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Embezzlement, Scam Shatter Venerable Vanguard Foundation

| November 15, 2012
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by Shoshana Walter The Bay Citizen

The Vanguard Public Foundation was once a social justice leader in one of the country’s most active nonprofit scenes. The organization funded San Francisco’s massive Iraq War protests in 2003 and financed the first battered women’s shelter in the state. But its last cause was lining the pockets of a Belvedere millionaire.

Tracy Gary, one of the original members of the Vanguard collective. ( Michael Short/The Bay Citizen )

The 40-year-old Bay Area foundation officially shut down last year after falling victim to an elaborate financial scam by Israeli entrepreneur Samuel “Mouli” Cohen. Cohen swindled more than $30 million from Vanguard donors. In April, he was sentenced in a federal court to 22 years in prison. In exchange for the testimony that put Cohen behind bars, Hari Dillon, Vanguard’s president, pleaded guilty to money laundering and wire fraud. Dillon’s sentencing is set for December.

The criminal convictions for Cohen, 54, and Dillon, 64, represent the denouement for the foundation after years of infighting and suspicion among its members over its finances. A derelict board of directors stood by as Vanguard crumbled. Now, former staff and board members are coming to grips with the facts of Vanguard’s demise.

Hundreds of pages of court documents, financial records and interviews with former board members and staff reveal that the storied foundation’s collapse was caused as much by Cohen and his greedy scheme as the charismatic president who fell for it.

Board members put all their faith in Dillon, and Dillon put all his faith in Cohen, who eagerly spent their millions on expensive cars, European vacations and private concerts featuring Grammy Award winners. The details of lavish spending, embezzlement and fraud have sent shudders through the nonprofit world.

Long before he met Cohen, Dillon aspired to transform Vanguard from a little-known grassroots group into a vehicle for fame and social change. The progressive star invested millions of would-be Vanguard funds in high-risk ventures, using Vanguard’s top donors as personal bankers.

While Vanguard led major star-studded campaigns against racial profiling and the Iraq War, Dillon used Vanguard’s office as the headquarters for his personal investment group. On his watch, millions disappeared, court records show. By the time Dillon met Cohen, several of Vanguard’s board members and wealthiest donors were ready to embrace Cohen’s offer of money and power in the name of Vanguard’s mission to eradicate poverty and racism.

The 13-member board did nothing to stop it, officials with the nonprofit acknowledge.

“(Dillon) had this vision of moving massive amounts of money into social justice work and really having the Bay Area be a bastion of social justice and social change, with him at the head of it,” said Kim Klein, who first joined Vanguard in 1978 and left around 1992, when Dillon was hired.

But she said Dillon “really was a victim of blind ambition.”

Tracy Gary, one of the original members of the Vanguard collective and an heir to the Pillsbury fortune, said Dillon was responsible for the foundation’s downfall. “But so, too, was the culture that all of us created,” Gary said.

Now besieged by civil suits, Dillon said in an interview that he has bounced from home to home for more than a year. On Independence Day this year, he sat in an aging Cow Hollow motel room, surrounded by copious notes, boxes of paper and the few belongings that aren’t locked in a storage space he can no longer afford.

“It’s unquestionably a catastrophic tragedy with enormous proportions,” he said.

When the foundation began as a collective in 1972, it was one of the first of its kind: a philanthropic organization founded by young heirs and heiresses, including the Pillsbury and DuPont families, who wanted to contribute their inheritances to progressive economic and social causes.

“Vanguard sparked a movement of community-based philanthropy,” said Gary, a former board member. “The vast majority of the progressive organizations in the Bay Area got their first $5,000 donations, their seed money, from the Vanguard foundation.”

Vanguard inspired others with inheritances to establish similar organizations throughout the country, becoming a founding member of the countrywide network of progressive philanthropic organizations called the Funding Exchange. The foundations were the first to give community organizers and activists equal decision-making power.

“Vanguard, back in the good old days, was one of the originals,” said Geoff Green, executive director of The Fund for Santa Barbara, who served as a co-chairman of the board of directors at the Funding Exchange.

Dillon met Vanguard co-founder Peter Stern in 1990. At the time, the organization had recently disbanded its original collective and was interested in hiring new leadership. Dillon had the right credentials for the job.

He made a name for himself in progressive politics in the ’60s, when he was jailed while leading the first Third World student strike at San Francisco State University, then called San Francisco State College. The protests led to the first black studies department in the country.

While a student activist, Dillon forged a friendship with Danny Glover, the actor who would become famous for his roles in the movies “Lethal Weapon” and “The Color Purple,” and for his liberal activism. Dillon’s roster of celebrity endorsements, booming voice and effusive politics won over Vanguard’s mainly white donors and board members.

Flashy events

From the get-go, former board members said, Dillon seemed prone to flashy events that attracted attention, but also required a lot of money. Some board members lauded his leadership, while others found his actions inappropriate.

Many of the board members “felt a lot of shame and guilt” about their inheritances, said Chela Blitt, a former donor whose fortune came from her father’s shopping mall empire. She said she became involved in Vanguard to transfer the power of her money to the people working actively on social change.

In one of his first attempts to bridge divides with the black community, Dillon raised $275,000 for a fundraiser for the renovation of the Bayview Opera House. But former staff and board members said he overspent on the party, leaving nothing for the historic community center until a donor agreed to pitch in a few thousand dollars more.

In 1993, Dillon threw Vanguard’s 20th anniversary celebration in the ballroom at the Hyatt Regency, flying in keynote speaker Harry Belafonte, actress Whoopi Goldberg, author Alice Walker and performers Carlos Santana and Joan Baez, some on private jets.

“It became such a huge thing. Everybody was there. (Politician) Willie Brown was there. The whole freaking town was there,” Dillon said in an interview. “That’s the way these things work. You get your star headliner, and if you’re good, you break even. If you’re not so good, you lose money. Events generate friends, not funds.”

Soon after South African civil rights leader Nelson Mandela’s release from prison, Dillon arranged a trip to South Africa for himself and other anti-apartheid activists and had $40,000 of Vanguard money wired to his personal account. Dillon said that the funds were used for armed security, drivers and group meals and that he had Vanguard donors agree to pay the money back.

But before the trip ended, a staff member alerted the board to the transaction, and when Dillon returned to California, he urged board members to consider the importance of Vanguard’s participation in the celebration of the downfall of apartheid, as a way to further its political cause of racial and economic equality.

Some board members “felt they would be accused of being traitors to the movement if they went against this. How could you be the person to say that it is not OK to be doing something in South Africa during this period of time?” said Leslie Wozniak, sister of Apple co-founder Steve Wozniak and a donor and board member at the time.

“It was done in an underhanded way. It was never presented to the board as something that should have been done. He just decided he could do whatever he wanted with the money,” she said.

Over time, former staff members said Dillon began to have strawberries and newspapers delivered to the office, hired a personal driver and paid for expensive hotel stays, dinners and private jets.

Dillon first began talking to Vanguard donors about investing in tech startups in 1997, through board member and donor Rob McKay, a Taco Bell heir who ran a venture capital firm. Some of the investments paid off. By 2000, the group had begun to send fewer and fewer appeals for donations.

Meeting with Cohen

In 2002, actor Glover introduced Dillon to Mouli Cohen.

Charismatic and dapper, Cohen touted his successful entrepreneurial endeavors, including the tech startup Ecast, a digital jukebox service for bars and nightclubs.

He hosted parties at his mansion in Belvedere, where he regaled potential investors with stories of his financial prowess and entertained with elaborate meals served by butlers and wait staff. He led tours through his personal art gallery, which included reproductions of Matisse and Picasso paintings that Cohen claimed were originals. Federal authorities said Cohen had hired a professional artist to reproduce the masterpieces, including fake gallery labels, in exchange for fake Ecast stock.

Cohen told Glover and Dillon that he thought highly of Vanguard and wanted to give back to his community. He offered them an opportunity: Within six months, he said, Ecast would be acquired by Microsoft, a deal that would make him millions.

Cohen said he was willing to sell them some of his founder’s shares, but he warned they could not share news of this deal with anyone until it became official; the deal was tantamount to insider trading.

Dillon almost immediately agreed, court records show. So did Glover, who did not respond to requests for comment for this article. Dillon asked Vanguard donors to pitch in $6.2 million with the assurance from Cohen that their funds would grow to $60 million. Emboldened by some of their previous successful investments, the donors and board members were excited about the possibility of generating such large funds.

Cohen promised the money would come any day, so Dillon financed some of the foundation’s work with a 15-month interest-free loan for $1.5 million with the Mission Area Federal Credit Union, a community development financial institution, according to court records. Cohen also introduced Dillon to an investor, Joseph Ettinger, who promised to contribute $4 million.

But by August 2003, Cohen’s deal still had yet to come to fruition, and the promised funds had not arrived. Tax records show the foundation began racking up a deficit.

“ ‘Don’t worry, Hari. Relax, Hari.’ I heard that a million times at the time, and things would be happening very soon on both fronts,” Dillon said Cohen told him.

By December 2003, Cohen had begun a new project and offered Dillon and other Vanguard donors a chance to invest. Concerned about dwindling funds, Dillon declined the opportunity, so Cohen suggested putting money into a trust. Dillon raised $800,000 and sent the money to Cohen’s lawyers. He expected Cohen to give the donors $2.4 million in return. That never came.

In March 2004, Cohen said Microsoft had put the acquisition of Ecast on the back burner to focus on the potential acquisition of Google. To help the investors during the delay, he offered to give them shares of his new company, Dillon testified.

“He said that that was a gift to us because we were a nonprofit and also because it had taken longer than he had originally projected,” Dillon said in court testimony.

Dillon and the donors accepted the shares, but the delays kept coming. By April 2005, Cohen said the acquisition was completed and just needed approval from the Department of Justice. After the department’s approval, Cohen said the deal needed approval from the European Union, Dillon testified.

Finally, Cohen said the group needed to pay bonds and fees to finalize the deal. With donors growing weary of the extra costs, the group asked others to get involved. More than 40 people associated with Vanguard – working professionals, friends and family – poured an additional $22 million into the venture, federal authorities said.

At a meeting at Cohen’s home on Nov. 28, 2005, donors told Cohen they could no longer afford to send money. He said if they backed out now, they would lose their stake in the deal.

“I remember him specifically saying – because he was, like, a little irritated with us – he specifically said, ‘You’re playing with the big boys now,’ ” testified Sam Mills, a major Vanguard donor who sent Cohen more than $13 million. He would lose several homes.

Cohen assured them that a final $500,000 was all he needed. But in January, five weeks later, he was sent $1.5 million. Three weeks after that, an additional $1.19 million. He convinced the donors that a payoff was imminent.

Events continue as Vanguard struggles

In the meantime, Vanguard sponsored lavish events.

At a Vanguard party honoring Ahmed Kathrada, a South African activist, Cohen and Dillon hobnobbed with luminaries, including former Oakland Mayor Ron Dellums, activist Dolores Huerta and the Rev. Cecil Williams, leader of San Francisco’s Glide community church. The same year, Dillon threw a 20th anniversary celebration for the Funding Exchange and all of its members. Geoff Green, then a co-chairman of the board, was in attendance.

“That was before any of this stuff came out. All I knew was that there was this wildly successful organization in my home region,” he said. “He had the star power and activists there. It felt great.”

But Vanguard and Dillon were desperate for cash. According to financial records, Susanna Moore, a prominent local philanthropist and board member at the time, loaned Dillon $200,000 to purchase a home. Donor Janet Kranzberg loaned Dillon $1.3 million for a home for his son and aunt, which Dillon then used for other items, including additional investments, designer clothing, expensive restaurant meals and $10,000 audio equipment, according to court records. After she sued, Dillon repaid Kranzberg with a $500,000 settlement. Jane Segal, another donor, loaned Dillon close to $6 million. All three women were invested in the fake Ecast deal, according to court records.

According to his plea agreement, Dillon also admitted to skimming $2.5 million from payments donors made to Cohen. He told prosecutors that he used the stolen funds to pay off his American Express bills and planned to pay the donors back with profits from the Ecast deal. Many former donors suspect Dillon of stealing even more.

Grants go unfilled

Vanguard continued to announce awards of small but crucial sums to groups such as Filipino Advocates for Justice and People Organizing to Demand Environmental & Economic Rights. But as early as 2004, many organizations said they never saw the money they were promised. In a letter sent in 2006, the same year Vanguard donated $200,000 to Glover and Belafonte’s Hurricane Katrina efforts, a group of local organizations pleaded with the board to stop issuing new grant letters until prior grants were paid “in full.” Vanguard’s board of directors had stopped meeting.

By 2007, word had spread among foundations across the country that Vanguard was failing to fill grants. Questions about missing funds prompted the Funding Exchange to cast Vanguard, one of its founding members, out of the network.

In an email dated July 28, 2008, some board members admitted they had been negligent in their oversight of Dillon and Vanguard. In the frenzied meetings that followed, they discussed placing Dillon on administrative leave to “look proactive,” brainstormed ways of escaping liability and estimated that the organization owed more than $1 million to the IRS, donors and organizations.

“Can’t approach this like we’re saintly now,” said board member Cobie Harris, a political science associate professor at San Jose State University.

“On our watch it seems to have withered away,” four board members wrote to Dillon and the rest of the board in 2008. “We should mirror the kind of accountability that we expect from our grantees.”

Meanwhile, Cohen was using Vanguard’s money to fund what U.S. District Judge Charles Breyer would call an “obscene lifestyle.” Over the years, he spent more than $6 million on private jets, $1.4 million on a diamond ring and more than $600,000 on a Rolls-Royce and Aston Martin. Cohen continued to insist the deal was still on when Dillon asked him to reconsider the Vanguard donors’ investment.

“I told him that our group was in dire straits and that Vanguard was in dire straits, and the second tier was in dire straits, and that at this point , it was impacting the group in the community that relied on support from Vanguard, and we had to be bought out,” he testified.

When Cohen continued to offer more excuses for the delay, Dillon broke their confidentiality agreement and asked McKay, the former board member who runs a venture capital firm, to meet with an Ecast executive. McKay learned that the deal had never existed and that Ecast had severed ties with Cohen in 2000.

Last year, the IRS revoked Vanguard’s nonprofit status.

“What we are really, really discussing here is betrayal to a community,” Beth Rosales, who preceded Dillon as Vanguard’s leader, said at a June 9 meeting of concerned former board members and donors. “And a betrayal that has caused some of us to have lost faith in the community.”

Some former board members and donors said they want to sue on behalf of the unpaid grantees. Others want to reconcile with the board members who seemed to fall down on the job, including Vanguard co-founder Peter Stern, among others. But they remain most angry with Dillon.

“I would see Hari and Danny leading the anti-war march with fists raised and feel sick to my stomach. Who was I to criticize? Here they were leading the parade. Who was I?” former board member Wozniak said. “When you have a certain aura, when you surround yourself with the language of social justice, you can easily use that as a smoke screen for personal ambition.”

Earlier this year, former Vanguard supporters began raising money to fill at least 24 unpaid grants. The money, the supporters promised, will go only to the grants.

Reyhan Harmanci contributed to this report. This story was edited by Robert Salladay and Mark Katches and copy edited by Nikki Frick and Christine Lee. It was produced by The Bay Citizen, a project of the Center for Investigative Reporting. Learn more at www.baycitizen.org.

 

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  • ioannes

    Not surprised at the lack of comment here on KQED. Shhhh…to comment would be counter revolutionary.