The bankrupt National Heritage Foundation told a meeting of its creditors on Thursday that local police are investigating at least $100,000 of "unauthorized payments" made by a former employee.
The revelation by the controversial Falls Church, Va.-based nonprofit is the latest bad news in one of the country's largest charitable bankruptcies ever. NHF sought Chapter 11 protection on Jan. 24; its year-earlier financial statement listed $208 million in net assets.
Alan M. Noskow, an NHF lawyer, told representatives of about a dozen creditors present at or listening in by telephone to the meeting in Alexandria, Va., that the charity discovered "certain unauthorized payments" by a single worker such that "a police investigation is under way."
Later in the session, NHF vice president Jan H. Ridgely, a member of the Houk family that has run the NHF organization for four decades, said the questioned payments in the past three months totaled about $100,000 but that the possibility existed that the total loss was more. She said the employee, who was not identified, no longer works at NHF. The alleged theft was discovered, Ridgely said, only when other staff started to prepare the detailed financial schedules that must be filed after seeking bankruptcy protection.
NHF, which specializes in administering donor-advised funds for individual contributors, turned to bankruptcy court after a Texas family tried to collect on a $6 million verdict won in a suit claiming misleading actions by NHF. (NHF is appealing.) A lawyer for the family was among those listening in via telephone. Also monitoring the proceedings: lawyers for charitable gift annuitants whose payouts were halted with the bankruptcy filing.
During the two-and-a-half-hour session, creditors' lawyer peppered Ridgely, the designated NHF representative, with questions concerning the nature of NHF's assets. Her father, J.T. (Dock) Houk II, is NHF's founder and CEO. Ridgely, the only one of the five Houks running NHF who was present at the hearing, testified under oath that Marian Houk, her mother and an NHF official authorized the transfer two days before the bankruptcy filing of $1 million cash from NHF to another charity, Congressional District Programs, Inc. Ridgely acknowledged both nonprofits shared similar managers and directors, but described the transaction as repayment on a 2007 loan to NHF.
Much of the questioning concerned the Vantage Fund, a still-murky investment vehicle established in 2004 through which NHF made millions of dollars of investments that apparently have gone bad. The financial tables that NHF filed with the bankruptcy court did not break out the Vantage Fund's specific holdings and performance, prompting several complaints by creditors'.
Ridgely described the Vantage Fund as a Massachusetts business trust "owned" by NHF, which she said has final say on its investment. The goal of the in-house fund was to "maximize our return," she said, adding that she didn't know a lot about its origins. Ridgely implied that Vantage Fund investment drop--the sketchy data filed suggested a 31% loss on a $16 million investment--simply mirrored the current national economic woes. "It reflects the larger market picture right now," she said.
Other questions dealt with Ian Scott-Dunne, who NHF staff has identified previously as the charity's investment banker and adviser at the time many of the Vantage Fund investments were made, and whose own enterprises were recipients of funds. Ridgely described Scott-Dunne as Vantage Fund's "administrator" but could not say precisely what that entailed. She said NHF's involvement with Scott-Dunne began after the charity started using back-office software sold by his company, Stellar Financial, now part of a holding company called Stellar McKim. Ridgely acknowledged that the Stellar organization received a $14 million loan from Vantage Fund.
Scott-Dunne was not present and in the past has declined comment. Outside the hearing, lawyers for creditors said they would use legal process to question him under oath and obtain Vantage Fund documents.
