WASHINGTON, D.C. – Attorney General Karl A. Racine today announced a lawsuit against a failed nonprofit that was founded to raise funds for the U.S. pavilion at the 2020 World’s Fair Exposition in Dubai and two of its founders, alleging that the founders improperly paid themselves more than $360,000.
In a lawsuit against Pavilion USA 2020, Inc. (Pavilion) and its founders and directors Frederick Bush and Alan Dunn, the Office of the Attorney General (OAG) alleges that Bush and Dunn worked together to advance their private financial interests at the expense of the organization’s goals. Their mismanagement and abandonment of their fiduciary duties contributed to the organization’s failure to fulfill its mission and ultimate dissolution. Through the lawsuit, OAG seeks to recover the unreasonable compensation provided to Bush and Dunn and to direct the funds to an appropriate nonprofit purpose.
“Nonprofits exist to benefit the public and their funds must support a charitable purpose, not enrich private individuals,” said AG Racine. “With this lawsuit, we’re seeking to recover hundreds of thousands of dollars in unreasonable compensation paid to Pavilion ’s founders. Their mismanagement and greed ultimately contributed to the organization’s failure. As we have repeatedly demonstrated through our nonprofit enforcement actions, our office will not tolerate this type of abuse of public trust.”
Pavilion USA 2020 was a District nonprofit corporation formed in April 2018 as part of a proposal to partner with the U.S. Department of State to operate a U.S. pavilion at the 2020 World’s Fair Exposition in Dubai. Defendants Bush and Dunn were founders of the organization, served on the organization’s board of directors, and also contracted with the organization to provide services: Bush as a fundraiser, and Dunn as general counsel through his own firm.
Under the District’s Nonprofit Corporation Act (NCA), the Attorney General has the authority to police nonprofit activities and ensure that nonprofit entities operating in D.C. spend their funds for the specific public purpose provided in their articles of incorporation. A nonprofit’s funds are a form of a public trust and cannot be spent to benefit a private individual or company—especially an individual who has influence over the organization.
An OAG investigation revealed that Pavilion and its founders acted contrary to the nonprofit’s charitable purpose. Specifically, OAG’s lawsuit alleges that Pavilion, Bush, and Dunn violated District law by:
- Using nonprofit funds for personal enrichment: Bush and Dunn received unreasonable compensation amounting to more than $350,000 of the funds raised to support the organization’s mission. The board did not objectively review whether Pavilion could obtain similar services at better prices from others. Additionally, Bush and Dunn caused the Board to mistakenly classify Bush as an independent contractor, for his personal benefit and to the detriment of the nonprofit. Dunn inflated his compensation by including essentially a late fee that was not fully disclosed or approved by Pavilion management and was not available to other service providers. He also received compensation for legal services during several months in which his law license was suspended.
- Failing to uphold their fiduciary duty: Bush and Dunn prioritized their own financial interests over the interests of the nonprofit. They misstated expert advice or pushed Pavilion to ignore it, and approved unreasonable contracts that did not benefit the organization and in fact created risk for it.
- Undermining independent oversight of the organization: Dunn and Bush undermined controls put in place to prevent the organization from being used for private benefit, including outside expert advice on compensation and procurement policies and independent board directors. Dunn and Bush withheld the expert advice and misled independent board members in order to push their own compensation agreements through.
- Abandoning the organization’s charitable purpose: Pavilion raised just $1.5 million out of a projected $37 million to support the U.S. pavilion at the 2020 World’s Fair. Instead of ensuring the nonprofit obtained the best sponsorships and deals, Bush and Dunn ensured that they would get paid. In total, more than 23% of all of the money raised by the organization went directly to Bush and Dunn.
A copy of the District’s legal complaint against Pavilion USA 2020 is available here.
OAG is seeking to recover the funds improperly paid to Bush and Dunn and to direct them to an appropriate nonprofit purpose, as well as any other relief the court deems necessary.
OAG’s Nonprofit Enforcement Work
Under AG Racine, OAG has invested resources to expand its capacity to enforce District laws governing nonprofits. OAG has litigated and resolved actions against several charter schools and the president of a nonprofit that owned an affordable housing building for mismanagement of nonprofit funds. The office has sued several organizations for misuse of charitable funds, including a local fraternity, the 58th Presidential Inaugural Committee and the NRA Foundation. Additionally, OAG has obtained an order that District nonprofit Howard Theatre Restoration, Inc. dissolve for failing to function in support of the District’s historic Howard Theatre, investigated the closure of Providence Hospital to ensure nonprofit assets were not improperly removed from the District, and intervened to resolve a board dispute at an internet freedom organization.
If you suspect that a nonprofit doing business in the District of Columbia is violating District law, please contact OAG at (202) 727-3400.