SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK ANDREW … · Andrew M. Cuomo, Attorney General ofthe State ofNew York, on behalf ofthe People ofthe State ofNew York, alleges

\

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK

ANDREW M. CUOMO, Attorney General of the State of New York, on behalf of the People of the State of New York,

Plaintiff, - against

lTNITED HOMELESS ORGANIZATION, INC., STEPHEN RILEY, and MYRA WALKER,

Defendants.

Index No.

COMPLAINT

Andrew M. Cuomo, Attorney General of the State ofNew York, on behalf of the

People of the State of New York, alleges the following against United Homeless

Organization, Inc., a New York not-for-profit corporation ("UHO"), Stephen Riley,

President and Director ofUHO ("Riley"), and Myra Walker, Secretary and Director of

UHO ("Walker") (together, "Defendants").

NATURE OF THE CASE

1. Each day on the streets of New York City, URO table workers convince

sYmpathetic passersby to deposit cash into plastic jugs under the false pretense that their

hard-earned money is going to a bona fide charity that funds services for the homeless.

URO is a sham. All of the money dropped into the URO jugs is pocketed by the URO

table workers, Riley, Walker, and other insiders, or is used by Riley and Walker to

perpetuate a scheme to defraud the public. Riley and Walker run URO in total disregard

of the legal and fiduciary requirements that bona fide charitable corporations must

follow, resulting in hundreds of thousands of dollars of charitable assets being

unaccounted for or misused annually.

2. As President, Riley hides behind UHO's facade of corporate legitimacy

and describes UHO table wotkers as "members" ofUHO. Donning UHO-branded hats,

identification badges, aprons, and other paraphernalia, UHO table workers mislead the

public that donated funds will be used for services for the homeless.

3. The table workers pay Riley and Walker a fixed "fee" for the right to use

the UHO materials and keep the daily cash donations in excess of the fee, even though

the funds are raised in the name ofUHO.

4. Although assets ofUHO, Riley and Walker treat the "fees" as their

personal kitty, dipping into them whenever they choose. In effect, Riley and Walker

have co-opted a tax-exempt, charitable corporate structure for their own personal benefit.

5. In order to induce cash donations from the public, the table workers make

exaggerated, false, and misleading statements to the public about the "services" UHO

provides, including that funds go to provide food and clothing, are given to "charities and

different churches," and support "pantries," "shelter," and "detox centers." However,

UHO does not provide or fund any of these services.

6. Riley and Walker perpetuate their scheme by ensuring that there is no

functioning board to oversee their actions. Riley and Walker are the only directors on

UHO's board. UHO has not held an election for directors since its incorporation in 1993.

Left unchecked, Riley and Walker routinely flout the requirements applicable to not-for

profit corporations. In violation of their fiduciary duties, Riley and Walker continuously

disregard laws on charitable solicitation and prohibitions against profit sharing and

- 2

private inurement. Riley and Walker improperly distribute UHO cash to themselves,

lJHO workers, and other insiders favored by Riley and Walker.

7. Riley and Walker fail to maintain procedures to account for UHO's total

revenues and expenses, fail to maintain financial controls, and fail to keep accurate books

and records as required by law. Riley and Walker simply ignore the legal and

governance requirements charities must observe.

8. The Attorney General seeks a judgment, among other things: (a) enjoining

UHO, Riley and Walker from soliciting charitable contributions from the public; (b)

enjoining Riley and Walker from accessing, using, or distributing UHO assets; (c)

holding Riley and Walker liable for their misappropriation and waste ofUHO assets; (d)

removing Riley and Walker as officers and directors ofUHO; (e) enjoining Riley and

Walker from serving as.an officer or director ofUHO or any other not-for-profit

corporation in the future; (f) dissolving UHO; and (g) granting such other and further

relief as the Court deems just and proper.

PARTIES

9. The Attorney General is responsible for overseeing the activities of New

York not-for-profit corporations and the conduct of their officers and directors, in

accordance with New York's Not-for-Profit Corporation Law ("N-PCL"), Estates,

Powers & Trusts Law ("EPTL"), and Executive Law ("Exec. L.").

10. The Attorney General maintains offices at 120 Broadway, New York,

New York.

- 3

11. Defendant URO is incorporated in New York as a Type B (charitable),

not-for-profit corporation under § 402 of the N-PCL. Its principal office is 2160 Clinton

Avenue, #5K, Bronx, New York 10457.

12. UHO is registered with the New York State Attorney General's Charities

Bureau. It files annual financial reports with the Charities Bureau, including the IRS

Form 990 and the New York CHAR 500. UHO's certificate of incorporation states that

its purposes include:

[T]o inform the public about the problems of and reasons for homelessness, to raise funds and to provide financial assistance and expertise to individuals and organizations providing shelter, care and assistance to homeless men and women in the State of New York.

13. UHO is exempt from federal income tax under § 501(c)(3) of the Internal

Revenue Code. Its certificate of incorporation requires URO to operate in a manner that

would not cause it to lose that status.

14. Defendant Stephen Riley resides at 2160 Clinton Avenue, #5K, Bronx,

New York 10457. Riley is a co-founder ofURO. Riley has served continuously as

UHO's president and a member of its board of directors since UHO's incorporation in

1993.

15. Defendant Myra Walker resides at 3511 Putnam Place, #5D, Bronx, New

York 10467. Walker has served as a member of UHO's board of directors since 1993.

She also serves as its secretary and is involved in UHO's day-to-day operations.

- 4

JURISDICTION AND VENUE

16. The Attorney General brings this action on behalf of the People of the

State of New York under Article 7-A of the Executive Law, § 175, N-PCL §§ 112,706,

714 and 720, EPTL § 8.1-4, and as parens patriae.

17. Under Exec. L. § 175, the Attorney General is authorized to bring an

action based on violations ofArticle 7-A of the Executive Law to enjoin the fraudulent

solicitation or collection of charitable funds and for an order removing any director or

other person responsible for the violations.

18. Under N-PCL §§ 720(a) and 720(b), the Attorney General is authorized to

bring an action to require the directors and officers of a New York not-for-profit

corporation to account for the mismanagement of corporate assets and for transfers, loss,

or waste of corporate assets in violation of their fiduciary duties and to recover all

resulting damages from such officers and directors.

19. Under N-PCL §§ 112(a)(4), 706(d) and 714(c), the Attorney General is

authorized to seek removal of corporate officers and directors for cause, including

violations of their fiduciary duties.

20. Under EPTL § 8.1-4(m), the Attorney General nlay institute appropriate

proceedings to secure the proper administration of a not-for-profit corporation.

21. Under N-PCL § 112(a)(l), the AttOTIley General is authorized to bring an

action to dissolve a not-for-profit corporation that has acted beyond its capacity or power,

or to restrain it from carrying on unauthorized activities. Also, under N-PCL §

1101(a)(2), the Attorney General is authorized to bring an action to dissolve a corporation

- 5

that has exceeded the authority conferred upon it by law, or has carried on, conducted or

transacted its business in a persistently fraudulent or illegal manner.

22. Under N-PCL § l12(a)(7), the Attorney General is authorized to bring an

action to enforce any right given under the N-PCL to an officer or director of a not-for

profit corporation. Accordingly, the Attorney General may bring an action for

dissolution in accordance with N-PCL § 11 02(a)(2)(D), which authorizes a director to

petition for a judicial dissolution of a corporation where the "directors ... in control of

the corporation have looted or wasted the corporate assets, have perpetuated the

corporation solely for their personal benefit or have otherwise acted in an illegal,

oppressive or fraudulent manner."

23. The Attorney General also has common law parens patriae authority to

conserve charitable property and to protect the public from fraudulent solicitation.

24. Because the Attorney General maintains offices at 120 Broadway, New

York, New York and Defendants' solicitation of funds is conducted principally in New

York, New York, venue is properly laid in New York County, as provided in CPLR

§ 503(a).

FACTS UNDERLYING ALL CAUSES OF ACTION

I. The Scope of UHO's Operations

25. Riley created UHO over fifteen years ago to generate cash for his private

benefit and the private benefit of other individuals.

26. UHO raises funds by direct, face-to-face solicitations of the public on the

sidewalks of New York City. Passersby are asked to put cash in a plastic jug, which

bears the UHO name and logo.

- 6

27. Seven days a week, URO workers set up tables and URO collection jugs

in prominent outdoor locations around Manhattan, typically in areas with high pedestrian

traffic. Up to 50 tables are set up on Monday through Saturday, with a smaller number

deployed on Sundays. UHO's practice is to have two shifts (morning and afternoon) on

weekdays, and one shift on weekends.

28. In exchange for paYing a fee to Riley, URO workers receive tables and

URO-branded materials, including a tablecloth, apron and plastic jug, and the right to

claim membership in URO and wear a URO name badge. The fee is typically $15 per

shift per person.

29. The funds collected at URO tables are solicited in the nanle ofURO and

constitute revenue ofURO.

30. However, Riley allows the table workers to pocket the donations in excess

of the fee paid to him.

31. This arrangement was acknowledged by Riley, Walker, and other URO

representatives in testimony before the Office of the Attorney General ("OAG"). Riley

testified as follows:

Q: And with the rest of the money that is collected in the jug, after a table worker pays their fee, are they free to keep for themselves everything that is in the jug?

A: Yes.

32. For each cluster ofURO tables (such as the Times Square area), at least

one table worker is designated by UHO as a "manager." The manager is responsible for

, collecting the fees at the end of each shift from the other URO workers in his or her area.

The manager is also supposed to pay the shift fee, but the fee may be reduced or waived

- 7

if the manager turns over to Riley (or his agents) enough money in fees collected from

others. A manager may even earn a "bonus" if the collected an10unt is high enough.

33. The manager is supposed to record shift fees on a UBO "time and

expense" sheet, which each worker signs. The time and expense sheet does not call for

the total donations collected to be recorded.

34. At the end of each day, Riley, Walker and/or Walker's sister, Sheila

Walker, visit each manager to collect the fees, along with the time and expense sheets.

The fees, or some portion thereof, are deposited in UBO's bank account (the "UBO

Account") the following day by Walker or Walker's sister. According to bank records,

Riley is the only authorized user of the URO Account. In practice, Riley has given

Walker and her sister access to the UR0 Account.

. 35. URO's operations do not include any of the following: (a) shelters;

(b) soup kitchens or other food distribution services; (c) services in connection with

distributing clothing, toiletries, or other essential items to the homeless; (d) services to

assist the homeless in finding pennanent housing; or (e) detox centers.

36. URO does not provide social workers to assist the homeless.

37. URO does not tum over any of the funds it raises from the public to

charities to support the types of services enumerated in the two preceding paragraphs.

II. UHO Obtains Donations Under False Pretenses

38. In soliciting contributions from the public, URO and its workers routinely

make false and misleading statements about how URO uses and distributes the donated

funds.

- 8

39. False and misleading statements made by UHO workers to encourage

donations include:

(a) Telling the public that UHO is feeding the honleless, when, in fact,

URO does not run any programs to feed the homeless;

(b) Stating that "we solicit donations to help keep the pantries running,

and we provide shelter, we have a bunch of detox centers ... we help support

[thenl]," when, in fact, LTHO does not run or support such facilities; and

(c) Claiming that URO and/or Riley distribute the funds collected at

the tables to "charities and different churches," when, in truth, UBO and Riley do

not make any distributions to charities or churches.

40. URO workers also make false statements regarding their authority to

solicit charitable contributions in public locations. Under the Administrative Code of the

City of New York, § 21-111, a license from the New York City Commissioner of Social

Services is required to solicit money or donations in public places in New York City.

According to Department of Social Services ("DSS") records, URO does not have, nor

has it ever applied for, a public solicitation license from DSS.

41. Nonetheless, URO workers display a document at the tables that they

falsely characterize as a "license" or permit to solicit. In fact, this document is simply a

copy ofUBO's incorporation receipt, a routine document provided by the New York

Department of State at the time of incorporation. The incorporation receipt does not

convey any special privileges for soliciting the public on the sidewalks or anywhere else.

Nor is it a substitute for a public solicitation license from the Commissioner of Social

Services.

- 9

42. UHO's published materials, including its website, state that UHO provides

food and clothing to the homeless. For example, UHO's website claims that the tables

function as a "food distribution point" and that UHO workers "distribute clothing."

43. However, URO has no program for purchasing or providing food or

clothing for the homeless, as Riley and Walker admitted in testimony before the OAG.

UHO's only distribution of food and clothing-is on an ad hoc basis, when members of the

public occasionally drop off such items at a solicitation table, and the table worker

chooses, but is not required, to pass the items along.

44. UHO's published materials, including its website, also mislead the public

by stating that UHO helps homeless individuals by providing "outreach" at its tables, and

that the tables function as a "community center" that provides support to the homeless

community.

45. In fact, the "outreach" consists solely of oral referrals to other

organizations or agencies that (unlike URO) provide direct services.

46. UHO's published materials, including its website, misleadingly state that

UBO provides daily "emergency assistance." This description fraudulently creates the

illusion that URO maintains a program of giving cash to individuals based on an analysis

of actual need. In fact, the chief criterion for obtaining such assistance is being a fee

paYing merrlber ofUHO. URO has no policies, procedures or criteria for determining an

"emergency."

47. All funds kept by the table workers receive the "emergency" label-even

though some of the table workers have been regularly receiving that money for years.

- 10

III. Riley and Walker Run UHO Without Any Oversight or Accountability

48. Riley and Walker serve as UHO's only directors, although N-PCL § 702

requires a minimum of three directors. There are no independent directors. URO has not

held any elections for directors since UHO's incorporation in 1993. A third director on

UHO's board died in 2004, and he has never been replaced.

49. In the absence of any board oversight, Riley and Walker are left to their

own devices, with no independent monitoring of their actions. Operating on their own,

Riley and Walker run UHO under their own rules, for their own financial benefit.

50. As directors, Riley and Walker have failed to provide even the most basic

corporate and financial oversight required of fiduciaries. In the last three years alone, the

board, among other things, has not:

(a) required any internal financial controls, including policies or

procedures regarding access by Riley, Walker and others to UHO's cash;

(b) required any reliable accounting system, including any system

for accurately tracking revenues or expenses;

(c) reviewed and approved any budget ofURO, or even required

that a budget be prepared; or

(d) adopted any policies or procedures for distribution of the

hundreds of thousands of dollars URO lets workers keep each year as

"emergency assistance" or stipends.

51. In testimony before the OAG, Riley admitted that the URO board (i.e.,

Riley and Walker) does not spend any time reviewing the IRS Form 99Q--a sworn

annual filing containing UHO's financial and operating information-before it is filed

- 11

with the IRS and the Attorney General. As alleged below, UHO's Forms 990 have been

materially false and misleading.

IV. Riley and Walker Fail to Properly Record and Report DBO Revenue and Expenses

52. As UHO's corporate officers, Riley and Walker have not instituted even

the barest rudiments of proper fiscal administration ofUHO's charitable assets. A cash

business, URO has no procedures to ensure that donations and other revenues are

properly recorded, deposited in UHO's bank account, and reported to the OAG. Nor

does it have procedures to ensure that expenses are properly documented and reported to

theOAG.

53. As a result of Riley's acknowledged failure to maintain accurate business

records, URO has filed materially false and misleading reports with the OAG from 2003

to the present, including the IRS Form 990 and the New York CHAR 500 form. These

sworn fom1s contain materially false and misleading information in that they: (a)

materially underreport UHO's revenues and expenses, for example by not reporting the

hundred of thousands of dollars that URO collects but its workers keep; (b) falsely report

that no compensation was paid to officers and directors (and fail to even identify Walker

as a directe>r), even though Riley and Walker were paid amounts purportedly for services

provided to the organization; (c) disguise payments for personal living expenses paid to

Riley, Walker and other insiders as "emergency cash assistance" or "stipends"; and (d)

omit related-party transactions, such as payments to Riley's family men1bers.

A. Revenues

54. With respect to revenues, URO only records shift fees paid by its workers

to use URO tables and solicitation materials. It does not account for its largest source of

- 12

revenue: the hundreds of thousands of dollars donated at the URO tables that are

pocketed by URO workers. l.JBO does not keep records of these donations as revenues

despite the fact the URO workers solicit the funds in the name ofl.JHO while (a) wearing

URO hats and aprons and a URO identification badge, (b) sitting at tables covered with a

URO tablecloth, (c) using cash collection containers emblazoned with the URO logo, and

(d) displaYing URO printed materials.

55. Riley shrugged off any responsibility for properly accounting for DBO's

revenues when asked about it in testimony before the OAG:

Q: Bow much gets collected on average per day?

A: I don't know.

Q: You are ... president of the organization and you don't know how much gets collected?

A: No, I don't.

Q: So how does URO know how much it is collecting?

A: We don't.

56. URO conceals the extent of its fundraising activity by keeping no records

of the funds kept by the workers and by excluding those amounts from its filings with the

GAG.

57. DBO maintains a "don't ask, don't tell" policy regarding the total sums

collected at its tables. One manager told the OAG that she considered it "none of [her]

business" how much money was collected by those working under her supervision.

58. Thus, the amount of donations is grossly underreported. In the years 2003

through 2007, URO reported revenue ranging from $60,163 to $97,890 on its annual

filings with the OAG. The Attorney General's investigation determined that even a

- 13

conservative estimate would show the amount of donations collected annually at the

tables is at least six times the amount reported. Moreover, the extent ofURO's collection

of donations online and through the mail is unaccounted for, and unknown.

59. Even the amount of fees collected by Riley and Walker and reported as

LiliO revenue is grossly underreported. The Attorney General's investigation determined

that even a conservative estimate would show the amount of fees collected annually is at

least twice the amount reported.

B. Expenses

60. Just as URO fails to book the public's donations as revenues, URO fails to

document and report as expenses the hundreds of thousands of dollars kept by URO

workers.

61. Of the expenses actually reported by LTRO, many lack sufficient

documentation to support legitimate business purposes. In 2007 and 2008 alone, nearly

$50,000 in cash expenses lacked documentation explaining the purpose for which URO

furids were spent.

62. Thousands of dollars of cash withdrawals and payments for personal

living expenses that went to Riley, Walker, and other insiders were misleadingly reported

as "stipends." URO maintained virtually no contemporaneous records showing the

recipients of such "stipends" or the amounts they received.

63. URO's filings with the Attorney General state that Riley receives no

compensation from LiliO. In testimony before the OAG, Riley claimed he received no

compensation.

- 14

64. Riley testified that he receives social security disability checks and

governmental housing assistance, but has no other sources of incon1e. In fact, Riley uses

URO funds to supplement his government benefits.

65. Walker admitted to the OAG that she receives cash compensation from

URO, but claimed the amount is limited to $120 per week, whereas Riley conceded the

figure may in fact be ~ore than $120 per week. In any event, URO does not document'

its paYments to Walker, nor does Walker document her receipt of them.

66. Walker testified that she receives governmental housing assistance, but

has no other sources of income apart from the housing assistance and the $120 weekly

paYments from URO. In fact, Walker uses additional URO funds to supplement her

housing assistance and the weekly paYments from URO.

67. URO also fails to maintain accurate books and records regarding URO

funds paid to vendors and independent contractors, including relatives of Riley. Nor does

it report the payments to Riley's relatives as related party transactions, as required.

68. In early 2009, after being served subpoenas by the OAG demanding

documents concerning UHO's expenses, UHO attempted to paper over its deficient

record-keeping and waste of corporate assets. URO and its accountant took steps to

sanitize expenses previously designated as "stipends" by issuing IRS Forms 1099 for the

years 2005 through 2007, identifYing various individuals who allegedly received

"nonemployee compensation" in those years. Yet UHO maintained no contemporaneous

records showing that the individuals identified had received such con1pensation or for

what purpose.

- 15

IV. Riley and Walker Routinely Waste and Misappropriate UHO Assets

69. Although Riley is the only officially authorized user of the URO Account,

in practice, he has given Walker and her sister access to the URO Account, including use

of the ATM/debit card, deposit authority, and online access for electronic transactions.

Riley and Walker routinely draw down the URO Account and other assets for their

personal benefit, as well as for others. As described below, they use LillO funds for day

to-day personal living expenses, such as cable television, groceries, restaurant meals,

utilities, shopping, personal travel and other personal expenses.

70. Riley and/or Walker have removed, or caused to be removed, tens of

thousands of dollars in cash from the URO Account. Over $173,000 in cash was

withdrawn from the account between January 2005 and August 2009.

71. Over $85,000 in cash was withdrawn in 2007 and 2008 alone. URO

records fail to explain how all that cash was used; approximately $50,000, or more than

half the funds withdrawn in those two years, is unaccounted for. Moreover, the limited

documentation that does exist is generally insufficient to support a legitimate business

purpose.

72. Indeed, URO's limited records show that UHO funds are often used for

personal items wholly unrelated to URO's not-for-profit mission or its office expenses,

including thousands of dollars for: (a) premium cable television services at Riley's home

address; (b) Con Edison utility services provided to Riley's and Walker's home

addresses; (c) groceries and restaurant meals; (d) air, bus, and train travel to destinations

outside New York City, including trips to Riley's hometown of Cleveland, Ohio (even

though Riley acknowledged URO does not conduct any operations outside New York

- 16

City); and (e) a range of other personal purchases, at retailers such as GameStop, HSN

(Home Shopping Network), Bed Bath & Beyond, PC Richards, Ricky's, Toys R Us, The

Vitanlin Shoppe, and Weightwatchers.com.

73. LiliO acquired four vehicles, but Riley transferred ownership of them to

himself. URO pays for all expenses relating to the four vehicles, including insurance,

registration, fuel, parking, tickets, and repairs. These vehicles are used by Riley for

whatever purposes he wants, and Riley has not reimbursed LiliO for any personal use.

74. In addition, Riley has lent one of the URO vehicles to a LiliO vendor, who

provides silkscreening services for URO tablecloths, aprons, and other paraphernalia, for

his full-time personal use, even though he has no legitimate need for full time, all

expenses-paid use of a DHO vehicle. The individual has not reimbursed DHO for his

personal use of the vehicle.

75. As described above, Riley and Walker have allowed hundreds of

thousands of dollars to be pocketed each year by the URO workers at the donation tables.

Thousands of dollars in "stipends" have also been distributed to table workers and other

individuals in the form of checks and cash. Like the cash collected at the tables, these

"stipends" are distributed simply on request, with no screening for need.

76. Riley has also caused DHO to make payments to certain members ofhis

family, totaling at least $1,200 in 2008. Defendants have failed to document any services

performed to warrant such payments.

77. By operating URO as a cash-generating vehicle for their own personal

pecuniary profit and financial gain, and by distributing UHO's cash to insiders, Riley and

Walker have ignored basic requirements applicable to tax-exenlpt, not-for-profit

- 17

charitable corporations-such as prohibitions on profit-sharing, private benefit and

private inurement. Riley and Walker have thus caused UHO to engage in ultra vires acts

that exceed the authority granted to it by the N-PCL and its certificate of incorporation,

and have jeopardized UHO's tax-exempt status, all in breach of their fiduciary duties.

FIRST CAUSE OF ACTION

Scheme to Defraud - Exec. L. §§ 172-d & 175(2) (Against All Defendants)

78. The Attorney General repeats and re-alleges, as though fully set forth

herein, all of the preceding paragraphs.

79. Defendants, and those acting in concert or participation with them or

under their direction and control, have violated Exec. L. § 172-d(2), in that they have

engaged in a fraudulent scheme in connection with charitable solicitations, including

(a) obtaining money by false pretenses and representations; and (b) soliciting charitable

contributions using materially false and misleading statements about the intended use of

donated funds.

80. UHO, Riley and Walker have violated Exec. L. § 172-d(3), in that they

use and intend to use materially false or misleading advertising or promotional material

in connection with solicitations for charitable purposes, including but not limited to the

material on the UHO website.

81. lillO, Riley and Walker have violated Exec. L. § 172-d(4), in that they

fail to apply contributions in a manner substantially consistent with UHO's solicitations

for charitable purposes and the purposes expressed in its registration statenlent.

- 18

82. Accordingly, URO, Riley and Walker should be temporarily and

permanently enjoined from the solicitation and collection of charitable funds, as

authorized by Exec. L. § 175(2)(a), (c) and (e).

SECOND CAUSE OF ACTION

Breach of Fiduciary Duties - N-PCL §§ 717 & 720 (Against Riley and Walker)



84. Riley and Walker have failed to discharge their duties as officers and

directors ofUHO with the degree of care, skill, prudence, diligence, and undivided

loyalty required of them in that, among other things, they have: (a) allowed the diversion

of funds from the UHO Account for the personal use of themselves and others, including

Riley's and Walker's relatives; (b) allowed UHO workers who solicit charitable

contributions for URO to keep hundreds of thousands of dollars ofURO funds for

themselves; (c) failed to establish any system for accurately tracking and accounting for

UHO's revenues and expenses; (d) failed to establish any system of internal controls; (e)

allowed title to four URO vehicles to be transferred to Riley without consideration, while

URO continued to pay all expenses associated with those vehicles; (f) failed to ensure

that UHO's operations adhere to the purposes set forth in its certificate of incorporation;

(g) jeopardized UHO's status as a tax-exempt organization under § 501(c)(3) of the

Internal Revenue Code; and (h) failed to ensure the legal n1inin1um nun1ber of directors to

governURO.

85. By engaging in the foregoing, and upon information and belief, other

improper conduct, Riley and Walker breached their fiduciary duties to URO in violation

- 19

ofN-PCL § 717. Accordingly, Riley and Walker are liable under N-PCL

§§ 720(a)(1)(A) and (a)(l)(B) to account for their conduct in the neglect and violation of

their duties in the management and disposition of corporate assets, and for their conduct

in transferring lTHO assets to themselves and others, and causing loss and waste of000

corporate assets, and to pay restitution and damages to 000.

THIRD CAUSE OF ACTION

Waste of Corporate Assets - N-PCL §§ 719(a)(I) & 720(a)(I)(B) (Against Riley and Walker)



87. Riley has diverted funds from the 000 Account for his personal use. In

addition, Riley has transferred title to four 000 vehicles to himself, while lTHO

continues to pay all expenses associated with those vehicles, including expenses related

to his personal use.

88. Walker has diverted funds from the 000 Account for her personal use.

89. Accordingly, Riley and Walker have caused loss and waste of000

corporate assets and acquired 000 corporate assets for themselves, rendering then1liable

to URO under N-PCL §§ 719(a)(l) and 720(a)(l)(B) to account for their misconduct.

FOURTH CAUSE OF ACTION

False Filings - Exec. L. §§ 172-b & 172-d(l) (Against All Defendants)



91. URO, Riley and Walker, in filings with the Attorney General, have,

among other things: (a) materially underreported UHO's revenues and expenses;

- 20

(b) failed to report payments made to workers and others; (c) failed to report

compensation or other funds flowing to Riley and Walker; and (d) failed to report related-

party transactions.

92. As a result of the foregoing conduct, Defendants have made materially

false and misleading statements and omissions in its filings with the OAG, in violation of

Exec. L. § 172-b and 172-d(I).

93. Because of Defendants' false and misleading filings, donors from the State

ofNew York, and beyond, have been prevented from making informed choices about

charitable donations to URO.

94. LTHO, Riley, Walker and all others acting under, through, or for them,

should be temporarily and permanently enjoined from further solicitations, pursuant to

Exec. L. §175(2)(a) and (d).

FIFTH CAUSE OF ACTION

Actions Contrary to Law and Certificate of Incorporation N-PCL §§ 102 & 515

(Against All Defendants)

95. The Attomey General repeats and re-alleges, as though fully set forth


96. URO, at the direction of Riley and Walker, has exceeded the authority

conferred upon it by law, and acted beyond its capacity or power as provided by law and

its certificate of incorporation, in that, among other things, URO (a) conducts activities

for pecuniary profit or financial gain, in violation ofN-PCL § 102(a)(5)(I); (b) distributes

income and profits, in violation ofN-PCL §§ 102(a)(5)(2) and 515; and (c) engages in

private inurement, in violation ofN-PCL §§ 102(a)(5)(2) and UHO's certificate of

incorporation.

- 21

97. Accordingly, URO, Riley and Walker, and persons acting under their

direction or control, should be temporarily and permanently enjoined pursuant to N-PCL

§§ 112(a)(1) and 112(a)(3) from soliciting funds from the public and from accessing,

using or distributing UHO assets.

SIXTH CAUSE OF ACTION

Conduct Necessitating Removal of Officers and Directors N-PCL §§ 706 & 714

(Against Riley and Walker)



99. Riley and Walker have, among other things, consistently and repeatedly

(a) breached their fiduciary obligations as officers and directors ofURO; (b) caused loss

and waste ofURO charitable assets, for their own personal gain, and for the benefit of

relatives and insiders; (c) consistently and repeatedly made, and caused to be nlade,

solicitation statements that are materially false and misleading; (d) consistently and

repeatedly failed to apply solicited funds in conformity with UHO's charitable purposes;

(e) failed to ensure that LillO maintains complete and correct books and records; (f)

caused materially false and misleading reports to be filed with the Attorney General; and

(g) consistently and repeatedly caused URO to act outside the authority granted to it by

the N-PCL and its certificate of incorporation.

100. Accordingly, Riley and Walker should be removed for cause as directors

and officers ofUHO, and permanently barred from re-election under N-PCL §§ 706(d)

and 714(c).

- 22

SEVENTH CAUSE OF ACTION

Failure to Properly Administer Charitable Assets - EPTL § 8-1.4 (Against Riley and Walker)



102. As directors and officers ofURO, Riley and Walker are trustees under

EPTL § 8-1.4(a), responsible for the proper adn1inistration ofUHO's charitable assets.

Riley and Walker have failed to properly administer UHO's charitable assets in that they

have failed to institute and maintain procedures to account for UHO's total revenues,

failed to maintain proper accounting records, failed to institute financial controls, and

failed to keep accurate books and records. Riley and Walker have failed to properly

administer UHO's charitable assets in that they have misappropriated funds from the

URO Account for their personal use. In addition, Riley has misappropriated four URO

vehicles by transferring title to himself. Riley and Walker have further failed to properly

administer UHO's charitable assets in that they have wasted UHO's assets by improperly

diverting them to others.

103. Riley and Walker should be removed, temporarily and permanently, as

trustees ofURO, and ordered to account for their failure and to provide restitution to

URO.

EIGHTH CAUSE OF ACTION

Dissolution under N-PCL §§ 112(a)(1) & 1101(a)(2) for Exceeding Authority Conferred by Law, Violating Certificate of

Incorporation, and Engaging in Private Inurement (Against UHO)



- 23

105. 000 has exceeded the authority conferred upon it by law, and acted

beyond its capacity or power as provided by law and its certificate of incorporation, in that,

among other things, UHO (a) conducts activities for profit or gain, in violation ofN-PCL

§ 102(a)(5)(1); (b) distributes income and profits, in violation ofN-PCL §§ 102(a)(5)(2)

and 515; and (c) engages in private inurement, in violation ofN-PCL § 102(a)(5)(2) and its

certificate of incorporation.

106. Accordingly, the corporation should be dissolved pursuant to N-PCL

§§ 112(a)(1) and 1101(a)(2) and its remaining assets and future assets, if any, applied to

charitable uses consistent with 000 mission, as authorized by N-PCL §§ 1115(a) and

1008(a)(15).

NINTH CAUSE OF ACTION

Dissolution under N-PCL § 1101(a)(2)For Persistently Fraudulent Business Conduct

(Against UHO)



108. LTHO has conducted its business in a persistently fraudulent and illegal

manner, in that 000 has, among other things, (a) filed materially false and misleading

reports with the Attorney General that materially misstate its revenues and expenses and

omit compensation, in violation of Exec. L. § 172-d(1); (b) persistently made false and

misleading solicitation statements to the public in violation of Exec. L. § 172-d(2)-(4); and

(c) persistently engaged in ultra vires acts.

109. Accordingly, the corporation should be dissolved pursuant to N-PCL

§ IIOI(a)(2) and its remaining assets and future assets, if any, applied to charitable uses

consistent with OOO's mission, as authorized by N-PCL §§ 1115(a) and 1008(a)(15).

- 24

TENTH CAUSE OF ACTION'

Dissolution under N-PCL §§ 112(a)(7) & 1102for Wasting of Corporate Assets and Perpetuation of

Corporation Solely for Personal Benefit (Against UHO)



Ill. Under N-PCL § 112(a)(7), the Attorney General may maintain an action to

"enforce any right given under this chapter to ... a director or an officer of a Type B ...

corporation." Under N-PCL § 1102(a)(2)(D), any director of a not-for-profit corporation

may petition the court for judicial dissolution where "the directors ... in control of the

corporation have looted or wasted the corporate assets, have perpetuated the corporation

solely for their personal benefit, or have otherwise acted in an illegal, oppressive or

fraudulent manner."

112. Riley and Walker, as the directors in control ofUHO, have wasted its

corporate assets, perpetuated the corporation for their personal benefit and otherwise acted

in an illegal, oppressive or fraudulent manner.

113. Accordingly, URO should be dissolved in accordance with N-PCL

§§ 1102(a)(2)(D) and 112(a)(7) and its remaining assets and future assets, if any, applied to

charitable uses consistent with the URO mission pursuant to N-PCL §§ 1115(a) and

1008(a)(15).

- 25

PRAYER FOR RELIEF

Plaintiff demands judgment against Defendants as follows:

A. Enjoining Defendants UHO, Riley and Walker, and all other persons

acting or claiming to act on UHO's behalf or in concert or participation with it, from

soliciting charitable contributions from the public;

B. Enjoining Riley and Walker, and all other persons acting or claiming to

act on their behalf or in concert or participation with them, from accessing, using, or

distributing URO funds or other assets, including but not limited to UHO's intellectual

property, such as the URO service mark and logo;

C. Ordering Riley to transfer title to all vehicles acquired by URO back to

URO;

D. Removing Riley and Walker as officers and directors ofURO;

E. Enjoining Riley and Walker from serving as officers, directors, trustees or

equivalent positions ofURO or any other not-for-profit corporation in the future;

F. Holding Defendants Riley and Walker liable for their waste and

misappropriation ofURO assets, in an amount to be detennined at trial;

G. Dissolving URO, with its remaining assets, including the vehicles, and

any future assets, to be transferred to charitable uses consistent with URO's mission; and

- 26

H. Granting such other and further relief as is just and proper.

Dated: November 23,2009 New York, New York

O/Counsel:

JASON R. LILIEN

Bureau Chief, Charities Bureau

CAROLYN T. ELLIS

Assistant Attorney General, Section Chief, Charities Bureau

KATHRYN E. DIAZ

Senior Trial Counsel, Social Justice Division

ANDREW M. CUOMO

Attorney General of the State of New York

By: =m-.~ PATRICIA T. NORTHROP

Assistant Attorney General Charities Bureau Office of the Attorney General 120 Broadway New York, New York 10271 (212) 416-8391

- 27 - '

Documents

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK ANDREW … · Andrew M. Cuomo, Attorney General ofthe State ofNew York, on behalf ofthe People ofthe State ofNew York, alleges