Wednesday, March 19, 2008

Edith Wharton's Library: A Benefactor's Largess Misappropriated?

$744,000 Meant for Books Was Used To Cover 'Operating Deficit' -- Private Lender Still Waiting to Be Paid.

It has been reported that Edith Wharton Restoration, Inc. (EWRI) agreed to purchase Ms. Wharton's personal library for $2.6 million from British book collector George Ramsden, and that facilitating this purchase were part-time Stockbridge residents Robert G. and Elisabeth Wilmers, who generously provided financing -- a bridge loan -- to allow the transaction to occur.

Unfortunately, as with much else regarding the murky finances at The Mount, smoke and mirrors abound in this Wharton-inspired tale, and things are not as they appear.

For example, right now it is unclear precisely what the specific terms were of the December, 2005 purchase agreement with Mr. Ramsden because The Mount has so far refused to make the agreement public.

Yet, one thing is known for sure, the $2.5 million loan that allowed the transaction to take place has yet to be repaid.

Mr. Wilmers, a former CEO of M&T Bank from Buffalo, New York, with his wife, loaned the money to EWRI on November 30th, 2005, just two weeks before The Mount's CEO, Stephanie Copeland, flew to England and, with great fanfare (a New York Times correspondent was present), signed the purchase agreement with Mr. Ramsden that would bring the leather-bound collection back to the United States.

Photo: First Lady Laura Bush Visits The Mount, April 24, 2006. From left: Stephanie Copeland, president & ceo, Edith Wharton Restoration, Inc.; Robert and Elisabeth Wilmers, benefactors; Lord Christopher Tugendhat, British investment banker (and future trustee); First Lady Laura Bush; and George Ramsden, book collector and seller. -- Credit: Kevin Sprague, Copyright 2006, All Rights Reserved.

The Berkshire Eagle reported that Mr. Wilmers "was to be paid in full by Dec. 31, 2007. He has not been paid; he declined a request for an interview this week."

Not only did EWRI fail to repay the Wilmers, but $744,700 of the loan they arranged appears never to have been used for the purpose the Wilmers specifically intended, that being to buy the Wharton collection and bring it back to its original home in Lenox.

It is clear from the inception that the bank-savvy Wilmer's notion of providing a bridge loan as a means to procure the historic library did not also encompass using the proceeds to pay the organization's monthly obligations or various other debts.

The evidence for this comes from one of The Mount's newest trustees, Lord Christopher Tugendhat, a former British politician who acknowledges being the 'facilitator' who brought the sides back together when the book deal appeared to be going nowhere.

Photo: Lord Christopher Tugendhat, British investment banker (and future trustee), April 24, 2006. -- Credit: Kevin Sprague, Copyright 2006, All Rights Reserved.

An investment banker and former Conservative Member of the British Parliament, Lord Tugendhat, in September 2006, became an EWRI trustee, one of three newly appointed to the board.

Shortly thereafter, for the The Mount's Winter 2007 Annual News & Financial Report, the life peer penned an article aptly entitled "Christopher Tugendhat recounts his pivotal role in the library acquisition." [p.8]

In the following excerpt, the British businessman describes Robert Wilmers' intentions regarding the library acquisition:
"It was a few months after this that Robert Wilmers re-entered the scene with a crucial intervention. He had kept in touch with what was going on and decided that decisive action was required. Would a deal be possible, he asked, if the financial means were forthcoming, or were there other factors in the way? I told Stephanie [Copeland] I was sure a deal was attainable since I believed we had won George's [Ramsden] confidence on all the non-financial issues. With the backing of Robert and Elisabeth [Wilmers] a revised proposition was then produced designed to enable the hands not just to touch but to shake. So again I took the train to York [England], again I was let loose among the books and again Jane [Ramsden] prepared a delicious lunch. This time though the denouement was very different. When I told George what The Mount had in mind, he immediately indicated that so long as the lawyers and accountants were happy a deal would be forthcoming. And so it was."

From Lord Tugendhat's description, it is plain that Robert Wilmers' intention was to create the 'financial means' and make them 'forthcoming', all to make possible a 'deal' that would result in The Mount's acquisition of the collection.

There is not the slightest implication in Lord Tugendhat's memoir that Mr. Wilmers was intending any of his bridge loan to finance The Mount's operations or to cover any debt.

According to an individual familiar with EWRI, the original purchase agreement stipulated a price of £1,500,000 (British pounds or GBP) to be paid the bookseller in exchange for his collection of Ms. Wharton's extensive library of colorful leather volumes.

At the currency conversion rate in effect that day, December 12th, one British pound (GBP) was equal to 1.75530 US Dollars (USD), and meant the collection was valued at over $2.63 million USD.

Rather than paying Mr. Ramsden the entire sum though, EWRI instead paid him £1,000,000 at the closing and signed a note committing itself to pay the remaining £500,000 in ten annual installments of £50,000.

In American dollars, that meant a purchase price of $2,632,950 with Mr. Ramsden receiving upfront $1,755,300 USD (£1,000,000 x 1.75530), with the 10-year note then worth $877,650 at $87,765 per installment.

(With currency exchange now strongly favoring the British pound, the cost in American dollars today to pay off that note will be considerably higher.)

John Keegan, CPA, EWRI's long-time auditor and tax preparer, of the Pittsfield firm, Lombardi, Clairmont & Keegan, claims that the £500,000 note to Mr. Ramsden is interest-free.

When it was pointed out that EWRI's FY2007 IRS Form 990 [p.24] shows the note being carried on The Mount's books at 8% [p.25], with the total number of British pounds owed Mr. Ramsden seemingly being compounded annually, Mr. Keegan said that standard bookkeeping practice requires notating and calculating interest, whether or not interest is actually being charged.

At close of FY 2007, EWRI's Form 990 shows the amount owed Mr. Ramsden had risen to £607,254 [p.24].

Mr. Ramsden is supposed to receive his final installment by Dec. 12, 2015, but according to The Berkshire Eagle: "The Mount paid him in 2006, but Ramsden did not receive his second payment last year."

Meanwhile, the unsecured $2,500,000 bridge loan from Mr. Wilmers, the one used to pay Mr. Ramsden his initial $1.75 million, is being carried at 4.04%, according to the Form 990, and is 'Due on demand' [p.25].

After subtracting the $1.75 million paid Mr. Ramsden from the $2.5 million loaned EWRI by Mr. Wilmers, there still remains exactly $744,700 the dispersal of which has yet to have had a public accounting or substantive explanation by EWRI officials.

While for certain there were expenses related to packing, securing and insuring the valuable library, as well as shipping all that paper and leather 3,500 miles to Lenox, Massachusetts from Settrington, England, none of that cost would account for the bulk of the 'missing' money.

Susan Wissler, vice president of The Mount, in an interview with The Berkshire Eagle, said "the balance went to cover some operating deficit."

Not much of an answer, nor very detailed, from the person whose signature actually graces the Form 990 return to IRS.

So the question remains, just what did happen to all that money? <<<<<

Related Articles:
Edith Wharton Restoration: Living the 'Gilded' Life While Wallowing in Massive Debt.
Edith Wharton to IRS: "Mount This!" -- Failure to report 'fringe benefits' could leave CEO, Trustees at The Mount liable.

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Thursday, March 13, 2008

Edith Wharton Restoration: Living the 'Gilded' Life While Wallowing in Massive Debt.

The Mount's fiscal woes are not going to be resolved anytime soon, and certainly not until the organization can get a handle on its incredibly profligate spending habits.

It also needs to start complying with basic IRS reporting requirements governing tax-exempts.

For example, during The Mount's slow season, CEO Stephanie Copeland enjoys full and free use of a furnished luxury studio apartment in a mid-town Manhattan high-rise.

This contributes to the current fiscal drain on the organization at the rate of "about $2,439 per month", according to The Berkshire Eagle.

In summer, when Ms. Copeland spends most of her time in the Berkshires, the unit is sublet.

Photo: Stephanie Copeland, President and CEO , Edith Wharton Restoration, Inc. at The Mount in 2003. -- Credit: Lesley Ann Beck for Berkshires Week.

A source familiar with the organization claims Ms. Copeland is fund-raising in the city and alleges that her efforts there bring in 70% of the organization's donations.

Yet, The Mount subsidizes Ms. Copeland's personal use of this dwelling despite the organization's years of withering cash flow and financial hardship that recently culminated in it missing its February mortgage payment to Berkshire Bank (two separate loans actually, one at an interest rate of 7.0%, the other at a whopping 8.75%, both collateralized by real estate [p.25]).

With The Mount unable to pull in sufficient operating capital for so many years now, it would appear that Ms. Copeland's 'fund-raising' efforts in Manhattan do not warrant keeping the expensive outpost that doubles as her pied-à-terre in the City.

(And with the CEO in New York all the time, just who is reaching out to the hearts and wallets of Boston's arts and social glitterati?)

Further, The Mount sent its CEO and at least one other official on overseas 'tours' last year, all in the name of fund-raising, of course, but at a time when the organization was just months away from insolvency, if not already totally broke.

The first, in late June, a 12-day cruise to the Mediterranean, which according to The Mount's Winter 2007 Annual News & Financial Report [p.13], included accommodations "aboard a luxurious 114-guest yacht to retrace Wharton's 1888 journey through this ancient sea", plying the waves on the Corinthian II and traveling "in elegant style worthy of the Gilded Age."
(Tour itinerary)

The 114-guest luxury yacht, Corinthian II. Stephanie Copeland, CEO of The Mount, cruised aboard while 'fund-raising' for the tax-exempt organization.

(Elegant indeed, it's worthwhile remembering that at the time Edith Wharton took this very same frill-filled, spare-no-expense journey, she was already well-to-do having been born into a wealthy family, and thus had the means to spend money as she desired. She was not taking from a publicly-supported charity to support her lifestyle.)

Ms. Copeland was aboard, of course, supposedly 'fund-raising' whilst visiting "Sicily and the Aegean, including stops in Palermo, Syracuse, Santorini, and Rhodes", and all this co-sponsored with the Alumnae Associations of four Ivy-League colleges.

Back in the Berkshires, with time out during the summer to take in the cool breezes off the back porch at The Mount, and having only just caught her breath from her breathless sea adventure, Ms. Copeland then embarked on her second Edith Wharton excursion of the year.

This one commenced in October and lasted for 13 days.

She was accompanied this time by another official with the organization, and continued her 'fund-raising', this time throughout Morocco on the coast of North Africa.
(Tour itinerary)

The two Edith Wharton Restoration, Inc. executives apparently enjoyed "sumptuous lodging and fine dining", visiting "private homes, gardens, and palaces in the red and white cities of Rabat and Sale, medieval Fes, the Roman ruins of Volubilis, and Marrakech, and much more," according to the Annual Report.

A view of Rabat in Morocco. Stephanie Copeland, CEO of The Mount, accompanied by another organization official, visited the ancient city while 'fund-raising' for the 'not-for-profit'.

This jaunt, sun-bleach included, was "Sponsored by The Mount".

Perhaps the most revealing aspect to these executive vacations (working or not) is the insight they give into the managerial competence of Ms. Copeland, as well as to the individual herself.

She took not one, but two extended overseas jaunts at a time when her organization was metaphorically bleeding-to-death (which problem partly was due to her free-spending decisions as CEO).

Significant too, is that neither vacation was paid for by Ms. Copeland herself in spite of her $97,000 annual salary.

As mentioned above, The Mount co-sponsored the first, and entirely foot the bill for the second.

So at a time when fiscal austerity would have been the prudent course of action at Edith Wharton Restoration, Inc., with an overwhelming need for critical attention to be paid to the urgent task at hand of raising from as many as possible emergency sums to keep up with the organization's crushing debtload, Ms. Copeland was off retracing Edith Wharton's wanderlust.

Quite telling also was Ms. Copeland's seeming need to emulate Ms. Wharton's privileged 'life experience' by, of course, traveling first-class in sumptuous Gilded Age style. (Too bad Ms. Copeland didn't see fit also to emulate Ms. Wharton's habit of paying her own way.)

Wouldn't Ms. Copeland's fund-raising expertise and valuable time have been better utilized rustling up donors from amongst her society contacts in New York and Easthampton?

And if help weren't available there, what would've been wrong with casting for life lines amongst the swells on Beacon Hill, Back Bay, Chestnut Hill, Provincetown, Martha's Vineyard and Nantucket (all located, dare one be reminded, in The Mount's home state)?

Failing that, there are the literary-atuned in Philadelphia and Washington, D.C..

Ms. Copeland's time and the organization's dwindling resources would surely have been better spent reaching out within the wealthiest country on Earth, rather than sightseeing in the Mediterranean and in Moroccan shopping bazaars.

To make matters worse, and for reasons as yet unexplained by John Keegan, CPA, the organization's long-time auditor and tax preparer, of the Pittsfield firm, Lombardi, Clairmont & Keegan, The Mount has failed to report its CEO's (and other key employees') various 'perks' anywhere on its annual IRS Form 990 return even though the CEO's use, for example, of the NYC digs appears to meet the IRS definition of a 'taxable fringe benefit' for which Ms. Copeland may be liable for federal income tax (in which case the organization would also be responsible for handing over to IRS the applicable withholding tax).

There is also the small matter of the organization's $130,642 foreign currency transaction loss briefly noted on page 21 of the Fiscal 2007, Form 990.

What is the nature of this transaction, and just how does a literary arts institution/museum in western Massachusetts manage to sustain a foreign currency loss of any amount, let alone one of such magnitude?

Foreign currency transactions and the high risks associated with them are generally the province of billionaires like George Soros, and international goliaths the size of General Electric Company.

Until Edith Wharton Restoration, Inc. stops operating like a rigged Las Vegas slot-machine calibrated to go off only when its CEO puts in her token, there's little reason to believe this organization is going to survive -- and large creditors like publicly-traded Berkshire Bank ought to take heed, and stop the shenanigans.

That or be prepared to write off a whopping loss. <<<<

Related articles:
Edith Wharton to IRS: 'Mount This!' -- Failure to report 'fringe benefits' could leave CEO, Trustees at The Mount liable.
TAX CHEAT! How Alan Chartock conspired with WAMC to avoid paying IRS -- Failure to report CEO's taxable 'perks' could leave trustees liable.

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Sorry, Eliot! It Wasn't My Fault!

It was the cell phone!

We were talking (I have Sprint, Spitzer's got Verizon) and I was giving Eliot financial advice because he's been worried about his investments, and I thought I quite plainly said:
"Eliot, eschew risk in foreign exchange and CD's!"
Well, he thought I said: "Screw Kristen for a change in DC!"
Damn it! That's the last time I give anyone advice over a cell phone!

Democrat New York Gov. Eliot Spitzer

Ashley Alexandra Dupre aka "Kristen"

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Tuesday, March 11, 2008

Who Dropped the Dime on Eliot Spitzer?

In Re: Client #9

The Whole Thing Was A Set-Up!

Whatever you may think of Eliot Spitzer, it appears this whole investigation and prosecution was a 'set-up' from the very start -- meaning that Mr. Spitzer's enemies were looking to get him on anything they could.

(And they may or may not have had good cause depending upon what one thinks of the Democrat Governor's general performance since his swearing-in.)

The escort service bust and the telephone taps leading up to it were merely the vehicles by which Mr. Spitzer's political enemies got him.

(No doubt Mr. Spitzer gave his enemies the shovels with which to bury him by frequenting an escort service, but don't be misled into thinking that Spitzer just happened to get caught up in the bust of a prostitution ring. Spitzer was always the original target. The particular escort service he was using -- and whose principals ultimately got indicted -- merely got caught up in the cross-hairs of those in pursuit of this Governor.)

I say all this because if you carefully read the actual criminal complaint (all 55 mind-numbing pages of it), it emerges that the sections dealing with 'Client 9' (Spitzer) reveal far more lurid details than any of the sections dealing with any of the other 'clients'.

To me this says that the writers of the complaint wanted as much as possible to draw particular attention to the specific actions and words of that unnamed ninth client.

The real intent, of course, in all this became crystal clear when conveniently it was repeatedly publicized throughout the day's media frenzy just exactly which number client Mr. Spitzer happened to be.

It all seemed just too pat and staged.

Also, in a separate ABC News story by Brian Ross, he writes:
"The suspicious financial activity was initially reported by a bank to the IRS which, under direction from the Justice Department, brought in the FBI's Public Corruption Squad.'We had no interest at all in the prostitution ring until the thing with Spitzer led us to learn about it,' said one Justice Department official."

"(T)he thing with Spitzer" were his large cash withdrawals.

These are what led investigators to look into what Spitzer was doing with that cash, and ultimately to the activities at the escort service.

In addition, the complaint quotes 'Client 9' as expressing a need to visit an ATM cash machine to withdraw more money, this in order to pay his escort and her agency not just the requested balance due for the lady's services, but a substantial additional sum -- so that there would be a credit balance next time client Spitzer desired to engage the firm. (He'd used the agency in the past.)

This is the obvious indication, therefore, that Spitzer was using his local ATM to withdraw cash (thus sparing having to deal with the inquiring eyes -- and questioning thoughts -- of a bank teller).

(This escort agency's firm policy was to get a large deposit up-front -- at times 55% of the $1000 - $5000 per hour rates. This sum was requested to be deposited to a seemingly non-descript business account in cash, money order, wire transfer or American Express card -- no Mastercard or Visa welcomed here, thank you! In the case of Client 9, it appears the deposit was received via mail because, according to the complaint, "Client-9 would not do traditional wire transferring" [Para.74].)

Sounds to me that at Spitzer's bank, the ATM supervisor (or head teller) may have noticed large cash withdrawals from the machines from certain accounts and decided to check out just to whom exactly those account(s) were listed -- not an unusual practice in this age when federal and bank officials are worried about terror groups sending large amounts of cash overseas to other terrorists.

So anyway, once it was determined by the bank that it was actually the Governor of New York who was withdrawing large sums of cash from his account(s), then the next obvious question is: Why?

Meaning: Why does a family man need $3,000 - $6,000 in walking-around money when he's likely got plenty of credit cards in addition to a state-provided limousine, chauffeur, and trooper contingent?

(Even Warren Buffett is known to carry only about 300 to 400 bucks in his wallet at any one time.)

Who is to say then that whomever it was (the ATM teller, the head teller, the bank manager, the bank president, the bank prez's Wall Street squash partner) with access to this tantalizing and invaluable tidbit of information -- that the arrogant, seemingly straight-arrow and invincible, mean-ass former prosecutor Governor of New York was periodically making large cash withdrawals for unknown purposes -- didn't direct this morsel to the table of the Governor's hungriest and most determined enemies?

From that point on the menu was set, and the goose cooked. <<<

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Sunday, March 09, 2008

Edith Wharton to IRS: "Mount This!"

Failure to report 'fringe benefits' could leave CEO, Trustees at The Mount liable.

Stephanie Copeland, president and CEO at Edith Wharton Restoration, Inc. (EWRI) has been associated with The Mount for years and years.
She's even had the honor of receiving a Preserve America Presidential Award given her in 2005 by Pres. George W. Bush.
She resides in Stockbridge, and during the long Berkshire winters when business at the Lenox attraction is slow, Ms. Copeland continues her organization's fund-raising efforts 150 miles to the south in mid-town Manhattan, where she stays for extended periods.
Ms. Copeland's annual salary at $97,116 is considered respectable for Berkshire County (median income for a household here is $39,047).
Yet, according to the Manhattan telephone directory, it is not Ms. Copeland but rather EWRI to which a phone at 500 West 56th Street is listed.
Trouble is the 20-story building at that address, The Westport, billed as "One of the Premiere Luxury Rentals in New York City," is a residential apartment complex.
(The Westport's units include studios starting at $2,695 up to 2-bedrooms starting at $5,595 monthly.)

Photo: President George W. Bush and Laura Bush present the 2005 Preserve America Presidential Award to members of the Edith Wharton Restoration in the Oval Office Monday, May 2, 2005. They are, from left, Barbara de Marneffe, Co-Chairman, Board of Trustees of Cambridge, Massachusetts, and Stephanie Copeland, President and CEO, of Stockbridge, Massachusetts. (White House photo by Eric Draper)

When a call was made today to The Westport, the fellow answering in the leasing department confirmed that the building is zoned residential, and that it is not an office building nor is it supposed to lease to commercial tenants.
Dialing EWRI's Manhattan number generates a series of different rings and ultimately forwards the caller to what sounds like a distant fax machine or computer.
First off, why is a not-for-profit organization maintaining an expensive NYC branch office when it's millions of dollars in the hole, and for years has had severe cash flow problems?
Next, since EWRI allegedly maintains this outpost for purposes of fund-raising, why are its offices in a residential building?
Finally, even were there a legitimate business rationale for The Mount to maintain an expensive perch so far from its Plunkett Street base, should the organization be subsidizing a space that doubles as overnight lodging (or longer-term accommodations) for a favored few?

Photo: Stephanie Copeland in front of The Mount, Lenox, Mass. -- Credit: Nathaniel Brooks for The New York Times.

Under regulations governing tax-exempts, accommodations bought and paid for by charity organizations aren't free for the personal use of organization officials.
They're considered a taxable fringe benefit.
Those getting use of them owe extra federal income tax, and all information relevant to those transactions is supposed to be reported to IRS.
If EWRI is not reporting such transactions, or is reporting them inaccurately, then EWRI is running afoul of IRS regulations (in addition to its other current woes).
In looking at EWRI's most recent annual Form 990 filings, for fiscal 2007, 2006, and 2005, EWRI has reported to IRS that it paid zero dollars towards 'expense account and other allowances' going to EWRI's "Current officers, directors, trustees and key employees".
IRS defines 'expense account' as including any taxable fringe benefit or perquisite paid to the recipient.
Organization-provided lodging has a value and it's supposed to be calculated using what it would cost to obtain similar lodging at fair-market prices in an arm's-length transaction.
Using The Westport's published rental figures above as an arm's-length, fair-market guide, that would mean the benefit recipient owes federal income taxes on the value of a month's stay as if that recipient were getting paid by EWRI an extra $2,700 to $5,600 monthly.
Like I said, all this data is supposed to be -- is required to be -- reported annually to IRS on EWRI's Form 990, Part V-A.
Likewise, it is supposed to be duly noted in another section of Form 990, specifically in 'Schedule A, Part III' where the preparer is asked whether the organization furnished 'goods, services, or facilities' to 'trustees,' 'officers' or 'key employees'?
EWRI has annually reported 'No'.

The Westport at 500 West 56th Street offers luxury residential apartments in Mid-town Manhattan.

In addition to the issue of providing faulty information to IRS (which is concerned with the obvious possibility of tax evasion by those whose perks are not being reported), there is also the matter of 'self-dealing', the furnishing of services to a foundation trustee or manager without charge or at a price below fair market value.
In cases where IRS determines that self-dealing has occurred, the agency can level on the offender an additional five percent excise tax on each act of self-dealing.
As additional punishment for allowing it to happen, the agency can level an excess benefits excise tax on an organization's entire board.
It is quite clear that EWRI's board of trustees, its CEO, and its auditor need to explain what exactly is going on with EWRI's mid-town pied-à-terre. <<<<<
(Editor's Note: The author's familiarity with IRS regulations as they apply to tax-exempt organizations came about as the result of an extensive investigative report written in 2006 about the failure of another Berkshire 'not-for-profit', WAMC Northeast Public Radio, to report to IRS the taxable fringe benefits and perks paid to its CEO over the course of twenty-plus years. See: "TAX CHEAT! How Alan Chartock conspired with WAMC to avoid paying IRS".)

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