VENTURA, Calif. (CN) – A so-called nonprofit, Cars 4 Causes, claims to accept donated cars for charity, but paid its owners and cronies millions of dollars and owes millions more “to thousands of charities and lacks the ability to pay it back,” California claims in court.
Attorney General Kamala Harris and the Ventura County District Attorney sued the family-owned nonprofit on Dec. 1 in Superior Court, alleging self-dealing, breach of charitable trust, unfair competition and seven other causes of action.
Briefly, the state accuses the family of lining their own pockets from the donated cars and failing to deliver the money to charities as promised.
Cars 4 Causes, based in Ventura, is or was run by co-defendants Patti Livingston, the president of its board of directors; her mother, Pat Jessup, the executive director; and Matthew Smith, an officer/director and “compensated executive,” the attorney general says.
Also sued are MMI Capital Corp., a profit-seeking Nevada corporation run by Smith, which was paid hundreds of thousands of dollars to “design, approve and control the content of C4C”s charitable solicitations;” and C4C”s accountants, Lindsay and Company, and its partner Maria Berntson.
“(T)he majority of proceeds from donated vehicles never made it to charities,” the attorney general says.
Harris seeks restitution, punitive damages and removal C4C”s directors and officers.
“By their own accounting, C4C currently owes about $2 million to thousands of charities, and lacks the ability to pay it back,” the attorney general says. But she claims the group uses “accounting methods specifically designed to understate their charitable payment obligations, and that the true figure owed to charities is even greater.”
Harris estimates that the “total damages proximately causes by defendants” actions and omissions exceed $10 million.”
A spokesperson for Cars 4 Causes could not be reached for comment over the weekend.
According to the Cars 4 Causes website, it has shared proceeds from more than 200,000 vehicles with more than 16,500 nonprofit organizations throughout the United States.
“As of our last fiscal year, we surpassed $120 million in donations received since our inception,” the website states.
The website includes testimonials from the Alzheimer”s Association, Boy Scouts of America, Make a Wish Foundation and other well-known nonprofits.
Cars 4 Causes advertises itself as “America”s most trusted and recognized choice for turning your tax deductible vehicle donation into cash for your favorite charity.” But the attorney general says, “the officers and directors of C4C chose to pay themselves, and their families and friends, to the detriment of the donor”s specified charities,” and provided the numbers.
Cars for Causes claims that 70 percent to 90 percent of net proceeds from donated cars go to charities, but of the $5 million in donated vehicles it received in 2013, less than $500,000 – not even 10 percent – went to charities, the attorney general says.
C4C reported to the IRS that it distributed more than $2 million in “grants” to other charities, but $1.5 million of that – reported as “indirect contributions” – was actually spent on fundraising and operating expenses, the state says. “In truth, not one charity received a single penny of this money [the $1.5 million],” the attorney general says.
C4C “designed and retroactively applied a pretextual accounting system that artificially reduced the money it owed to other charities,” the state says. “Defendants kept their ”family business” afloat by diverting restricted charitable assets away from the very charities C4C promised donors it would support.”
It calls Livingston”s and Jessup”s compensation excessive and unreasonable from 2005 to 2014.
Nor did its largesse stop at the defendants, the attorney general says. “(T)he officer/director defendants paid themselves and their friends and families at the expense of legitimate charities,” the complaint states. “C4C currently employs or has in the past employed or compensated Livingston; Livingston”s mother, Jessup; Livingston”s ex-husband, and his companies; Livingston”s sister, Lorraine Lance; and Livingston”s father, Bob Jessup. C4C also hired Smith”s company, MMI, and Smith”s friend”s company ISBX. Lance, MMI and ISBX were all paid to do the same, or substantially similar, work – online fundraising. Over the relevant period, C4C paid over $800,000 to MMI, over $650,000 to Lance, and over $1.6 million to ISBX.”
To top it off, Harris says, C4C”s “advertising campaigns [were] so extensive even a C4C director deemed them ”harassing.””
C4C received tax exempt status from the IRS in 1997, and its articles of incorporation said its purpose was to accept cars, trucks, boats, merchandise and real estate to benefit the donors” charities. The articles state that “no part of the net income or assets of the organization shall ever inure to the benefit of any director, officer or member thereof or to the benefit of any private person,” according to the 26-page complaint.
The officers and directors are fiduciaries, and so are legally required to put the interests of charities ahead of their own. But that”s not what happened, the state says. It claims that all the defendants, including the accountants, profited from the deceptions.
Their unfair competition alone – one of 10 causes of action – included violations of 14 state laws and regulations, the attorney general says. She wants the company dissolved and its assets distributed, among other things.
The charges include breach of fiduciary duty, aiding and abetting, untrue or misleading statements, unjust enrichment and negligence.’