Executives at a Winchester-based nonprofit organization that provided coloring books and other crafts to former and active-duty military personnel for more than four decades are being sued by the state.
On Wednesday, California Attorney General Kamala Harris filed a lawsuit in Riverside against Help Hospitalized Veterans, naming its president and CEO Michael Lynch, and former president Roger Chapin, as well as other executives.
The suit alleges the executives overpaid themselves and tried to hide how much money they were spending on personal leisure rather than on veterans' programs.
"The officers of Help Hospitalized Veterans improperly diverted money that hard-working and patriotic Americans donated to support injured vets," Harris said. "We must protect veterans, active-duty military and donors from scam artists who see them as little more than prey for their financial frauds."
Calls to the organization located at 36585 Penfield Lane were not immediately returned. According to its website, Help Hospitalized Veterans provides service members in rehab with latch-hook rugs, poster art and other craft items.
Prosecutors allege Chapin received $2.3 million in excessive compensation during his last seven years at the helm, while Lynch has been paid $900,000 more than he was due. In its statement on the lawsuit, the Attorney General's Office did not detail how compensation formulas were established, or what constitutes "excessive."
According to the Attorney General's Office, the total funding loss to the organization from alleged illegitimate expenditures was $4.3 million -- which the suit seeks to recover from the defendants.
In addition to Lynch, and Chapin and his wife Elizabeth, the following other officers and directors were accused in the suit of wrongdoing:
-- Thomas Arnold of Florida;
-- Gorham Black of Florida;
-- Robert Beckley Jr. of Arizona; and
-- Robert Frank, head of Frank & Company in Virginia.
The allegations include breach of fiduciary duty, self-dealing, wrongful acquisition of property and misrepresentations in solicitations to donors.
According to the Attorney General's Office, the defendants used "gimmicks" to make it appear Help Hospitalized Veterans was spending less than one-third of its annual budget on fundraising activities, while the actual figure was closer to 65 percent.
The suit alleges charitable donations were spent on a condominium and golf memberships.
Help Hospitalized Veterans, founded in 1971, receives no taxpayer funding, relying on private contributions and grants.