of their adjusted gross income from bingo for charitable purposes, as state regulations require. The charities face a one-year suspension of their gaming licenses.
In Florida, McNamee has filed motions asking the U.S. Bankruptcy Court for the 11th District to order the council and its subsidiary nonprofits to turn over numerous documents, including computer records, and says he will seek financial restitution from the council-affiliated nonprofits and their officers if he finds evidence that they inappropriately diverted money from the Help Center.
Last month, New York Attorney General Eliot Spitzer filed a claim with the bankruptcy court in Tampa for “funds solicited in New York State and not properly applied to the charitable purposes” of the Help Center. The claim says the attorney general will ask for every cent raised on behalf of the center from 1992 through 2001.
Michigan and Alabama filed similar claims last month.
For the time being, the council itself remains largely unscathed. It has formed numerous partnerships with law enforcement agencies around the country through its 47 years. In 2001, it received a three-year, $3.6 million grant from the Justice Department’s Office of Juvenile Justice and Delinquency Prevention for its Race Against Drugs (RAD) program, a drug awareness effort that uses American motorsports stars in classroom materials.
The RAD is headquartered in South Daytona, Fla., and is run by Executive Director Ronald Steger, former director of crime prevention for the Justice Department’s Bureau of Justice Assistance.
Steger and his program receive top marks from federal agencies. “It takes unique individuals such as yourselves to make such a difference,” Seattle FBI agent Charles Mandigo wrote Steger in 2000.
Wilkinson retired from his post as director of the safety council in 1993, although he continued collecting consulting fees. He turned over the reins to his son, K.C.
This summer, K.C. left the council, which as of last month reported that it had no director.
