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Further disquieting emails have surfaced internally in the case of nonprofit watchdog Utility Consumers' Action Network (UCAN), whose financial missteps are under investigation of the Federal Bureau of Investigation.
According to documents recently unearthed, Michael Shames, UCAN's co-founder who was ousted this year, on April 26 of last year emailed Kendall Squires, who had been named chairman only a month earlier. In that email, Shames described a meeting that he and Bob Ames, then newly named chief operating officer, had allegedly had with Paul Dostart, lawyer/forensic accountant who had been named a month earlier to look into UCAN's irregularities.
Said Shames in the email to Squires, "He (Dostart) specifically instructed auditors NOT to investigate any embezzlement or misuse of UCAN monies by me." Shames claimed that Dostart only wanted outside auditors to do a 2010-2011 fiscal year audit. Under such a strategy, the auditors would not have found the serious violations, which had occurred several years before the 2010-2011 fiscal year.
"I never wrote such an email," insists Shames.
Says Dostart, "I hereby advise you that at no time have I ever instructed an auditor to not investigate and report any fraud, embezzlement, or misuse of UCAN funds."
"Whatever Mr. Shames thought he heard, he did not hear Dostart say that," says Squires, who agrees that such instructions would be an ethical violation at the least. He says he does not recall and does not have a copy of the email. Squires says that increasingly through 2011, as the UCAN board members pondered Shames's role in the organization, "the discomfort grew."
That email which Shames claims he did not write indicates that Dostart said he would write a memo that refuted complaints of UCAN whistleblowers. On March 4 of 2011, whistleblower David Peffer told the UCAN board of financial irregularities; on March 17, Shames met with the staff and said he intended to dissolve the organization and would get board support. On March 25, he told the board that he wanted to dissolve UCAN and perhaps merge it with another watchdog organization in San Francisco. By September, UCAN was informing the attorney general's office of the desire to dissolve. Squires can't recall when the board decided on that course.
It would have been impossible for Dostart to give assurances that he would rebuke the whistleblowers only a month into his assignment. "I can't conceive of Mr. Dostart making that statement at that time" says Squires. He says he gave Dostart instructions to look for transgressions including "evidence of foreign bank accounts." Dostart did not tell him of any offshore accounts, he says.
Many of the UCAN questions revolve around accounts at financial institutions in which the name of the entity was misspelled: "CoMsumers." Squires initially wondered whether there had been a keying error at a financial institution. But those misspelled "CoMsumers" accounts show up at five institutions. Squires concedes that the odds of the same keying mistake being made in five separate financial institutions are exceedingly long. "I learned a while ago that the auditors were unable to get the documents," says Squires. "I went to the bank as chairman asking for them." The board hopes to find out about those misspelled accounts, he says. (Now, internal researchers have found that one of those misspelled accounts had more than $600,000 in it. Dostart had initially said that the dollar amounts in the misspelled accounts were low.)
The second disquieting revelation revolves around $2 million that UCAN received in 2005 as the result of a lawsuit that had been filed against an outfit renting housing goods to people. It was decided that UCAN should use the funds on consumer education projects. But inside researchers have shown convincingly that $1 million of that money went into a hedge fund named Red Rock. In 2005, Peter Navarro, former San Diegan who had earlier made $50,000 working for UCAN, wrote Shames that "the hedge fund guy I work with, Matt Davio," was coming to Southern California to do a lecture with Navarro. Davio met with Shames and a board member and convinced them that the fund was a good way to make conservative income. But Davio was betting the market would go down; it didn't. At one point UCAN's loss was a good deal more than $260,000. When the loss was 17%, Shames emailed Navarro and complained, "Down 17% for the year. But no response to my email. What have you found? I had initially decided that if I had a 20% loss, I pull out. We are pretty close now."
Squires thinks the ultimate loss was $130,000. It is not clear if UCAN got money back from Red Rock, or if the market went Red Rock's direction. I asked Squires if it was legal or prudent for UCAN to plunk that money in a hedge fund, and if investing that money was a violations of the court's mandate to spend it on consumer education. "If I take your facts as given, it [seems to have been] a play on the market as opposed to an investment," says Squires. "At a minimum it is questionable." Amen.
San Diego lawyer Frank Fox, who was one attorney handling the case, says he is still studying if the hedge fund investment was a violation of the court's instructions.
Says San Diego attorney Mike Aguirre, who is representing the UCAN whistleblowers, "There were a bushel of red flags that demanded an audit over many years and at each juncture the board failed to do the job they were obligated to do. It will take somebody outside the organization to resolve this -- one of the regulators." (The California attorney general claims it is investigating, as well as the Federal Bureau of Investigation.)
Further disquieting emails have surfaced internally in the case of nonprofit watchdog Utility Consumers' Action Network (UCAN), whose financial missteps are under investigation of the Federal Bureau of Investigation.
According to documents recently unearthed, Michael Shames, UCAN's co-founder who was ousted this year, on April 26 of last year emailed Kendall Squires, who had been named chairman only a month earlier. In that email, Shames described a meeting that he and Bob Ames, then newly named chief operating officer, had allegedly had with Paul Dostart, lawyer/forensic accountant who had been named a month earlier to look into UCAN's irregularities.
Said Shames in the email to Squires, "He (Dostart) specifically instructed auditors NOT to investigate any embezzlement or misuse of UCAN monies by me." Shames claimed that Dostart only wanted outside auditors to do a 2010-2011 fiscal year audit. Under such a strategy, the auditors would not have found the serious violations, which had occurred several years before the 2010-2011 fiscal year.
"I never wrote such an email," insists Shames.
Says Dostart, "I hereby advise you that at no time have I ever instructed an auditor to not investigate and report any fraud, embezzlement, or misuse of UCAN funds."
"Whatever Mr. Shames thought he heard, he did not hear Dostart say that," says Squires, who agrees that such instructions would be an ethical violation at the least. He says he does not recall and does not have a copy of the email. Squires says that increasingly through 2011, as the UCAN board members pondered Shames's role in the organization, "the discomfort grew."
That email which Shames claims he did not write indicates that Dostart said he would write a memo that refuted complaints of UCAN whistleblowers. On March 4 of 2011, whistleblower David Peffer told the UCAN board of financial irregularities; on March 17, Shames met with the staff and said he intended to dissolve the organization and would get board support. On March 25, he told the board that he wanted to dissolve UCAN and perhaps merge it with another watchdog organization in San Francisco. By September, UCAN was informing the attorney general's office of the desire to dissolve. Squires can't recall when the board decided on that course.
It would have been impossible for Dostart to give assurances that he would rebuke the whistleblowers only a month into his assignment. "I can't conceive of Mr. Dostart making that statement at that time" says Squires. He says he gave Dostart instructions to look for transgressions including "evidence of foreign bank accounts." Dostart did not tell him of any offshore accounts, he says.
Many of the UCAN questions revolve around accounts at financial institutions in which the name of the entity was misspelled: "CoMsumers." Squires initially wondered whether there had been a keying error at a financial institution. But those misspelled "CoMsumers" accounts show up at five institutions. Squires concedes that the odds of the same keying mistake being made in five separate financial institutions are exceedingly long. "I learned a while ago that the auditors were unable to get the documents," says Squires. "I went to the bank as chairman asking for them." The board hopes to find out about those misspelled accounts, he says. (Now, internal researchers have found that one of those misspelled accounts had more than $600,000 in it. Dostart had initially said that the dollar amounts in the misspelled accounts were low.)
The second disquieting revelation revolves around $2 million that UCAN received in 2005 as the result of a lawsuit that had been filed against an outfit renting housing goods to people. It was decided that UCAN should use the funds on consumer education projects. But inside researchers have shown convincingly that $1 million of that money went into a hedge fund named Red Rock. In 2005, Peter Navarro, former San Diegan who had earlier made $50,000 working for UCAN, wrote Shames that "the hedge fund guy I work with, Matt Davio," was coming to Southern California to do a lecture with Navarro. Davio met with Shames and a board member and convinced them that the fund was a good way to make conservative income. But Davio was betting the market would go down; it didn't. At one point UCAN's loss was a good deal more than $260,000. When the loss was 17%, Shames emailed Navarro and complained, "Down 17% for the year. But no response to my email. What have you found? I had initially decided that if I had a 20% loss, I pull out. We are pretty close now."
Squires thinks the ultimate loss was $130,000. It is not clear if UCAN got money back from Red Rock, or if the market went Red Rock's direction. I asked Squires if it was legal or prudent for UCAN to plunk that money in a hedge fund, and if investing that money was a violations of the court's mandate to spend it on consumer education. "If I take your facts as given, it [seems to have been] a play on the market as opposed to an investment," says Squires. "At a minimum it is questionable." Amen.
San Diego lawyer Frank Fox, who was one attorney handling the case, says he is still studying if the hedge fund investment was a violation of the court's instructions.
Says San Diego attorney Mike Aguirre, who is representing the UCAN whistleblowers, "There were a bushel of red flags that demanded an audit over many years and at each juncture the board failed to do the job they were obligated to do. It will take somebody outside the organization to resolve this -- one of the regulators." (The California attorney general claims it is investigating, as well as the Federal Bureau of Investigation.)