New York, NY —
Click here for Part 2A WNYC investigation has found that a non-profit organization, set up to help homeless people with AIDS, appears to have improperly diverted hundreds of thousands of dollars of public funds to set up for-profit companies for its top officials. In recent days, the state attorney general's office issued subpoenas for documents related to financial transactions at the organization: Praxis Housing Initiatives. WNYC's Amy Eddings and Andrea Bernstein have been working on this story. We begin this two-part series with a report from Amy Eddings.
Hugo Puya says he took the job of comptroller at Praxis Housing Initiatives in 1997 because he wanted to give something back to the community. Praxis had been formed just two years earlier, to provide housing and services to homeless people with AIDS. The lion's share of Praxis' budget comes from government grants and contracts.
Puya: One of the first questions I asked myself was -- actually my first week at Praxis -- I was asking myself, "Why is there no money in the bank?
George Serrano was a Praxis bookkeeper.
Serrano: We were getting notifications in the mail threatening to cut off the telephone service at a lot of the hotels.
What Serrano and Puya say they discovered was that the financial problems at Praxis were caused in large part by questionable expenditures on the part of two of its cofounders: C.E.O. G. Sterling Zinsmeyer, and executive director Father Gordon Duggins, an Episcopal priest.
Here's one example. Internal documents obtained by WNYC state that $300-thousand dollars of Praxis money was used start a for-profit housing program for the homeless, at the Latham Hotel in Manhattan. Sterling Zinsmeyer and Gordon Duggins were the sole shareholders of the company, Latham Leasing Corporation.
The project failed. Gordon Duggins' personal attorney says Latham Leasing paid back the advance, and provided WNYC with documents indicating that this was so.
But tax statements show Zinsmeyer and Duggins each deducted about $62-thousand dollars of Latham losses from their earnings.
Puya: They reported the Latham losses on/their personal tax returns, in order to report less overall income that they actually had for that year.
Eddings: They're allowed to do that because they're an S Corporation, right?
Puya: They're allowed to do that, but the big question here is, that the Latham Leasing Corp was actually funded with not for profit money. That's the problem with that.
In another case, financial documents show Praxis provided a $166-thousand dollar, interest free advance to another for-profit company Zinsmeyer and Duggins set up in order to hold the lease to the Dawn Hotel in West Harlem. Fred Rothman, former chair of the Tax Exempt Organization Committee at the American Institute for Certified Public Accountants, says that's a no-no.
Rothman: Did they not derive a benefit for being able to get those dollars at no cost? I think so. Is that a definition of private enurement? Yeah, I think so. And private enurement is a fancy word for feathering the pockets of those who run the organization
It's neither illegal, nor unusual, for non-profits to set up for-profit entities. However, to avoid ethical and legal concerns, such arrangments, by law, must benefit the nonprofit. They also must be disclosed to, and approved by, the nonprofit's board.
The former chair of Praxis' board of directors says he was not informed of the for-profit projects. Cyril Brosnan has decades of experience with nonprofit and for profit boards.
Brosnan: The board was not appropriately involved before, during and after major, major, decisions. This was particularly in the area of fiscal management. Getting a financial statement on a regular basis, I used to say to friends, I would rather be going to have root canal.
And Praxis didn't tell the IRS, either. In its tax returns from 1996 to 2002, when asked if it extended credit or transferred assets to any for-profit companies affiliated with its officers or directors, Praxis routinely stated, "No."
Sterling Zinsmeyer and Gordon Duggins did more with Praxis dollars than just set up their own for-profit companies. Duggins, according to Hugo Puya and George Serrano, routinely helped himself to the petty cash.
Serrano: Every single Friday, like clockwork, you could almost time your watch by it, Gordon Duggins would go into Hugo Puya's office and pick up the petty cash. And several times, or, I should say -- oh Jesus -- I would say, 99% of the time, he would distribute it right outside the office.
Puya: His reasoning behind helping himself to the petty cash was that he needed to help his boys and that was a direct quote.
Some of Duggins' "boys" were the young men of the Almighty Latin King and Queen Nation, a gang known for violence and drug dealing. Its leader, Antonio Fernandez, known by his street name, "King Tone," was making headlines for his efforts to turn the gang into a legitimate advocacy group. He was convicted in 1999 for dealing drugs, and is currently in federal prison. Duggins had befriended King Tone. Receipts obtained by WNYC show Duggins and Zinsmeyer transferred five thousand dollars, from a Praxis account, to post bail for Tone after he was arrested in 1997 on assault charges. Sterling Zinsmeyer told City Limits Magazine, which first brought questions about Praxis to light, that the move was a mistake, and the money was paid back but he did not provide documentation. Puya says he tried to talk to Duggins about his spending practices.
Puya: I would say, Father -- I referred to him as Father -- you know that we are all entrusted with the city, state and federal funds, and these agencies entrust these monies to us in order to help the homeless and not help gang members or any other type of felons.
Eddings: And what would he say?
Puya: "Don't worry about it, I'm doing the work of God."
Robert Dunn is a legal representative for Father Gordon Duggins, and does not speak for Praxis, or its board.
Dunn: I don't know, and I wouldn't want to speculate, as to whether or not in a given instance Father Duggins gave someone $20 to go to and from a hotel. But I do know that all that money has been accounted for.
Dunn says Duggins worked with members of the Latin Kings as part of his ministry. He wanted to help people with criminal backgrounds re-enter society and reform their lives. Duggins' private consulting firm even floated plans to develop business ventures with some members of the Kings, including a woodshop, based out of his Connecticut home, and a 1999 Latin King "Imperial Hunks" calendar.
But some Latin King members may have benefitted improperly from their close ties to Praxis. One former employee says Latin Kings, working as security monitors at Praxis hotels, allowed drug dealers access to residents. Stanley Stevens, a former addict and past resident of a Praxis SRO, says drugs were sold right under the noses of the staff.
Stevens: It was the guy on the first floor, the guy right next to where the staff was, he was selling drugs I even bought some, myself.
Robert Dunn, Gordon Duggins' personal attorney, knows of only one instance where an employee was found to be dealing drugs, and he says that person was fired. He says Latin King members weren't used as security guards. Dunn says all the allegations are coming from disgruntled former employees. Praxis' financial problems, he says, are a thing of the past.
Dunn: They definitely experienced growing pains, and as a consequence, there may have been certain things that would not have received the good housekeeping seal of approval, but there's no fraud involved whatsoever.
Sterling Zinsmeyer declined several requests for an interview over a two-week period. Current members of the Praxis board also did not return calls seeking comment. The organization has hired a legal firm to conduct an internal review of business and financial matters. Praxis spokesperson Susan Del Percio read a statement.
Del Percio: Praxis will respectfully decline comment until that review is completed. Praxis is proud of the housing services it has provided since 1995 to hundreds of formerly homeless New Yorkers with HIV and AIDS.
There are other reviews of Praxis now underway, by the city's Department of Investigation, the U.S. Attorney's Office, the State Attorney General, and the federal Department of Housing and Urban Development. Father Gordon Duggins is sticking with Praxis, but Sterling Zinsmeyer told City Limits magazine he plans to leave. Regardless of what comes of those investigations, the pair have continued to set up for-profit homeless housing companies, and continue to do millions of dollars of business with the city. For WNYC, I'm Amy Eddings.