Minnesota sues Eden Prairie nonprofit for diverting money meant for low-income students

  • Article by: KELLY SMITH , Star Tribune
  • Updated: March 14, 2014 - 11:57 AM

State suit against Eden Prairie educational foundation says its director diverted hundreds of thousands of dollars for himself.

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Minnesota Attorney General Lori Swanson

Photo: Renee Jones Schneider, Star Tribune

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For years, an Eden Prairie nonprofit was praised by the community for making a difference, bringing low-income, high-achieving students from inner cities to attend the suburb’s high school.

But on Thursday, the state attorney general sued A Brighter Day Foundation, accusing it of financial mismanagement and its executive director, Gardner Gay, 52, of spending hundreds of thousands of dollars on personal extravagances such as gyms, shopping and travel despite the program essentially being defunct since 2012. The first hearing for the lawsuit, filed in Hennepin County District Court, is Friday morning.

“Minnesotans are generous with their charitable giving, and a charity should spend funds to further its charitable mission, not for personal gain,” Attorney General Lori Swanson said in a statement.

The lawsuit alleges eight violations of state charitable and nonprofit laws. The state is seeking to recoup the money Gay spent on personal expenses, such as $1,163 at Life Time Fitness and $904 at the Mall of America, and thousands of dollars on air travel, car repairs and restaurants. The state is also seeking a temporary restraining order to stop him and the foundation from spending any more money from the charity’s bank accounts.

Neither Gay nor his attorney returned messages Thursday.

Since its beginnings in 1995, the program brought in five to 14 girls a year to live and attend high school in Eden Prairie. Fundraisers such as a 5K race brought in tens of thousands of dollars for the program. Community leaders donated thousands of dollars, clothing, computers or other items.

“These are kids that never would have had opportunities coming from L.A., New York … it was a great program to give a new life, new opportunities to these kids,” said Joe Stoebner, founder of AVI Systems in Eden Prairie.

Brighter Day started as a unit of the national A Better Chance (ABC) organization, which also has chapters in Edina and Rochester. In 1997, a business donated two homes valued at $1 million to house the students.

But in 2009, the program started unraveling, losing credibility, students — and money.

That year, the IRS issued an order of delinquency against the foundation for failing to pay more than $11,600 in payroll taxes in 2009 and 2010. Although the debt was later paid, state investigators said, the IRS revoked the foundation’s tax-exempt status in 2010 because it had not filed returns for three consecutive years.

The national ABC disassociated itself from the Eden Prairie program, leading the local chapter to change its name to A Brighter Day in 2010.

But the new name did little to create a new start.

The two homes fell into foreclosure in 2011. Board minutes weren’t filed. And ABD did not file required annual reports despite fundraising. According to the past federal 990 forms filed with the IRS, Gay was paid $50,000 a year for 70 hours of work a week.

The program has essentially been defunct since the summer of 2012, when the last new students to go through the program left. Many board directors resigned last year over financial management. The remaining two told state investigators they didn’t make financial decisions; one had never been to Minnesota.

‘Whole mess of fraud’

Stoebner, who said he was unaware of the seriousness of the nonprofit’s mismanagement, tried to save it last year by paying for one of the homes; the bank agreed to donate the other to ABD. Stoebner said the agreement was that the Gays would rent the home for a year and then buy it back for the nonprofit.

Instead, last October, Gardner Gay sold the house donated by the bank for $425,000 to buy the house that Stoebner had paid for and which he and his wife had been renting. Stoebner’s daughter, who owned the rental house, stopped the $200,000 sale and gave them an eviction notice, saying that they couldn’t buy the house for personal use with ABD’s money.

Gay’s wife, Bridget, sued the Stoebners, and has since used $66,000 of the charity’s money to pay for attorney fees, according to the state. The next court hearing is March 27.

“We’re glad the attorney general is taking this step,” said Brian Niemczyk, Stoebner’s attorney. “That certainly helps our case. If the attorney general’s lawsuit is successful, it gets ABD back to all the good things it did for kids.”

Meanwhile, the Gays continue to rent the house. And since October, investigators say, Gay has spent $220,000 of the charity’s money for things such as airfare, cash, massages, groceries, gas and tires — without documenting how it related to the charity.

Gay admitted to investigators that some of it was for personal expenses but argues that others were legitimate nonprofit expenses. Since October, he also wrote out checks from the charity’s account such as $8,600 to his children for “reimbursements,” nearly $13,000 to his wife for “reimbursements” and more than $23,000 to himself for “payroll,” “bills” and “reimbursements.”

He told investigators he has mentored four former students three to four hours a week since last summer. About $130,000 remains in the nonprofit’s account. And the foundation has agreed to dissolve.

But Stoebner doesn’t know whether any of the donated money will be paid back.

“I think this is only the top of this whole mess of fraud,” he said. “I don’t regret helping the organization, but I regret being conned by Mr. Gay.”

 

Kelly Smith • 612-673-4141

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