Mortenson, Krakauer, and Three Cups of Deceit

ACORN International

New Orleans Recently, I reacted to a Nicholas Kristof column in the New Three Cups of DeceitYork Times about the controversy around Greg Mortenson, his charity – the Central Asia Institute, the author and journalist Jon Krakauer and his expose.  I thought Kristof’s mea culpa about Mortenson being his friend and his hope that there was “another side to the story” was well balanced by Kristof’s argument that Mortenson had still built more schools and educated more women and girls in Afghanistan that “the rest of us.”  Yesterday, I caught up with my Kindle which I had mistakenly left in Mumbai, and finally read Krakauer’s piece, and, frankly, it’s Mortenson got a wildly good deal from Kristof, because the piece is devastating and well documented.

I was prepared to give Mortenson a little bit of a break, because I have a lot of experience now working internationally in the ten countries where ACORN International has affiliates, and I know that the work is hard, every place is different, and “any given Sunday,” god knows how strong the organizations and members might be on the ground, all of which is one of the reasons I have to stay on the road, and make sure that I visit the offices a regularly (2 times per year to India, 1 time to Africa, annually to Honduras and Mexico, 4 times per year to Canada, and every other year to Peru and Argentina).  So, though I had been prepared to cut them some slack on the issue of “ghost schools,” where there were still issues, I was shocked to read how little attention Mortenson has paid to his school building mission and how infrequently, if ever, he visits the projects and puts his own boots on the ground to test the reality of the work.

The financial dealings of Mortenson, his personal enrichment, and his using his non-profit as a “personal ATM” as one quoted source refers to CAI, went way past the line of sloppy and disorganized.  These issues were painful and troubling to read and way past the “pass” that Kristof was trying to issue to his buddy.  They include the following well substantiated allegations from Krakauer’s piece, Three Cups of Deceit:

  • An original claim by Mortenson in Three Cups of Tea that he was paid $28000 when in fact the financial reports filed with the IRS on their 990 indicated $75000.
  • A quote from the former CFO of CAI that “Mortenson spent $100,000 on CAI’s credit cards…” but “…never provided any receipts for these expenses….”
  • “…CAI receives none of the proceeds from any of Mortenson’s books.  All of the royalties from Three Cups of Tea are split equally by Mortenson and David Relin [his co-author].  All of the royalties from his other books are paid to Mortenson alone.”  Ugh!
  • “…Mortenson’s speaking engagements …are extremely lucrative for him…for some sixty events each year he charges upwards of $30,000 per event, plus $3000 in travel expenses.  According to former CAI staffers, the Institute has received none of the millions of dollars Mortenson has received for such events.  In fact, CAI never received the $3000 per booking Mortenson gets reimbursed for travel costs (including chartered jets and deluxe hotel suites), as well as expenses incurred by family members and personal assistants who often travel with him.”  Where Mortenson a labor leader for example this would be a Landrum-Griffin violation which could not only lead to jail time for fraud, but would absolutely lead to penalties including being barred from serving or working for a labor union for 11 or more years!  You just cannot do this with a non-profit, period, and I’m not even getting into the offense taken as a couch surfer, pallet sleeper, and spare bedroom guy to date about the deluz rooms and chartered jets.
  • “…CAI spent more than $4.6 million on ‘Domestic outreach, education, lectures and guest appearances across the United States’ – an amount that included $1.7 million to promote Mortenson’s books.  CAI reported all of their $4.6 million on its tax return as expenses for ‘programs.’”  Remember this is all money that on the book side that ends up as personal remuneration!

All of that is thin soup compared to the killer revelation half-way through the Krakauer piece where he produces an internal “confidential” memo written by a lawyer for a firm employed by CAI advising Mortenson and his board directly after reviewing CAI’s tax returns and IRS filings.  The attorney looked at “…CAI’s outlays for book advertising and travel expenses for Mortenson’s speaking engagements…” and advised that they “…appeared to be in violation of Section 4859 of the Internal Revenue Service Code, which prohibits board members and executive officers of a public charity from receiving an excessive economic benefit from the charity.”  Quoting from the exact document is even devastating:

“Assume that in auditing the Central Asia Institute, the IRS finds that in fiscal year 2009, Mr. Mortenson received an excess benefit from his charity in the amount of $2, 421,152.71 (assuming that CAI’s advertising expenses related to Mr. Mortenson’s books were $1,022,319.71 and travel expenses related to Mr. Mortenson’s speaking engagements were $1, 398, 831 as reported on the organization’s 990 for …2009; and further, the charity received none of the revenue that Mr. Mortenson received from said book sales or speaking events)…. Further, assuming Mr. Mortenson received the same or similar excess benefit for the previous two years, and the IRS looked back to these years in its audit (as is often the case), Mr. Mortenson could owe CAI up to $7,263,458.13 for excessive benefits received during fiscal years 2007, 2008, and 2009….[I]f Mr. Mortenson fails to timely pay the correction amount, he could face a total liability ranging from $7,868,746.31…to $23,606,238.62.”

Now, this is indeed their own lawyers presenting a “worst case” scenario, so one could even go with the lowest figures rather than the highest figures, but it seems inescapable that Mortenson was playing fast and loose with the money.   CAI was willing to go with the flow here, because he was the boss and he was the rain maker.  Their own revenues have grown proportionately as well from hardly a million to a projected $20,000,000 for 2010 because of Mortenson’s speaking, fundraising, and book fame (which turns on stories that seem to have been completely fabricated as well!).  But, Kristof’s argument and no doubt Mortenson’s defense would be a classic “the ends justify the means,” which might even have some validity, if it were not for the personal enrichment that seems to permeate this entire operation and Mortenson’s direction of the work.  Gross!

All of this might be his defense, if we were bothering to make any defense.  He is holed up in beautiful Bozeman “in recovery” reportedly from a medical procedure with others running CAI in his absence.

Krakauer argues in his piece that Mortenson’s credibility is irreparable, and reading the piece it is hard to disagree with that assessment.   Krakauer argues that CAI might be saved and the “vision” and “mission” of Mortenson and CAI of building schools might still be undertaken by a new and real board and a management that moved forward here.

A lawsuit filed this week and reported by the Great Falls Tribune on May 6th, may make that harder to imagine as well.  The plaintiffs are two Democratic state representatives and the lawyers are politically connected as well.

“The class-action lawsuit filed Thursday in Montana U.S. District Court in Missoula, makes claims of “fraud, deceit, breach of contract, RICO (Racketeer Influenced and Corrupt Organizations Act) violations, unjust enrichment.””

The suit names Greg Mortenson personally and the Central Asia Institute institutionally.

It is hard not to smell the toast burning here.