VIEWS: 14 PAGES: 27 POSTED ON: 9/3/2011
\ SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK ANDREW M. CUOMO, Attorney General of the State of New York, on behalf of the People of the State of New York, Index No. Plaintiff, COMPLAINT - against lTNITED HOMELESS ORGANIZATION, INC., STEPHEN RILEY, and MYRA WALKER, Defendants. Andrew M. Cuomo, Attorney General of the State of New York, on behalf of the People of the State of New York, alleges the following against United Homeless Organization, Inc., a New York not-for-profit corporation ("UHO"), Stephen Riley, President and Director ofUHO ("Riley"), and Myra Walker, Secretary and Director of UHO ("Walker") (together, "Defendants"). NATURE OF THE CASE 1. Each day on the streets of New York City, URO table workers convince sYmpathetic passersby to deposit cash into plastic jugs under the false pretense that their hard-earned money is going to a bona fide charity that funds services for the homeless. URO is a sham. All of the money dropped into the URO jugs is pocketed by the URO table workers, Riley, Walker, and other insiders, or is used by Riley and Walker to perpetuate a scheme to defraud the public. Riley and Walker run URO in total disregard of the legal and fiduciary requirements that bona fide charitable corporations must follow, resulting in hundreds of thousands of dollars of charitable assets being unaccounted for or misused annually. 2. As President, Riley hides behind UHO's facade of corporate legitimacy and describes UHO table wotkers as "members" ofUHO. Donning UHO-branded hats, identification badges, aprons, and other paraphernalia, UHO table workers mislead the public that donated funds will be used for services for the homeless. 3. The table workers pay Riley and Walker a fixed "fee" for the right to use the UHO materials and keep the daily cash donations in excess of the fee, even though the funds are raised in the name ofUHO. 4. Although assets ofUHO, Riley and Walker treat the "fees" as their personal kitty, dipping into them whenever they choose. In effect, Riley and Walker have co-opted a tax-exempt, charitable corporate structure for their own personal benefit. 5. In order to induce cash donations from the public, the table workers make exaggerated, false, and misleading statements to the public about the "services" UHO provides, including that funds go to provide food and clothing, are given to "charities and different churches," and support "pantries," "shelter," and "detox centers." However, UHO does not provide or fund any of these services. 6. Riley and Walker perpetuate their scheme by ensuring that there is no functioning board to oversee their actions. Riley and Walker are the only directors on UHO's board. UHO has not held an election for directors since its incorporation in 1993. Left unchecked, Riley and Walker routinely flout the requirements applicable to not-for profit corporations. In violation of their fiduciary duties, Riley and Walker continuously disregard laws on charitable solicitation and prohibitions against profit sharing and -2 private inurement. Riley and Walker improperly distribute UHO cash to themselves, lJHO workers, and other insiders favored by Riley and Walker. 7. Riley and Walker fail to maintain procedures to account for UHO's total revenues and expenses, fail to maintain financial controls, and fail to keep accurate books and records as required by law. Riley and Walker simply ignore the legal and governance requirements charities must observe. 8. The Attorney General seeks a judgment, among other things: (a) enjoining UHO, Riley and Walker from soliciting charitable contributions from the public; (b) enjoining Riley and Walker from accessing, using, or distributing UHO assets; (c) holding Riley and Walker liable for their misappropriation and waste ofUHO assets; (d) removing Riley and Walker as officers and directors ofUHO; (e) enjoining Riley and Walker from serving as.an officer or director ofUHO or any other not-for-profit corporation in the future; (f) dissolving UHO; and (g) granting such other and further relief as the Court deems just and proper. PARTIES 9. The Attorney General is responsible for overseeing the activities of New York not-for-profit corporations and the conduct of their officers and directors, in accordance with New York's Not-for-Profit Corporation Law ("N-PCL"), Estates, Powers & Trusts Law ("EPTL"), and Executive Law ("Exec. L."). 10. The Attorney General maintains offices at 120 Broadway, New York, New York. -3 11. Defendant URO is incorporated in New York as a Type B (charitable), not-for-profit corporation under § 402 of the N-PCL. Its principal office is 2160 Clinton Avenue, #5K, Bronx, New York 10457. 12. UHO is registered with the New York State Attorney General's Charities Bureau. It files annual financial reports with the Charities Bureau, including the IRS Form 990 and the New York CHAR 500. UHO's certificate of incorporation states that its purposes include: [T]o inform the public about the problems of and reasons for homelessness, to raise funds and to provide financial assistance and expertise to individuals and organizations providing shelter, care and assistance to homeless men and women in the State of New York. 13. UHO is exempt from federal income tax under § 501(c)(3) of the Internal Revenue Code. Its certificate of incorporation requires URO to operate in a manner that would not cause it to lose that status. 14. Defendant Stephen Riley resides at 2160 Clinton Avenue, #5K, Bronx, New York 10457. Riley is a co-founder ofURO. Riley has served continuously as UHO's president and a member of its board of directors since UHO's incorporation in 1993. 15. Defendant Myra Walker resides at 3511 Putnam Place, #5D, Bronx, New York 10467. Walker has served as a member of UHO's board of directors since 1993. She also serves as its secretary and is involved in UHO's day-to-day operations. - 4 JURISDICTION AND VENUE 16. The Attorney General brings this action on behalf of the People of the State of New York under Article 7-A of the Executive Law, § 175, N-PCL §§ 112,706, 714 and 720, EPTL § 8.1-4, and as parens patriae. 17. Under Exec. L. § 175, the Attorney General is authorized to bring an action based on violations of Article 7-A of the Executive Law to enjoin the fraudulent solicitation or collection of charitable funds and for an order removing any director or other person responsible for the violations. 18. Under N-PCL §§ 720(a) and 720(b), the Attorney General is authorized to bring an action to require the directors and officers of a New York not-for-profit corporation to account for the mismanagement of corporate assets and for transfers, loss, or waste of corporate assets in violation of their fiduciary duties and to recover all resulting damages from such officers and directors. 19. Under N-PCL §§ 112(a)(4), 706(d) and 714(c), the Attorney General is authorized to seek removal of corporate officers and directors for cause, including violations of their fiduciary duties. 20. Under EPTL § 8.1-4(m), the Attorney General nlay institute appropriate proceedings to secure the proper administration of a not-for-profit corporation. 21. Under N-PCL § 112(a)(l), the AttOTIley General is authorized to bring an action to dissolve a not-for-profit corporation that has acted beyond its capacity or power, or to restrain it from carrying on unauthorized activities. Also, under N-PCL § 1101(a)(2), the Attorney General is authorized to bring an action to dissolve a corporation -5 that has exceeded the authority conferred upon it by law, or has carried on, conducted or transacted its business in a persistently fraudulent or illegal manner. 22. Under N-PCL § l12(a)(7), the Attorney General is authorized to bring an action to enforce any right given under the N-PCL to an officer or director of a not-for profit corporation. Accordingly, the Attorney General may bring an action for dissolution in accordance with N-PCL § 11 02(a)(2)(D), which authorizes a director to petition for a judicial dissolution of a corporation where the "directors ... in control of the corporation have looted or wasted the corporate assets, have perpetuated the corporation solely for their personal benefit or have otherwise acted in an illegal, oppressive or fraudulent manner." 23. The Attorney General also has common law parens patriae authority to conserve charitable property and to protect the public from fraudulent solicitation. 24. Because the Attorney General maintains offices at 120 Broadway, New York, New York and Defendants' solicitation of funds is conducted principally in New York, New York, venue is properly laid in New York County, as provided in CPLR § 503(a). FACTS UNDERLYING ALL CAUSES OF ACTION I. The Scope of UHO's Operations 25. Riley created UHO over fifteen years ago to generate cash for his private benefit and the private benefit of other individuals. 26. UHO raises funds by direct, face-to-face solicitations of the public on the sidewalks of New York City. Passersby are asked to put cash in a plastic jug, which bears the UHO name and logo. - 6 27. Seven days a week, URO workers set up tables and URO collection jugs in prominent outdoor locations around Manhattan, typically in areas with high pedestrian traffic. Up to 50 tables are set up on Monday through Saturday, with a smaller number deployed on Sundays. UHO's practice is to have two shifts (morning and afternoon) on weekdays, and one shift on weekends. 28. In exchange for paYing a fee to Riley, URO workers receive tables and URO-branded materials, including a tablecloth, apron and plastic jug, and the right to claim membership in URO and wear a URO name badge. The fee is typically $15 per shift per person. 29. The funds collected at URO tables are solicited in the nanle ofURO and constitute revenue ofURO. 30. However, Riley allows the table workers to pocket the donations in excess of the fee paid to him. 31. This arrangement was acknowledged by Riley, Walker, and other URO representatives in testimony before the Office of the Attorney General ("OAG"). Riley testified as follows: Q: And with the rest of the money that is collected in the jug, after a table worker pays their fee, are they free to keep for themselves everything that is in the jug? A: Yes. 32. For each cluster ofURO tables (such as the Times Square area), at least one table worker is designated by UHO as a "manager." The manager is responsible for , collecting the fees at the end of each shift from the other URO workers in his or her area. The manager is also supposed to pay the shift fee, but the fee may be reduced or waived -7 if the manager turns over to Riley (or his agents) enough money in fees collected from others. A manager may even earn a "bonus" if the collected an10unt is high enough. 33. The manager is supposed to record shift fees on a UBO "time and expense" sheet, which each worker signs. The time and expense sheet does not call for the total donations collected to be recorded. 34. At the end of each day, Riley, Walker and/or Walker's sister, Sheila Walker, visit each manager to collect the fees, along with the time and expense sheets. The fees, or some portion thereof, are deposited in UBO's bank account (the "UBO Account") the following day by Walker or Walker's sister. According to bank records, Riley is the only authorized user of the URO Account. In practice, Riley has given Walker and her sister access to the UR 0 Account. . 35. URO's operations do not include any of the following: (a) shelters; (b) soup kitchens or other food distribution services; (c) services in connection with distributing clothing, toiletries, or other essential items to the homeless; (d) services to assist the homeless in finding pennanent housing; or (e) detox centers. 36. URO does not provide social workers to assist the homeless. 37. URO does not tum over any of the funds it raises from the public to charities to support the types of services enumerated in the two preceding paragraphs. II. UHO Obtains Donations Under False Pretenses 38. In soliciting contributions from the public, URO and its workers routinely make false and misleading statements about how URO uses and distributes the donated funds. -8 39. False and misleading statements made by UHO workers to encourage donations include: (a) Telling the public that UHO is feeding the honleless, when, in fact, URO does not run any programs to feed the homeless; (b) Stating that "we solicit donations to help keep the pantries running, and we provide shelter, we have a bunch of detox centers ... we help support [thenl]," when, in fact, LTHO does not run or support such facilities; and (c) Claiming that URO and/or Riley distribute the funds collected at the tables to "charities and different churches," when, in truth, UBO and Riley do not make any distributions to charities or churches. 40. URO workers also make false statements regarding their authority to solicit charitable contributions in public locations. Under the Administrative Code of the City of New York, § 21-111, a license from the New York City Commissioner of Social Services is required to solicit money or donations in public places in New York City. According to Department of Social Services ("DSS") records, URO does not have, nor has it ever applied for, a public solicitation license from DSS. 41. Nonetheless, URO workers display a document at the tables that they falsely characterize as a "license" or permit to solicit. In fact, this document is simply a copy ofUBO's incorporation receipt, a routine document provided by the New York Department of State at the time of incorporation. The incorporation receipt does not convey any special privileges for soliciting the public on the sidewalks or anywhere else. Nor is it a substitute for a public solicitation license from the Commissioner of Social Services. -9 42. UHO's published materials, including its website, state that UHO provides food and clothing to the homeless. For example, UHO's website claims that the tables function as a "food distribution point" and that UHO workers "distribute clothing." 43. However, URO has no program for purchasing or providing food or clothing for the homeless, as Riley and Walker admitted in testimony before the OAG. UHO's only distribution of food and clothing-is on an ad hoc basis, when members of the public occasionally drop off such items at a solicitation table, and the table worker chooses, but is not required, to pass the items along. 44. UHO's published materials, including its website, also mislead the public by stating that UHO helps homeless individuals by providing "outreach" at its tables, and that the tables function as a "community center" that provides support to the homeless community. 45. In fact, the "outreach" consists solely of oral referrals to other organizations or agencies that (unlike URO) provide direct services. 46. UHO's published materials, including its website, misleadingly state that UBO provides daily "emergency assistance." This description fraudulently creates the illusion that URO maintains a program of giving cash to individuals based on an analysis of actual need. In fact, the chief criterion for obtaining such assistance is being a fee paYing merrlber ofUHO. URO has no policies, procedures or criteria for determining an "emergency." 47. All funds kept by the table workers receive the "emergency" label-even though some of the table workers have been regularly receiving that money for years. - 10 III. Riley and Walker Run UHO Without Any Oversight or Accountability 48. Riley and Walker serve as UHO's only directors, although N-PCL § 702 requires a minimum of three directors. There are no independent directors. URO has not held any elections for directors since UHO's incorporation in 1993. A third director on UHO's board died in 2004, and he has never been replaced. 49. In the absence of any board oversight, Riley and Walker are left to their own devices, with no independent monitoring of their actions. Operating on their own, Riley and Walker run UHO under their own rules, for their own financial benefit. 50. As directors, Riley and Walker have failed to provide even the most basic corporate and financial oversight required of fiduciaries. In the last three years alone, the board, among other things, has not: (a) required any internal financial controls, including policies or procedures regarding access by Riley, Walker and others to UHO's cash; (b) required any reliable accounting system, including any system for accurately tracking revenues or expenses; (c) reviewed and approved any budget ofURO, or even required that a budget be prepared; or (d) adopted any policies or procedures for distribution of the hundreds of thousands of dollars URO lets workers keep each year as "emergency assistance" or stipends. 51. In testimony before the OAG, Riley admitted that the URO board (i.e., Riley and Walker) does not spend any time reviewing the IRS Form 99Q--a sworn annual filing containing UHO's financial and operating information-before it is filed - 11 with the IRS and the Attorney General. As alleged below, UHO's Forms 990 have been materially false and misleading. IV. Riley and Walker Fail to Properly Record and Report DBO Revenue and Expenses 52. As UHO's corporate officers, Riley and Walker have not instituted even the barest rudiments of proper fiscal administration ofUHO's charitable assets. A cash business, URO has no procedures to ensure that donations and other revenues are properly recorded, deposited in UHO's bank account, and reported to the OAG. Nor does it have procedures to ensure that expenses are properly documented and reported to theOAG. 53. As a result of Riley's acknowledged failure to maintain accurate business records, URO has filed materially false and misleading reports with the OAG from 2003 to the present, including the IRS Form 990 and the New York CHAR 500 form. These sworn fom1s contain materially false and misleading information in that they: (a) materially underreport UHO's revenues and expenses, for example by not reporting the hundred of thousands of dollars that URO collects but its workers keep; (b) falsely report that no compensation was paid to officers and directors (and fail to even identify Walker as a directe>r), even though Riley and Walker were paid amounts purportedly for services provided to the organization; (c) disguise payments for personal living expenses paid to Riley, Walker and other insiders as "emergency cash assistance" or "stipends"; and (d) omit related-party transactions, such as payments to Riley's family men1bers. A. Revenues 54. With respect to revenues, URO only records shift fees paid by its workers to use URO tables and solicitation materials. It does not account for its largest source of - 12 revenue: the hundreds of thousands of dollars donated at the URO tables that are pocketed by URO workers. l.JBO does not keep records of these donations as revenues despite the fact the URO workers solicit the funds in the name ofl.JHO while (a) wearing URO hats and aprons and a URO identification badge, (b) sitting at tables covered with a URO tablecloth, (c) using cash collection containers emblazoned with the URO logo, and (d) displaYing URO printed materials. 55. Riley shrugged off any responsibility for properly accounting for DBO's revenues when asked about it in testimony before the OAG: Q: Bow much gets collected on average per day? A: I don't know. Q: You are ... president of the organization and you don't know how much gets collected? A: No, I don't. Q: So how does URO know how much it is collecting? A: We don't. 56. URO conceals the extent of its fundraising activity by keeping no records of the funds kept by the workers and by excluding those amounts from its filings with the GAG. 57. DBO maintains a "don't ask, don't tell" policy regarding the total sums collected at its tables. One manager told the OAG that she considered it "none of [her] business" how much money was collected by those working under her supervision. 58. Thus, the amount of donations is grossly underreported. In the years 2003 through 2007, URO reported revenue ranging from $60,163 to $97,890 on its annual filings with the OAG. The Attorney General's investigation determined that even a - 13 conservative estimate would show the amount of donations collected annually at the tables is at least six times the amount reported. Moreover, the extent ofURO's collection of donations online and through the mail is unaccounted for, and unknown. 59. Even the amount of fees collected by Riley and Walker and reported as LiliO revenue is grossly underreported. The Attorney General's investigation determined that even a conservative estimate would show the amount of fees collected annually is at least twice the amount reported. B. Expenses 60. Just as URO fails to book the public's donations as revenues, URO fails to document and report as expenses the hundreds of thousands of dollars kept by URO workers. 61. Of the expenses actually reported by LTRO, many lack sufficient documentation to support legitimate business purposes. In 2007 and 2008 alone, nearly $50,000 in cash expenses lacked documentation explaining the purpose for which URO furids were spent. 62. Thousands of dollars of cash withdrawals and payments for personal living expenses that went to Riley, Walker, and other insiders were misleadingly reported as "stipends." URO maintained virtually no contemporaneous records showing the recipients of such "stipends" or the amounts they received. 63. URO's filings with the Attorney General state that Riley receives no compensation from LiliO. In testimony before the OAG, Riley claimed he received no compensation. - 14 64. Riley testified that he receives social security disability checks and governmental housing assistance, but has no other sources of incon1e. In fact, Riley uses URO funds to supplement his government benefits. 65. Walker admitted to the OAG that she receives cash compensation from URO, but claimed the amount is limited to $120 per week, whereas Riley conceded the figure may in fact be ~ore than $120 per week. In any event, URO does not document' its paYments to Walker, nor does Walker document her receipt of them. 66. Walker testified that she receives governmental housing assistance, but has no other sources of income apart from the housing assistance and the $120 weekly paYments from URO. In fact, Walker uses additional URO funds to supplement her housing assistance and the weekly paYments from URO. 67. URO also fails to maintain accurate books and records regarding URO funds paid to vendors and independent contractors, including relatives of Riley. Nor does it report the payments to Riley's relatives as related party transactions, as required. 68. In early 2009, after being served subpoenas by the OAG demanding documents concerning UHO's expenses, UHO attempted to paper over its deficient record-keeping and waste of corporate assets. URO and its accountant took steps to sanitize expenses previously designated as "stipends" by issuing IRS Forms 1099 for the years 2005 through 2007, identifYing various individuals who allegedly received "nonemployee compensation" in those years. Yet UHO maintained no contemporaneous records showing that the individuals identified had received such con1pensation or for what purpose. - 15 IV. Riley and Walker Routinely Waste and Misappropriate UHO Assets 69. Although Riley is the only officially authorized user of the URO Account, in practice, he has given Walker and her sister access to the URO Account, including use of the ATM/debit card, deposit authority, and online access for electronic transactions. Riley and Walker routinely draw down the URO Account and other assets for their personal benefit, as well as for others. As described below, they use LillO funds for day to-day personal living expenses, such as cable television, groceries, restaurant meals, utilities, shopping, personal travel and other personal expenses. 70. Riley and/or Walker have removed, or caused to be removed, tens of thousands of dollars in cash from the URO Account. Over $173,000 in cash was withdrawn from the account between January 2005 and August 2009. 71. Over $85,000 in cash was withdrawn in 2007 and 2008 alone. URO records fail to explain how all that cash was used; approximately $50,000, or more than half the funds withdrawn in those two years, is unaccounted for. Moreover, the limited documentation that does exist is generally insufficient to support a legitimate business purpose. 72. Indeed, URO's limited records show that UHO funds are often used for personal items wholly unrelated to URO's not-for-profit mission or its office expenses, including thousands of dollars for: (a) premium cable television services at Riley's home address; (b) Con Edison utility services provided to Riley's and Walker's home addresses; (c) groceries and restaurant meals; (d) air, bus, and train travel to destinations outside New York City, including trips to Riley's hometown of Cleveland, Ohio (even though Riley acknowledged URO does not conduct any operations outside New York - 16 City); and (e) a range of other personal purchases, at retailers such as GameStop, HSN (Home Shopping Network), Bed Bath & Beyond, PC Richards, Ricky's, Toys R Us, The Vitanlin Shoppe, and Weightwatchers.com. 73. LiliO acquired four vehicles, but Riley transferred ownership of them to himself. URO pays for all expenses relating to the four vehicles, including insurance, registration, fuel, parking, tickets, and repairs. These vehicles are used by Riley for whatever purposes he wants, and Riley has not reimbursed LiliO for any personal use. 74. In addition, Riley has lent one of the URO vehicles to a LiliO vendor, who provides silkscreening services for URO tablecloths, aprons, and other paraphernalia, for his full-time personal use, even though he has no legitimate need for full time, all expenses-paid use of a DHO vehicle. The individual has not reimbursed DHO for his personal use of the vehicle. 75. As described above, Riley and Walker have allowed hundreds of thousands of dollars to be pocketed each year by the URO workers at the donation tables. Thousands of dollars in "stipends" have also been distributed to table workers and other individuals in the form of checks and cash. Like the cash collected at the tables, these "stipends" are distributed simply on request, with no screening for need. 76. Riley has also caused DHO to make payments to certain members of his family, totaling at least $1,200 in 2008. Defendants have failed to document any services performed to warrant such payments. 77. By operating URO as a cash-generating vehicle for their own personal pecuniary profit and financial gain, and by distributing UHO's cash to insiders, Riley and Walker have ignored basic requirements applicable to tax-exenlpt, not-for-profit - 17 charitable corporations-such as prohibitions on profit-sharing, private benefit and private inurement. Riley and Walker have thus caused UHO to engage in ultra vires acts that exceed the authority granted to it by the N-PCL and its certificate of incorporation, and have jeopardized UHO's tax-exempt status, all in breach of their fiduciary duties. FIRST CAUSE OF ACTION Scheme to Defraud - Exec. L. §§ 172-d & 175(2) (Against All Defendants) 78. The Attorney General repeats and re-alleges, as though fully set forth herein, all of the preceding paragraphs. 79. Defendants, and those acting in concert or participation with them or under their direction and control, have violated Exec. L. § 172-d(2), in that they have engaged in a fraudulent scheme in connection with charitable solicitations, including (a) obtaining money by false pretenses and representations; and (b) soliciting charitable contributions using materially false and misleading statements about the intended use of donated funds. 80. UHO, Riley and Walker have violated Exec. L. § 172-d(3), in that they use and intend to use materially false or misleading advertising or promotional material in connection with solicitations for charitable purposes, including but not limited to the material on the UHO website. 81. lillO, Riley and Walker have violated Exec. L. § 172-d(4), in that they fail to apply contributions in a manner substantially consistent with UHO's solicitations for charitable purposes and the purposes expressed in its registration statenlent. - 18 82. Accordingly, URO, Riley and Walker should be temporarily and permanently enjoined from the solicitation and collection of charitable funds, as authorized by Exec. L. § 175(2)(a), (c) and (e). SECOND CAUSE OF ACTION Breach of Fiduciary Duties - N-PCL §§ 717 & 720 (Against Riley and Walker) 83. The Attorney General repeats and re-alleges, as though fully set forth herein, all of the preceding paragraphs. 84. Riley and Walker have failed to discharge their duties as officers and directors ofUHO with the degree of care, skill, prudence, diligence, and undivided loyalty required of them in that, among other things, they have: (a) allowed the diversion of funds from the UHO Account for the personal use of themselves and others, including Riley's and Walker's relatives; (b) allowed UHO workers who solicit charitable contributions for URO to keep hundreds of thousands of dollars ofURO funds for themselves; (c) failed to establish any system for accurately tracking and accounting for UHO's revenues and expenses; (d) failed to establish any system of internal controls; (e) allowed title to four URO vehicles to be transferred to Riley without consideration, while URO continued to pay all expenses associated with those vehicles; (f) failed to ensure that UHO's operations adhere to the purposes set forth in its certificate of incorporation; (g) jeopardized UHO's status as a tax-exempt organization under § 501(c)(3) of the Internal Revenue Code; and (h) failed to ensure the legal n1inin1um nun1ber of directors to governURO. 85. By engaging in the foregoing, and upon information and belief, other improper conduct, Riley and Walker breached their fiduciary duties to URO in violation - 19 ofN-PCL § 717. Accordingly, Riley and Walker are liable under N-PCL §§ 720(a)(1)(A) and (a)(l)(B) to account for their conduct in the neglect and violation of their duties in the management and disposition of corporate assets, and for their conduct in transferring lTHO assets to themselves and others, and causing loss and waste of 000 corporate assets, and to pay restitution and damages to 000. THIRD CAUSE OF ACTION Waste of Corporate Assets - N-PCL §§ 719(a)(I) & 720(a)(I)(B) (Against Riley and Walker) 86. The Attorney General repeats and re-alleges, as though fully set forth herein, all of the preceding paragraphs. 87. Riley has diverted funds from the 000 Account for his personal use. In addition, Riley has transferred title to four 000 vehicles to himself, while lTHO continues to pay all expenses associated with those vehicles, including expenses related to his personal use. 88. Walker has diverted funds from the 000 Account for her personal use. 89. Accordingly, Riley and Walker have caused loss and waste of 000 corporate assets and acquired 000 corporate assets for themselves, rendering then1liable to URO under N-PCL §§ 719(a)(l) and 720(a)(l)(B) to account for their misconduct. FOURTH CAUSE OF ACTION False Filings - Exec. L. §§ 172-b & 172-d(l) (Against All Defendants) 90. The Attorney General repeats and re-alleges, as though fully set forth herein, all of the preceding paragraphs. 91. URO, Riley and Walker, in filings with the Attorney General, have, among other things: (a) materially underreported UHO's revenues and expenses; - 20 (b) failed to report payments made to workers and others; (c) failed to report compensation or other funds flowing to Riley and Walker; and (d) failed to report related- party transactions. 92. As a result of the foregoing conduct, Defendants have made materially false and misleading statements and omissions in its filings with the OAG, in violation of Exec. L. § 172-b and 172-d(I). 93. Because of Defendants' false and misleading filings, donors from the State of New York, and beyond, have been prevented from making informed choices about charitable donations to URO. 94. LTHO, Riley, Walker and all others acting under, through, or for them, should be temporarily and permanently enjoined from further solicitations, pursuant to Exec. L. §175(2)(a) and (d). FIFTH CAUSE OF ACTION Actions Contrary to Law and Certificate of Incorporation N-PCL §§ 102 & 515 (Against All Defendants) 95. The Attomey General repeats and re-alleges, as though fully set forth herein, all of the preceding paragraphs. 96. URO, at the direction of Riley and Walker, has exceeded the authority conferred upon it by law, and acted beyond its capacity or power as provided by law and its certificate of incorporation, in that, among other things, URO (a) conducts activities for pecuniary profit or financial gain, in violation ofN-PCL § 102(a)(5)(I); (b) distributes income and profits, in violation ofN-PCL §§ 102(a)(5)(2) and 515; and (c) engages in private inurement, in violation ofN-PCL §§ 102(a)(5)(2) and UHO's certificate of incorporation. - 21 97. Accordingly, URO, Riley and Walker, and persons acting under their direction or control, should be temporarily and permanently enjoined pursuant to N-PCL §§ 112(a)(1) and 112(a)(3) from soliciting funds from the public and from accessing, using or distributing UHO assets. SIXTH CAUSE OF ACTION Conduct Necessitating Removal of Officers and Directors N-PCL §§ 706 & 714 (Against Riley and Walker) 98. The Attorney General repeats and re-alleges, as though fully set forth herein, all of the preceding paragraphs. 99. Riley and Walker have, among other things, consistently and repeatedly (a) breached their fiduciary obligations as officers and directors ofURO; (b) caused loss and waste ofURO charitable assets, for their own personal gain, and for the benefit of relatives and insiders; (c) consistently and repeatedly made, and caused to be nlade, solicitation statements that are materially false and misleading; (d) consistently and repeatedly failed to apply solicited funds in conformity with UHO's charitable purposes; (e) failed to ensure that LillO maintains complete and correct books and records; (f) caused materially false and misleading reports to be filed with the Attorney General; and (g) consistently and repeatedly caused URO to act outside the authority granted to it by the N-PCL and its certificate of incorporation. 100. Accordingly, Riley and Walker should be removed for cause as directors and officers ofUHO, and permanently barred from re-election under N-PCL §§ 706(d) and 714(c). - 22 SEVENTH CAUSE OF ACTION Failure to Properly Administer Charitable Assets - EPTL § 8-1.4 (Against Riley and Walker) 101. The Attorney General repeats and re-alleges, as though fully set forth herein, all of the preceding paragraphs. 102. As directors and officers ofURO, Riley and Walker are trustees under EPTL § 8-1.4(a), responsible for the proper adn1inistration ofUHO's charitable assets. Riley and Walker have failed to properly administer UHO's charitable assets in that they have failed to institute and maintain procedures to account for UHO's total revenues, failed to maintain proper accounting records, failed to institute financial controls, and failed to keep accurate books and records. Riley and Walker have failed to properly administer UHO's charitable assets in that they have misappropriated funds from the URO Account for their personal use. In addition, Riley has misappropriated four URO vehicles by transferring title to himself. Riley and Walker have further failed to properly administer UHO's charitable assets in that they have wasted UHO's assets by improperly diverting them to others. 103. Riley and Walker should be removed, temporarily and permanently, as trustees ofURO, and ordered to account for their failure and to provide restitution to URO. EIGHTH CAUSE OF ACTION Dissolution under N-PCL §§ 112(a)(1) & 1101(a)(2) for Exceeding Authority Conferred by Law, Violating Certificate of Incorporation, and Engaging in Private Inurement (Against UHO) 104. The Attorney General repeats and re-alleges, as though fully set forth herein, all of the preceding paragraphs. - 23 105. 000 has exceeded the authority conferred upon it by law, and acted beyond its capacity or power as provided by law and its certificate of incorporation, in that, among other things, UHO (a) conducts activities for profit or gain, in violation ofN-PCL § 102(a)(5)(1); (b) distributes income and profits, in violation ofN-PCL §§ 102(a)(5)(2) and 515; and (c) engages in private inurement, in violation ofN-PCL § 102(a)(5)(2) and its certificate of incorporation. 106. Accordingly, the corporation should be dissolved pursuant to N-PCL §§ 112(a)(1) and 1101(a)(2) and its remaining assets and future assets, if any, applied to charitable uses consistent with 000 mission, as authorized by N-PCL §§ 1115(a) and 1008(a)(15). NINTH CAUSE OF ACTION Dissolution under N-PCL § 1101(a)(2) For Persistently Fraudulent Business Conduct (Against UHO) 107. The Attorney General repeats and re-alleges, as though fully set forth herein, all of the preceding paragraphs. 108. LTHO has conducted its business in a persistently fraudulent and illegal manner, in that 000 has, among other things, (a) filed materially false and misleading reports with the Attorney General that materially misstate its revenues and expenses and omit compensation, in violation of Exec. L. § 172-d(1); (b) persistently made false and misleading solicitation statements to the public in violation of Exec. L. § 172-d(2)-(4); and (c) persistently engaged in ultra vires acts. 109. Accordingly, the corporation should be dissolved pursuant to N-PCL § IIOI(a)(2) and its remaining assets and future assets, if any, applied to charitable uses consistent with OOO's mission, as authorized by N-PCL §§ 1115(a) and 1008(a)(15). - 24 TENTH CAUSE OF ACTION' Dissolution under N-PCL §§ 112(a)(7) & 1102 for Wasting of Corporate Assets and Perpetuation of Corporation Solely for Personal Benefit (Against UHO) 110. The Attorney General repeats and re-alleges, as though fully set forth herein, all of the preceding paragraphs. Ill. Under N-PCL § 112(a)(7), the Attorney General may maintain an action to "enforce any right given under this chapter to ... a director or an officer of a Type B ... corporation." Under N-PCL § 1102(a)(2)(D), any director of a not-for-profit corporation may petition the court for judicial dissolution where "the directors ... in control of the corporation have looted or wasted the corporate assets, have perpetuated the corporation solely for their personal benefit, or have otherwise acted in an illegal, oppressive or fraudulent manner." 112. Riley and Walker, as the directors in control ofUHO, have wasted its corporate assets, perpetuated the corporation for their personal benefit and otherwise acted in an illegal, oppressive or fraudulent manner. 113. Accordingly, URO should be dissolved in accordance with N-PCL §§ 1102(a)(2)(D) and 112(a)(7) and its remaining assets and future assets, if any, applied to charitable uses consistent with the URO mission pursuant to N-PCL §§ 1115(a) and 1008(a)(15). - 25 PRAYER FOR RELIEF Plaintiff demands judgment against Defendants as follows: A. Enjoining Defendants UHO, Riley and Walker, and all other persons acting or claiming to act on UHO's behalf or in concert or participation with it, from soliciting charitable contributions from the public; B. Enjoining Riley and Walker, and all other persons acting or claiming to act on their behalf or in concert or participation with them, from accessing, using, or distributing URO funds or other assets, including but not limited to UHO's intellectual property, such as the URO service mark and logo; C. Ordering Riley to transfer title to all vehicles acquired by URO back to URO; D. Removing Riley and Walker as officers and directors ofURO; E. Enjoining Riley and Walker from serving as officers, directors, trustees or equivalent positions ofURO or any other not-for-profit corporation in the future; F. Holding Defendants Riley and Walker liable for their waste and misappropriation ofURO assets, in an amount to be detennined at trial; G. Dissolving URO, with its remaining assets, including the vehicles, and any future assets, to be transferred to charitable uses consistent with URO's mission; and - 26 H. Granting such other and further relief as is just and proper. Dated: November 23,2009 ANDREW M. CUOMO New York, New York Attorney General of the State of New York By: =m-.~ PATRICIA T. NORTHROP Assistant Attorney General Charities Bureau Office of the Attorney General 120 Broadway New York, New York 10271 (212) 416-8391 O/Counsel: JASON R. LILIEN Bureau Chief, Charities Bureau CAROLYN T. ELLIS Assistant Attorney General, Section Chief, Charities Bureau KATHRYN E. DIAZ Senior Trial Counsel, Social Justice Division - 27 - '
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