The Morning Call Archives

Copyright © 2010 The Morning Call

ID: 4721564
Publication Date: September 18, 2010
Day: Saturday
Page: A1
Edition: FIRST
Section: News
Type: National State Local
Dateline:
Column:
Length: long

Byline: Christopher Baxter OF THE MORNING CALL

Headline: Nonprofit paid personal bills ** Tax filing by Eastonian

owner shows 2 ex-leaders spent $1.9 million, returned it after probe. **
SPECIAL REPORT

Now-former leaders of a nationally prominent nonprofit with close and

growing ties to Easton improperly used more than $1.9 million from the
group's tax-free coffers for personal expenses between 2003 and 2008,
according to a federal tax filing reviewed by The Morning Call.

The Nurture Nature Foundation, headquartered in New York City and

owner of several properties in Easton, including the new Nurture Nature
Center on Northampton Street, disclosed in its most recent tax filing that
two directors used foundation money for personal benefit in violation of
the tax code. The money has since been repaid.

At the top of the list is famed professional arbitrator and philanthropist

Theodore W. Kheel, who received $1,269,340 for personal expenses.
Kheel partnered with Easton developer Peter Koehler on several high-
profile redevelopment projects, such as the National Building and the
Grand Eastonian Suites Hotel.

The filing details how the directors used the foundation's tax-free money
at the same time it was publicizing its nonprofit redevelopment work in
Easton, sought a federal taxpayer earmark from U.S. Rep. Charlie Dent
and accepted hundreds of thousands of dollars in public support.

Founded in 1991, the organization works to bridge the gap between

environmental protection and economic development.

Among Theodore Kheel's payments listed in the tax filing: $648,046 of

foundation money for personal advances, $438,807 for Kheel's car lease
payments and drivers, $60,677 for a housekeeper, $49,662 for a chef,
$19,589 for groceries and $15,275 for custom furniture.

Former Executive Director Leslie Hoffman, also head of another

nonprofit founded by Kheel, improperly received $584,541 from Nurture
Nature, the filing states, including $388,353 for apartment costs, $110,433
in excess compensation, $37,457 for a housekeeper and $25,026 for her
vehicle.

The tax filing also states that $71,504 was paid to an individual helping
the household of Jane Kheel Stanley, foundation director and secretary,
after that person ceased offering services to Nurture Nature. It also lists
$761 of purchases inadvertently made on behalf of Martha Kheel.

Asked about the tax filings, Stanley said there were "unquestionably
mistakes" and that the foundation internally investigated the payments,
changed accounting firms and self-reported the problem to the Internal
Revenue Service as part of its annual 990 filing required for all nonprofit
organizations.

"There's no question there was an error, it was a mistake in accounting, it

was improper reimbursements," Stanley said. "I'm very sorry, and we're
all very sorry that there were those mistaken reimbursements."

Stanley said the amounts attributed to her and Martha Kheel occurred
without their knowledge. She declined to elaborate on who initiated the
internal investigation, which began in early 2009, or why it took so many
years to uncover the payments.

The irregularities reported by Nurture Nature fall under a provision of the

tax code called "excess benefit transactions to disqualified persons." The
IRS defines a disqualified person as someone with substantial control over
foundation finances.

Created to prevent nonprofit leaders from funneling tax-free money to

themselves, the provision allows the IRS to impose a 25 percent penalty
on the excess benefits paid as well as require the money be returned. If the
money is not returned, the IRS can impose a 200 percent penalty.

The penalty is considered an alternative to revoking an organization's tax-

exempt status entirely. The federal tax agency can also impose sanctions
against organization leaders who knowingly approve excess benefit
transactions.

Stanley said the IRS has not yet told the foundation if it will be liable for
$481,536 in penalties.

Mark William Hanson, spokesman for the IRS, said the agency does not
comment on specific taxpayers or their taxes based on federal disclosure
regulations and federal law. The foundation submitted its 2008 tax return
Nov. 23, 2009, detailing the problems, and submitted an addendum in
March of this year.

Stanley said the 2009 tax filing will include additional improper payments
made that year before the foundation's investigation was complete. She
did not detail those payments.

"Institutionally, we are proud of how we handled that problem, once

found, and have been told over and again that we are a model of self-
correction," she said.

Stanley spoke to The Morning Call on behalf of the current board of

directors -- herself, her brother, Robert Kheel, and Edward Peck, a New
York attorney -- as well as her father, Theodore Kheel, 96, and Martha
Kheel.

Theodore Kheel no longer serves on the board because of his age, Stanley
said, and Hoffman resigned as executive director "a few months ago."
Reached by telephone for comment on the payments, Hoffman said she
was not "a good spokesperson for this situation."

"If there was anything that happened, it was clearly a mistake and it's all
been corrected," Hoffman said. Asked why she accepted $584,541 in
payments from the foundation for personal expenses, she again said it was
a mistake.

Hoffman continues to serve as executive director of Earth Pledge

Foundation, another nonprofit headquartered in New York City and
founded by Kheel, according to the organization's website. Earth Pledge
paid Hoffman $150,000 in 2008 for an average 40 hours of work per
week, that year's 990 filing states.

Tax filings for Nurture Nature from 2004 to 2007 show Hoffman worked
an average of 20 hours per week and earned a total of $385,800, or an
average $96,450 per year. The foundation's 2008 filing lists Hoffman as
unpaid.

In 2008 as the improper payments continued, U.S. Rep. Charlie Dent, R-

15th District, submitted and later secured the foundation a $250,000
federal earmark to help create a flood awareness program coordinated by
the Nurture Nature Center in Easton.

Stanley said the foundation did not make Dent aware of the internal
problems when it asked for the earmark because they had not yet been
uncovered. She said the foundation received the federal money after
directors instituted reforms, and that the money was held in Easton, not in
New York.

In an e-mail statement, George McElwee, Dent's chief of staff, did not

address Nurture Nature's problems but instead said the congressman has
worked to help improve region-wide flood evaluation, planning and
education.

The Nurture Nature Center, a nonprofit created by the foundation,

announced Friday an additional two-year, $241,000 award from the
National Oceanic and Atmospheric Administration to install an animated,
video globe as part of its flood program based at its headquarters on 518
Northampton St.

The foundation last year received a $75,000 planning grant from the
National Science Foundation to host forums focused on the science of
flooding and mitigation strategies for people living the Lehigh Valley.
The 2008 tax filing states the foundation also received about $866,000 in
public support in that year.

The grant money was not part of the improper payments, Stanley said.

She called the foundation's problems an "aberration" and said the current
board has implemented a new, rigorous accounting procedure to make
sure the mistakes never happen again. She added that she feared these
mistakes would overshadow her father's millions of dollars invested in
Easton.

"My concern is that nothing positive happening in Easton gets hurt as a

result of something that was separate from Easton, that was taken care of
and that is history," Stanley said.

Theodore Kheel was born in New York and became a renowned expert in
labor mediation. He built his reputation working for the National Labor
Relations Board and the National War Labor Board and in arbitration
during the 1940s and 50s.

Kheel's career peaked as New York City's chief labor negotiator between
1949 and 1982, when he helped mediate a New York City newspaper
strike and, at the request of President John F. Kennedy, a longshoremen
dispute, among 30,000 other decisions he rendered.

Kheel also was active in civil rights issues, serving as president of the
National Urban League.

Kheel and Peter Koehler's relationship began about 1980 when Kheel
invested in a midtown Manhattan restaurant where Koehler worked as a
chef. Their business relationship, as well as their friendship, soon
blossomed. Koehler previously told The Morning Call he considered
Kheel his mentor.

The two partners formed Easton-based Koehler-Kheel Realty LLC in

1999, according to state corporation records. A year later, they made
headlines by agreeing to purchase and renovate the former Hotel Easton
building at 140 Northampton St., now known as the Grand Eastonian
Suites Hotel.

Investments for the nonprofit endeavor came from two of Kheel's

foundations -- Earth Pledge and Nurture Nature -- both formed in 1991.
By that time, the duo had already completed their first triumph, the
purchase and renovation of the National Building at 400 Northampton St.

Nurture Nature's Easton holdings now include the Eastonian, the former
Veterans of Foreign Wars building at 518 Northampton St., the former
Salvation Army building at 214 Spring Garden St. and a home at 914
Spruce St. The foundation in 2008 reported $33 million in net assets.

Stanley said Kheel invested much of his own money into the foundation.

Koehler received $208,500 from the foundation in 2006 and 2007,

according to tax filings for those years. Stanley said the money was for
construction services provided by Koehler, who no longer works with the
foundation. Reached by telephone Friday, Koehler said he did not recall
the payments.

Easton Mayor Sal Panto Jr. did not return a message seeking comment.

Stanley said an independent audit of the foundation initiated as part of the

internal investigation is not complete and will be filed with New York
state later this year.

christopher.baxter@mcall.com

610-778-2283