9/11 Charities Failed Miserably, AP Investigative Report Finds

NEW YORK (AP) -- Americans eager to give after the 9/11 terrorist attacks poured $1.5 billion into hundreds of charities established to serve the victims, their families and their memories. But a decade later, an Associated Press investigation shows that many of those nonprofits have failed miserably.

There are those that spent huge sums on themselves, those that cannot account for the money they received, those that have few results to show for their spending and those that have yet to file required income tax returns. Yet many of the charities continue to raise money in the name of Sept. 11.

One charity raised more than $700,000 for a giant memorial quilt, but there is no quilt. Another raised more than $4 million to help victims, but didn't account publicly for how it spent all of the money. A third helps support a 9/11 flag sold by the founder's for-profit company.

There are other charities that can account for practically every penny raised - except that all the money went to pay for fundraising, and not the intended mission.

To be sure, most of the 325 charities identified by the AP followed the rules, accounted fully for their expenditures and closed after fulfilling identified goals.

There have been charities to assist ill and dying first responders, to help families of the dead, to help survivors and to honor the memory of victims. And there are charities that revolve around the flag, patriotism, motorcycle rallies and memorials of all sizes and shapes.

But in virtually every category of 9/11 nonprofit, an AP analysis of tax documents and other official records uncovered schemes beset with shady dealings, questionable expenses and dubious intentions. Many of those still raising money are small, founded by people with no experience running a nonprofit.

- The Arizona-based charity that raised $713,000 for a 9/11 memorial quilt promised it would be big enough to cover 25 football fields, but there are only several hundred decorated sheets packed in boxes at a storage unit.

One-third of the money raised went to the charity's founder and relatives, according to tax records and interviews. The chairman of the board, an 84-year-old Roman Catholic priest, says he didn't know he was chairman and thought that only small amounts of money had been raised. He says he was unaware that the founder had given himself a $200 per week car allowance, rent reimbursement and a $45,000 payment for an unreported loan.

- There's a charity for a 9/11 Garden of Forgiveness at the World Trade Center site - only there's no Garden of Forgiveness. The Rev. Lyndon Harris, who founded the Sacred City nonprofit in 2005, spent the months following 9/11 at ground zero helping victims, relatives and first responders. He said he formed the charity to fulfill "our sacred oath" to build the garden. Tax records show the charity has raised $200,000, and that the Episcopal priest paid himself $126,530 in salary and used another $3,562 for dining expenses between 2005 and 2007.

Harris said he sees his charity's work as a success even if there is no garden at the site. "I saw our mission as teaching about forgiveness," he said.

- Another Manhattan 9/11 charity, Urban Life Ministries, raised more than $4 million to help victims and first responders. But the group only accounted for about $670,000 on its tax forms. Along with almost four dozen other 9/11 charities, Urban Life lost its IRS tax-exempt status this year because it failed to show how money was collected and spent.

- The Flag of Honor Fund, a Connecticut charity, raised nearly $140,000 to promote a memorial flag honoring 9/11 victims. The flag, which contains the name of every person killed on Sept. 11, 2001, is on sale today at Wal-Mart and other retail stores. But only a tiny fraction of the money from those sales goes to 9/11 charities, with most going to retail stores, the flag maker and a for-profit business - run by the man who created the flag charity.

The AP examined charities that received tax-exempt status from the Internal Revenue Service by promising to serve victims of the 9/11 tragedy, build memorials or do other charitable works in honor of the dead. The charities were identified using data maintained by Guidestar, a private database of nonprofits that the IRS recommends.

The $1.5 billion donated to these charities was in addition to the billions spent by Congress and states and established nonprofits like the Red Cross.

Most of the 9/11 charities fulfilled their missions, but the AP analysis found dozens that struggled, fell short of their promises or did more to help their founders than those affected by the terrorist attacks.

Here are some of their stories:

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THE QUILT THAT ISN'T

Kevin Held was earning a living as a self-employed handyman in Peoria, Ariz., when he formed Stage 1 Productions in 2003 to promote the American Quilt Memorial honoring the lives lost on Sept. 11. He said thousands of individual pieces would be crafted together on white, king-sized sheets that, when sewn together, would stretch 1 1/2 miles across an eight-lane highway.

That never happened.

The $713,000 that Held raised from students, school fundraising campaigns, T-shirt sales and other donations is gone. More than $270,000 of that went to Held and family members, records show.

In a July interview, Held said he hoped to finish the quilt in a few months. But he changed his mind a few weeks after the AP began asking questions, abruptly shutting the project because of "tough economic times."

Held has done an impressive job raising money, persuading students to hold "penny drives" and police officers to buy T-shirts promoting the quilt for $20 or more. But he's spent a lot in doing so.

Since 2004, Held paid himself $175,000 in salary, health insurance, other benefits and a weekly car allowance he received for most of that time. He's owed another $63,820 in deferred salary, according to the charity's most recent tax filing. Held argues that he's actually owed closer to $420,000, because he was supposed to receive $60,000 annually since 2003, and has received far less.

He told the AP in July that more than $50,000 paid in 2005 to satisfy a loan never reported by the charity went to his mother to repay "an accumulation of a bunch of small loans." But when pressed last week - after the AP pointed out that his mother died that year - Held said he paid himself more than $45,000 to repay the loan. He said he couldn't explain the other $5,000 without researching it.

He said he paid another $12,000 to his brothers, Dave and John, as consulting fees.

Held also charged the charity more than $37,000 for office rent, utilities and other related expenses, according to the group's tax forms. But the addresses reported by the charity for most years were Held's home and private mail boxes at PostNet and UPS stores in Arizona and south Texas.

Held said he received much of the office payments to cover the cost of working out of his home.

Held spent more than $170,000 on travel since 2004 to promote the quilt. He rarely traveled without his two Alaskan Malamute dogs, one at 120 pounds and the other 200 pounds. He also listed $36,691 in credit card and bank charges since 2005 and $10,460 for an expense listed as "petty" in 2009.

"I loved going out and traveling," he said. "I loved going to the police departments."

Held acknowledges he struggled managing the charity's finances, but he said he didn't live off the nonprofit. "If I made a mistake, I made a mistake. If I did, then crucify me. I never said I was a professional at this."

Still, he's come a long way since serving a few days in a Tampa jail in 1993 for misdemeanor theft and battery. With his wife, he's moving into a $660,000, five-bedroom house overlooking a lake in Chandler, Ariz.

The charity's finances surprised the Rev. Jude Duffy, identified in the charity's tax filings as board chairman. He said he had no idea that Held had collected more than $713,000 for the charity until the AP showed him the documents.

Duffy, who lives in St. Lawrence Friary in Beacon, N.Y., said he became suspicious several years ago after Held created a new fundraising project without finishing the quilt. The latest project - Operation Adopt-a-Soldier - promises students postcards and posters that they can send to soldiers in Iraq and Afghanistan if each class will send Held up to $40.

"Is this some kind of scam?" Duffy said he asked Held in an email. "Are you playing on the emotion of the people with this?"

Held responded that he was insulted by the suggestion and assured Duffy that he would finish the quilt project.

"As we look at it today," Duffy said, "certainly it seems to be that we were duped entirely by whatever he had in mind. I don't know what that is. But I would call it a scam or a clever scheme."

Even Held's story of how the quilt project started is suspect.

For years, he claimed he had come up with the idea for a student-led national tribute after hearing that Dominique Deal, a family friend's high school daughter, crafted her own memorial on a bed sheet.

But she says that story isn't true.

"I think he wanted people to think I came up with it. But I just helped," said the woman, now Dominique Greer, 25, and married in Peoria, Ariz. "I guess he thought it would be weird to say he started it."

Held now admits he made up the story because he didn't want to receive credit.

He insists he has accounted for every dime spent by the charity, even if he can't justify all the expenses.

"It doesn't mean I'm a bad person," Held said. "It just means I made a mistake."

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MINISTER'S MILLIONS

Urban Life Ministries, based in a church not far from the World Trade Center site, is one of many 9/11 charities that have caught the attention of the IRS because it failed to file annual tax returns. The AP review found other issues as well.

The charity's creator, the Rev. Carl Keyes, said that in the initial months after the 9/11 attacks the group raised more than $4 million with the help of a Christian television station telethon. All of that money, he said, went to cover the costs of counseling, feeding and caring for 9/11 victims, first responders and workers at ground zero.

"There were plenty of things to do to ease the suffering of the people," Keyes said.

But there's no way to know how Keyes used donations raised to do that.

The only tax return available from Guidestar - for the 2001 tax year - lists just $670,000 raised for his relief work. The New York Attorney General's office said it didn't receive the required filings from the charity after 2001. The IRS withdrew the charity's tax-exempt status in June for failing to file annual returns.

Keyes, an Assemblies of God minister, acknowledged that the nonprofit did not file taxes for all years.

Keyes has not responded to AP's requests to explain how the money raised was spent; some of the information he did provide conflicted with the 2001 return.

For example, Keyes said in the initial interview that he never received a salary from his charity. But the 2001 tax filing reported that he spent $89,500 on compensation to charity directors, including $31,600 paid to himself and his wife in the nonprofit's first months.

Keyes and his wife also received salaries from Glad Tidings Tabernacle, their New York City church. A large amount of the charity's money went to Keyes' church. The nonprofit group gave the church a $23,855 loan and had leases to pay it $192,000 a year in rent, according to financial statements filed in New York.

Keyes said he set up a branch of his charity on the Gulf Coast after Hurricane Katrina devastated the area in 2005, putting his brother-in-law, Mark Jones, in charge. But it's not clear how much money was raised and spent because Keyes has not filed the necessary tax statements with the IRS.

Jones estimated that at least $800,000 was spent by the charity for the Mississippi projects. Jones helped oversee rebuilding and renovations to more than 100 homes, which he said cost between $7,000 and $12,000 each.

Keyes said he knows his charity has not filed all the required disclosures. "We're not very good at that," he said.

But he said he hoped the nonprofit's efforts in response to 9/11 and Katrina wouldn't be tainted by his lack of accounting.

"You're going to beat me up in an article because we're bad managers?" Keyes said.

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FOR-PROFIT FLAG

At first glance, the Flag of Honor/Flag of Heroes Project looks like any other charity doing philanthropy in the name of 9/11. But people who have bought one of its flags might be surprised to learn that nearly all the proceeds have gone to the charity founder's for-profit flag company, not 9/11 victims.

IRS rules generally prohibit the resources of a nonprofit group from being used to promote a for-profit product.

John Michelotti of Greenwich, Conn., the charity's founder, said one of his goals was to give a framed copy of his flag, which bears the names of all the dead emblazoned on the Stars and Stripes to every family that lost someone in the attacks. He also designed a "Flag of Heroes" with only the names of fallen firefighters and law enforcement personnel.

"The more the flags are out there, the more these people live, the more they are remembered," he said.

Documents filed with the state of Connecticut explain that part of the fund's mission is to create "a national people's memorial" by urging corporations "to hang the Flag of Honor artwork prominently in all of their business locations." In some IRS filings, the charity said its purpose was to sell the memorial flag.

During the last nine years, Michelotti said, he has sold or given away almost 300,000 banners and posters of the Flag of Honor. The project's website lists 10 nonprofit groups as beneficiaries of the flag sales, including the Boy Scouts, a food bank in Oregon and a Manhattan church that narrowly escaped being destroyed in the attacks.

But in an AP interview, Michelotti acknowledged that his for-profit business, BIE LLC, has donated no more than $15,000 to 9/11 charities.

Most of the charities listed as beneficiaries were actually BIE customers that purchased flags to resell during their own fundraising efforts.

For example, Michelotti imported flags from China for about $5 each, he said. The Exchange Group chapter in Salem, Ore., bought about 4,000 flags from his for-profit company to use in a patriotic display for about $7 each, then sold them for $25. About $75,000 was raised for several causes, including the Oregon National Guard Emergency Relief Fund, but none of the money came out of Michelotti's cut.

Michelotti's charity collected $139,332 in donations and other revenue from 2003 to 2009, but it only gave away framed copies of the flag to the families of between 200 and 350 victims of the terror attacks.

Tax returns filed by the group don't list any donations to 9/11 victims or the groups that serve them.

In interviews with the AP, Michelotti said he has never tried to mislead anyone about the nature of his business. "I never tell people, 'Your money is going into a nonprofit,'" he said.

He contended the 10 beneficiaries were listed on the company's website merely to show that some nonprofit groups have used the flag in their events, not to indicate that they are getting a cut of the profits.

"I'm not getting the feedback that people are confused by it," he said.

Some people have gotten the wrong idea, though. When "Today" show host Hoda Kotb promoted the flag on national television in 2009, she described the project as "a contribution fund to help those that were affected."

Several 9/11 organizations have embraced his product. The flag is sold at the National Sept. 11 Memorial and Museum, and online by Voices of Sept. 11, a leading victims' advocacy group.

Annin Flag Makers, the nation's largest and oldest flag company, also recently signed on to the project. The company said it shipped 170,000 of the flags this summer to stores nationwide, including Walmart.

Under Michelotti's deal with Annin, some money from flag sales will go to charities regularly for the first time - but it won't be much. Ten percent of the wholesale revenue will be split among the Wounded Warriors Project, the National Sept. 11 Memorial and Museum, Voices of 9/11 - and Michelotti's Flag of Honor charity, according to Annin's marketing material.

Michelotti and Annin declined to disclose how much of a licensing fee he will receive or how much retailers are paying for the flag. But if it is close to the $7 wholesale price Michelotti charged previously, roughly 70 cents of a $20 retail purchase would go to charity.

The remaining profit would go to the flag maker, the retailer, and Michelotti's for-profit company.

Asked if he thought the Flag of Honor Fund had crossed the firewall between a charity and a for-profit company, Michelotti said, "One bleeds into the other for me," and then added: "It probably helps, because we have good will, but it doesn't help financially."

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BIG EVENTS, SMALL RETURN

Weeks after the 9/11 attacks, Theodore Sjurseth of Leesburg, Va., climbed aboard his Harley Davidson and led about 250 bikers to New York City to pay homage to the dead.

Since then, the ride has become an annual charity event, with nearly $2.2 million in gross revenue between 2003 and last year. This year's ride, held last week, had nearly 3,000 registered participants.

Yet in one important respect, it has fallen short in its mission.

The nonprofit group formed to organize the ride, America's 9/11 Foundation, has spent far more putting on the event than supporting its mission of assisting first responders and their children. As of last year, it had donated 10 motorcycles to various police departments around the eastern U.S. and Canada, at a cost of about $200,000, given $150,000 in scholarships to the children of police officers and firefighters, paid some modest grants to police departments struggling to support their motorcycle brigades or canine units, and supported a playground rehabilitation project in Linden, N.J.

The reason it hasn't donated more: lavish spending on the ride itself. The event is now four days long and takes participants from the Flight 93 crash site in Shanksville, Pa., to the Pentagon to ground zero in New York.

The foundation picks up all tolls for the riders, pays for their meals, and in some years has put on concerts.

To attract police officers to the event, it puts them up in hotel rooms for each night of the ride and waives their registration fees. In some years, the foundation has made compensation payments to municipalities along the ride route to make up for the hassle of closing traffic while the bikers pass.

Calculating how much the group ultimately gives to charity is difficult, because the foundation counts the officers' free hotel rooms and municipal compensation payments as donations, rather than ride expenses.

But even under that interpretation, the group has spent less than 20 percent of the money it raised on charitable causes.

Sjurseth, who wanted to be a firefighter as a teenager until a pellet gun accident cost him sight in one eye, agreed the ride could be a more effective fundraiser if it cut costs or raised registration fees - now at about $120.

But, he said, he thinks the foundation has "done great" for an all-volunteer group.

"Has it blossomed the way I wanted it to? No," he said. "I'd love for this thing to be making millions of dollars."

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The AP National Investigative Team can be reached at investigate(at)ap.org

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