MLK Center pays son's firm - "Accountability Lapse" Embroils Troubled Memorial
/- Originally published in The Atlanta Journal-Constitution on February 20, 2005
By ERNIE SUGGS, MAE GENTRY, LUCY SOTO
Since 2000, the nonprofit Martin Luther King Jr. Center in Atlanta has paid at least $2.9 million to a for-profit business run by Dexter King, the younger son of the late civil rights leader.
The payments to Intellectual Properties Management escalated sharply in that time, the center's tax records show. By 2003, more than 50 cents of every dollar donated to the center was passed on to IPM, making it the center's largest single contractor, records show.
Dexter King served as chief executive of both organizations in 2002 and 2003. A company document obtained by The Atlanta Journal-Constitution says the firm is owned by the Estate of Martin Luther King Jr. Inc., a for-profit corporation controlled by the King family.
The King Center disclosed the payments to IPM on its tax returns but did not report Dexter King's control of the business, as required by the Internal Revenue Service. The tax returns raise questions about whether the center complied with Internal Revenue Service regulations concerning so-called "self-dealing" by nonprofit groups.
The accountant who prepared the center's tax returns said he made that decision, but did not know that King was CEO of the business.
IPM has managed the King Center since 2000, providing almost all of the center's employees under a lease arrangement. The center has continued to pay IPM for those workers, but the amount of the payments since July 2003 could not be determined. The center would not disclose that sum, and it has not filed a more recent tax return that would itemize the amount.
Officials of the King Center have said the payments are used only to pay salaries and benefits of its employees, who are on the IPM payroll but are leased back to the center. The arrangement keeps personnel costs down, and IPM charges no additional fees for the service, they said.
Charity watchdogs say special precautions must be taken to make sure a business does not take advantage of a relationship with a nonprofit group that is run by the same person or persons. "It's very easy for money to get diverted away from the cause of the organization, if there is a potential for the related parties to benefit," said Daniel Borochoff, president of the American Institute of Philanthropy.
Because of the opportunity for abuse, nonprofits must tell the IRS if they make payments to a taxable group that is affiliated with its officers, key employees or their relatives.
King Center officials did not respond last week to requests by the newspaper for more information about the payments.
A charity creates "an accountability lapse" when it contracts with a business controlled by the charity's principals, Borochoff said. That's because the business doesn't have to disclose to the public what it does with the charity's money, he said.
"It creates an appearance of a conflict of interest, and nonprofits need to worry about appearances because they depend on the trust of the public to make contributions and support the organization," Borochoff said.
The King Center has struggled financially in the past decade, usually ending the year with a deficit, according to tax records. Its staff, once as large as 70, has been trimmed to about two dozen over the years, and the center has dropped many of its community service programs.
The Journal-Constitution reported Feb. 6 that the center has continued to pay six-figure salaries to King and his brother, Martin Luther King III, while running up the center's debt and laying off workers. The debt includes a mortgage on the home where Martin Luther King Jr. was born, which serves as the centerpiece of the King National Historic Site.
This month, the Journal-Constitution also reported that the National Park Service had found that the center's buildings needed structural and mechanical repairs that would cost an estimated $11.6 million. The center has not publicly responded to the findings.
Two CEO positions
IPM, which also licenses and protects King's intellectual property on behalf of the King estate, was founded in 1994 by Phillip Jones, a college friend of Dexter King's. Jones transferred his interest in the company in 2000, officials have said.
The center reported its largest one-year payment to IPM --- nearly $1.4 million --- in the tax year ending in June 2003. Dexter King was chief executive of both IPM and the King Center at the time.
Elsewhere on that return, the center was asked whether it made payments to any company affiliated with key King Center employees. The center's tax preparer, certified public accountant John H. Jordan of Singleton & Jordan, checked "no."
In an interview, Jordan said last week it was his decision to check "no." But he said he did not know that Dexter King was CEO of the business until a reporter told him.
Jordan acknowledged that the question was answered incorrectly, but said he still believes the relationship was disclosed because the payments to IPM were reported on the tax return.
"The question maybe could've been answered yes," he said. Jordan said Shireda Howard, then an official of the King Center, told him at the time she thought the question should have been answered "yes." Howard, who no longer works for the center, could not be reached last week for comment.
The IRS declined to answer questions about the center's tax returns. As a matter of policy, the IRS will not discuss specific returns.
Jeff Krehely, deputy director of the National Committee for Responsive Philanthropy, says arrangements like the King Center's relationship with IPM "leave a lot of room open for personal enrichment at the expense of the public charity."
Krehely would like public charities to stop contracting with related parties altogether.
"We would like to see no self-dealing," he said.
Antonio Stephens, the communications coordinator for the King Center, acknowledged Thursday that the center received a list of e-mailed questions from the Journal-Constitution on Monday. But he would not say whether or when the center would respond.
Firm's role defended
IPM serves a practical and legitimate role in King Center operations, according to earlier e-mail correspondence with Rosalind McGinnis, the center's managing director. Leasing employees from IPM reduces the center's overhead, improves employee benefits and allows for "in-kind professional support" from IPM employees with particular expertise, she said.
IPM, she said, maintains offices in the King Center and pays "market rate" rent for the space it occupies there.
During the period covered by the center's 2002-03 tax return, the most recent available, all but one of its employees were leased from IPM, McGinnis said. The exception was Dexter King, then the center's president and CEO and now its chairman and acting chief operating officer.
"There are not 'up-charges' of any kind [administrative or otherwise] for services that IPM provides to the King Center," she wrote.
Dexter King's 2002-03 salary --- $179,000 --- was the only one listed on the center's tax return. The IRS tells charities to report their top five salaries if they are over $50,000, but McGinnis said the requirement does not apply in this case because the top executives are technically employees of a for-profit company.
In response to a reporter's questions, McGinnis said the top four salaries after King's ranged from $53,268 to $63,023 in the 2002-03 fiscal year. But she declined to name the employees who were paid those salaries.
The amount of Dexter King's compensation by IPM, if any, could not be determined. McGinnis said King "does not receive a salary from IPM, as he is not an employee. He is a corporate officer of the company."
Some observers are concerned about the center's direction under the arrangement with IPM. "You've got a for-profit housed at a not-for-profit as the not-for-profit's activities are less and less," said Michele Clark Jenkins, a lawyer and former manager of the King estate. "At some point, that's got to endanger your nonprofit status."
Protecting King estate
In 1994, Jones created IPM to protect the Rev. Martin Luther King Jr.'s intellectual property and develop creative projects.
In his new role as the guardian of the King estate, Jones brokered, licensed and sued over the use ofs the late King's image and speeches.
"We have a staff that reviews the thousands of license and permission requests that come in from around the world," Dexter King wrote in "Growing Up King," his 2003 autobiography. "And each time we are forced to legally protect and defend our rights we incur major legal expenses."
In 1997, IPM's founder estimated the company had deals worth $10 million. That did not include a multimillion-dollar joint venture with Time Warner to publish books and produce an Internet site and CD-ROMs based on the Rev. King's writings. Royalties and other revenue from the deal went to the estate.
In July 1998, day-to-day operation of the center and of IPM were placed under the authority of the King Center's managing director, who was then Ana Mollinedo. But after IPM moved into the King Center, the company began work on more than just the King estate.
The King Center had been paying another company run by Jones, Insource Consultants Inc., for "management services through the lease of key employees." The payments totaled about $965,000 from 1996 to 2000.
IPM took over that responsibility in 2000, McGinnis said.
The arrangement between the nonprofit and for-profit corporations is a direct reversal of the King Center's direction in the early 1990s.
Jenkins, then a Los Angeles lawyer, said the King family asked her in 1992 to separate the functions of the nonprofit King Center and the for-profit estate. It was part of a larger assignment to create licensing and copyright guidelines for the estate that made sure the Rev. King and his legacy were being interpreted the way the family desired. Jenkins managed the estate until 1994.
Today, as an executive with Black Education Network living in metro Atlanta, she said she was surprised to learn about the employee-leasing arrangement and the center's payments to IPM.
"Wow. It's very different from the way we had done things," she said. "I would not have recommended that they do things that way."
The nonprofit and for-profit entities were disconnected, she said, so they could achieve their two distinct missions --- one benefiting the family and the other the community.
Somewhere along the line, the two reconnected.
