Bielfeldt suit largest in recent state history
December 10, 2004
By Dori Meinert
of Copley News Service
WASHINGTON, D.C. - Illinois Attorney General Lisa Madigan's lawsuit against Peorian Gary Bielfeldt and his family marks only the fifth time in seven years the office has taken legal action against a not-for-profit organization in the state.
But the case against the Bielfeldt Foundation's former board members - Bielfeldt, his wife Carlotta, and three children, David, Linda Bielfeldt Greene and Karen Bielfeldt-Wales - involves far more money than any of the other lawsuits.
The civil suit against the Bielfeldts seeks to recover $39 million, including $30 million in foundation assets it alleges were lost due to risky investments and $9 million paid to Gary Bielfeldt and his son, David, for
managing those investments. If recovered, the funds would go back into the foundation, allowing more funds to be distributed to central Illinois charities as the foundation was established to do, a Madigan spokeswoman said Thursday.
Any fines and penalties that might be assessed would go into the state's Charity Bureau Fund to be used to enforce the Illinois Charitable Trust Act. That is the law under which the attorney general's office regulates the 25,000 registered charities in the state.
The Bielfeldts have denied any wrongdoing. They are highly regarded philanthropists in central Illinois, having contributed through their foundation to a wide range of community projects, from Glen Oak Zoo to the Lakeview Museum.
"The Bielfeldts have made very important contributions to their community. The intention of this action is not to discourage philanthropy or the establishment of foundations. However, no person is allowed to ignore the laws of our state," said Madigan spokeswoman Melissa Merz.
"Once the Bielfeldt Foundation was funded (by the Bielfeldts) and considerable tax benefits were reaped, the funds no longer belonged to the Bielfeldts. At that point, the Bielfeldts had a duty to act in the best interests of the beneficiaries of the funds, not in their own best interests," Merz said.
Bielfeldt attorney David Murray said Wednesday he was surprised by the legal action because the family has cooperated with the attorney general's office. In July, four of the five family members who sat on the foundation board were replaced with non-relatives. Only Carlotta Bielfeldt remains, though she relinquished her title as president.
Merz said the state's legal action was filed "because we clearly want to recover the damages. There has never been an effort to repay those losses."
Only two of the attorney general's five recent cases against not-for-profit organizations have been resolved. The attorney general's office won a judgment of $200,000 - the amount it sought - in a case involving the misappropriation of funds from a baseball league in a Chicago suburb. Another case settled in 1999 for $575,000, a fraction of the $1.9 million sought from a former president of the Illinois College of Optometry.
As more and more tales of abuses unfold, not-for-profits across the country face increasing scrutiny from state and federal law-enforcement agencies, regulators and legislators.
While lawsuits against foundations have been relatively rare in Illinois, attorneys general in New York and California have brought high-profile cases against foundations that have sparked the attention of state and federal lawmakers.
Senate Finance Committee Chairman Charles Grassley, R-Iowa, has proposed tighter federal restrictions on foundation's "self-dealing," or paying family members for services and investments. Grassley expects to act on the issue next year.
One advocate of tighter restrictions praised Madigan's suit against the Bielfeldt Foundation, saying her efforts will help educate other foundation officials.
"It's unusual, but it's a laudatory thing the attorney general is doing," said Rick Cohen, executive director of the National Committee for Responsive Philanthropy. "The attention the attorney general creates by simply asking the questions and filing litigation is propelling not just the Bielfeldts but other foundations to rethink their practices around these types of activities."
Cohen cited the practices of the Bielfeldt Foundation at a Senate hearing this year.
Madigan's office is seeking the court's help in determining the precise amount of the foundation's assets that Bielfeldt invested in high-risk commodity futures trading. The commissions paid to Bielfeldt and his son were based on the number of contract purchases or sales, giving them a financial incentive to increase trading, the court document alleges.
"If the attorney general is saying this is the way the attorney general's office has to proceed in order to get this type of information, that's a warning sign that the standards for disclosure and reporting and transparency when it comes to potential self-dealing are not strict enough," Cohen said.
A group representing some of Illinois' largest foundations also supports the attorney general's efforts.
"As a regional association of grant makers, we support enforcement of all the laws that are currently on the books regarding foundations," said Elizabeth Lach, a vice president of the Donors Forum of Chicago, which represents some 200 grant making members in the state.
A major obstacle for attorneys general in most states is the lack of resources and manpower, Cohen said, adding Madigan's office is one of just a dozen or so in the country that attempts to enforce regulations for not-for-profits.
The complexity of the cases also deters many attorneys general from effectively enforcing state laws regulating not-for-profits, Cohen said. The Internal Revenue Service is prevented from sharing its data with them.
The Illinois Attorney General's Office has five attorneys in its charitable division to monitor 25,000 registered charities in the state, including foundations. The five attorneys handle more than 150 litigation cases a year, mostly probate and trust matters, according to Merz. The Bielfeldt case is being handled by the special litigation bureau because it involves complicated financial transactions.