Step by step instructions to KEEP YOU AND YOUR BOARD OUT OF Inconvenience Bits of knowledge from the Ruler Establishment.

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Instructions to KEEP YOU AND YOUR BOARD OUT OF TROUBLE Insights from the King Foundation Experience 16 th Annual CASA Statewide Conference October 7, 2005

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JAN SOIFER Delgado, Acosta, Braden & Jones, P.C. (512) 583-0451

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Board Members of Nonprofit Organizations Have Legal Duties and Responsibilities What are they? What happens on the off chance that you don\'t have the foggiest idea? What do you have to do to do it right?

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Board individuals must perform obligations: in compliance with common decency With normal consideration In a way they sensibly accept are to the greatest advantage of the charitable Board individuals deal with the issues of the association and plan approaches. Staff individuals handle the everyday operations.

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Question? What happens when the Board doesn\'t bear its duties?

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Once upon a period…

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2002 (Yeckel – money just) $81,000+ every month or $975,000 every year

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2002 (Vett – money just) $37,500+ every month or $450,000+ every year

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2002 (Yeckel and Vett – money just) Yeckel: $975,000 Vett: $450,000+

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Yeckel\'s remuneration increment 1993-2002 1993: $225,000+ 1998: $500,000+ 2002: $975, 000 In 9 years, Carl Yeckel\'s money pay QUADRUPLED

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King Foundation Assets 1993: $31.5 Million 1998: $48.1 Million 2002: $37.6 Million

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Expert\'s Comparables for Yeckel 1993: $93,000 middle (Yeckel: $225,000+ >double) 1998: $117,000 middle (Yeckel: $500,000+ >quadruple) 2002: $136,500 middle (Yeckel: $975,000 >seven times more)

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$1,200,000 $1,000,000 $800,000 Actual Salary (excluding Visa charges) Reasonable Salary $600,000 $400,000 $272,887 $244,207 $226,805 $200,000 $0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Excessive Compensation To Carl Yeckel $974,978 $935,120 $805,710 $670,245 In Thousands $536,384 $430,595 $345,369 $136,598 $129,010 $116,868 $126,480 $116,868 $104,978 $98,952 $101,921 $96,071 $93,271 YEARS

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Vett\'s pay increment 1993-2002 1993: $122,000+ 1998: $250,000 2002: $451,000 In 9 years, Vett\'s money pay practically QUADRUPLED

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Expert\'s Comparables for Vett 1993: $74,000 middle (Vett: $122,000+ >1.6 times more) 1998: $92,000 middle (Vett: $250,000 >2.6 times more) 2002: $108,000 middle (Vett: $451,000 >four times more)

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$600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Excessive Compensation To Thomas Vett $451,937 $394,665 Actual Salary (excluding Visa charges) Reasonable Salary $367,361 In Thousands $303,432 $248,461 $208,772 $175,205 $146,141 $133,628 $122,120 $107,913 $101,918 $99,919 $78,172 $92,326 $80,517 $82,933 $75,896 $73,684 YEARS

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Reasonable Compensation: Yeckel: $ 136,598 Vett:: $ 107,913 Mott: $ 60,000 Actual Compensation, Three Employees $1,568,537 Reasonable Benefits Obligations @ 20% of Reasonable Compensation Benefits Obligations of Foundation (restorative and retirement) King Foundation Year - 2002 Actual Compensation and Benefits versus Sensible Compensation and Benefits (excluding Mastercard charges) $3,000,000 Total: $ 2,545,168 $2,500,000 + $976,631 $2,000,000 In Thousands $1,568,537 $1,500,000 $1,000,000 Total: $ 365,413 $500,000 + $ 60,902 $304,511 Actual Reasonable

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Credit Cards $750,000 charged to Foundation Mastercards 1997 – 2002: $400,000 - Vett (3700 charges) $350,000 - Yeckel (2000 charges) Reimbursements in 2002: $75,000 - Vett $124,000 – Yeckel

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Charges for Foreign Travel Vett: $25,000 setting out to Mexico, Canada, Italy, France, England and Australia Yeckel: $69,000 making a trip to England, Greece, Turkey, Italy, Hong Kong, and China

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Charges for Out of State Travel Vett : $88,000 flying out to New York, Colorado, Utah, Virginia, Rhode Island, Wyoming, California, . . . Yeckel : $112,000 venturing out to Montana, Indiana, Arizona, North Carolina, . . .

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Charges for Meals and Entertainment in Dallas Vett : $56,000+ Over 620 charges in 6 years Yeckel : $10,000+ Over 160 charges in 6 years

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Charges for Gas, Tolls and Auto Repairs in Dallas Vett : $26,000+ (excluding the expense of the Oldsmobile Aurora) Yeckel : $15,000+ (not including the expense of the Chevrolet Suburban)

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Charges for Books, Magazines, Music, Movies, Videos, and so on. Vett : $20,000+ (Plus an extra $10,000+ for On Line administrations - AOL, MSN, Juno) Yeckel : $23,500+

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Retail Store and Other Charges Vett : $31,000+ (flower vendors, pet supplies and veterinary facilities, shoe repair, camera shops, garments, and so on.) Yeckel : $40,000+ (pen shops, camera shops, donning merchandise, pet supplies and veterinary centers, handyman shops, firearm and military stores, garments, and so forth.)

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Health and Fitness Vett: $108,000+ (pharmacies, optical shops, dental specialists, specialists, wellness focuses, nourishment stores, and so forth.) Yeckel: $22,000+ (pharmacies, wellness focuses, specialists, clinic and therapeutic protection, optical shops, and so forth.)

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2002 King Foundation resources: $37.6 Million Charitable endowments: $1.79 Million Other expenses: $3.28 Million Total expenses: $5.07 Million

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Retirement or Deferred Compensation "Bargains" ¾ of a year ago\'s wage forever ½ of that for surviving life partner No commitments paid by representative Not endorsed by the Board When connected to irrational pay, brings about more extreme pay

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What did the jury choose? Yeckel and Vett broke their trustee obligations, submitted extortion and got unnecessary pay Other individuals from the Board of Directors additionally ruptured their guardian obligations

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The jury partitioned duty: Yeckel 55% Vett 25% Jordan (Lawyer/Director ) 14% Grover + Phipps 3% each

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How much do they need to pay? Yeckel – over $5.2 million in inordinate pay and advantages, in addition to enthusiasm, in addition to $10.5 million in commendable harms, or more than $16 million (and tallying) Vett – over $2.3 million in exorbitant remuneration and advantages, in addition to enthusiasm, in addition to $3.5 million in excellent harms, or more than $6 million (and numbering)

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What happened to the volunteer Board individuals? In light of the jury\'s decision, Grover and Phipps would have been in charge of 3% of $7 million or over $200,000 Grover settled by paying $200,000, and Phipps relinquished retirement pay esteemed at $180,000 Junkin documented liquidation in Oklahoma, and at last consented to the section of a $300,000 judgment against him

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What about Will Jordan, legal advisor/chief? Taking into account the jury\'s decision, he would have been in charge of 14% of $7 million or nearly $1 million He settled before trial for $250,000 – yet\'s regardless he battling his insurance agency for repayment

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Happily Ever After? The Good News The judge found that Yeckel and Vett\'s "retirement contracts" were void, so regardless of the possibility that the Foundation doesn\'t gather on the judgment, it dispensed with $12 million in future liabilities for retirement benefits

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Or Not? The Bad News Yeckel has paid over $2 million in lawyers\' expenses, and is engaging the judgment Vett terminated his legal advisor and cases to be poor The King Foundation had no protection to pay for the suit, and will have paid over $1 million on the prosecution and the bid The Foundation was analyzed by the IRS and has been surveyed extra assessments (in light of prohibition of what the jury observed to be nonsensical remuneration)

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Duties of Board Members In accordance with some basic honesty With customary consideration In a way sensibly accepted to be to the greatest advantage of the charitable

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Question? What is acting in accordance with some basic honesty as a chief of a charitable?

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Good Faith Acting with genuineness and loyalty to the Director\'s obligations Acting without an expectation to exploit the charitable Acting simply after she trusts she has adequate data

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Question? What sorts of moves ought to a chief make to show conventional consideration in the execution of her obligations in the interest of a not-for-profit?

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Ordinary Care The consideration that a normally judicious individual in a comparable position would practice under comparable circumstances Attend gatherings Devote a sensible measure of time to obligations Review and comprehend materials Make educated choices Ask questions

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Ordinary Care, proceeded with Ordinary consideration: Follow the local laws and other corporate approaches Document corporate choices Take, survey, support and keep minutes Review and favor yearly monetary explanation Monitor corporate accounts Expenditures for magnanimous purposes Expenditures of confined assets Compensation of administrators

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In the Best Interest of the Nonprofit Personal, business, or family intrigue must not beat the enthusiasm of the not-for-profit Belief that activity is to best advantage must be sensible

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Absolutely Prohibited! No advances or profits paid to chiefs No dissemination of benefits that will make the association bankrupt

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Protections for Board Members Reliance on data supplied by others Officers and workers Accountants Attorneys Board panels of which the executive is not a part But rather can\'t depend on this data if the chief has learning that the data is erroneous

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Protections for Board Members Delegation of speculation power No obligation for a venture choice the length of the Board chose the venture counsel in accordance with some basic honesty and with standard consideration

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Mandatory Indemnification A not-for-profit must pay the executive for sensible costs brought about by the chief after a court request and the fatigue of all offers

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