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TMCNet:  A Charity Fails Families Of Fallen Firefighters After 9/11

[September 07, 2008]

A Charity Fails Families Of Fallen Firefighters After 9/11

(Hartford Courant, The (CT) (KRT) Via Acquire Media NewsEdge) Sep. 7--On a mild day in late November 2001, Stephen Careaga stood under the brick facade of a storied New York fire station, an unlikely benefactor from the Pacific Northwest who traveled to Manhattan with a cashier's check for nearly $4 million.

Three miles downtown, workers were still recovering the bodies of firefighters entombed in the twisted wreckage of the World Trade Center, and the New York Fire Department's hastily assembled funeral desk was scheduling the last few dozen memorials for the 343 firefighters killed on 9/11.

Careaga, a one-time volunteer firefighter and reserve police officer, had been trying to make money selling computer software to rural fire departments in Washington state. To get a foot in the door, he created a tiny nonprofit called FireDonations, with a website that would-be customers could use to collect online donations for fallen firefighters.

That was in August 2001.

A month later, when jumbo jets plowed into the World Trade Center towers and hundreds of firefighters trudged up the stairs to their deaths, Fire-Donations was the only fire-services charity on the Internet equipped to take online contributions for the cause.

Boosted by links on Yahoo and other national websites, money poured in from around the globe, peaking at a rate of $250,000 an hour. The nonprofit, hastily registered with the IRS and renamed Firefighters National Trust, collected $4 million in a week's time, and $6 million by the end of September.

In all, donors contributed $11 million to Firefighters National Trust, which promised that the money would go "directly to the spouses and children of the New York Firefighters and Rescue workers who lost their lives in the World Trade Center tragedy."

But after that high-profile trip to New York, and a follow-up check for about $400,000, the largesse from Careaga's charity came to an abrupt halt. Millions promised in scholarships were never distributed. More than $1.6 million went to money-losing ad campaigns. Celebrity endorsement deals lost money, too.

The donations also evaporated in six-figure salaries for Careaga and an associate, hundreds of thousands in legal fees to a board member's law firm, and thousands more to the software company Careaga created.

By the time Firefighters National Trust shut down in 2005, after less than four years, more than $1 million ended up in the hands of key employees and their companies, tax filings show.

In the charity's final act, Careaga transferred the $2 million still in the bank to a psychologist in Greenwich who had set up a nonprofit counseling service after a federal fraud case cut off his access to lucrative Medicare reimbursements.

Soon afterward, tax records show, that Greenwich nonprofit paid $150,000 to a consulting company Careaga had set up out of his house. Careaga acknowledges being paid by the charity, but says he can't recall specifically what he did or for how long he worked.

Americans give hundreds of billions of dollars to charity every year, and are never more generous than in the wake of mass disasters. But experts in philanthropy say that generosity can easily be lost when charities -- particularly new charities -- face a windfall of cash.

That is how Marlin Eller sees the rise and fall of Firefighters National Trust.

"They started on a shoestring with not much idea of how they were going to go about running it. And then all of a sudden, they found themselves with far more money than they had ever been expecting," said Eller, a computer programmer involved in Careaga's software company who later became chairman of the charity's board of directors.

"It took time to discover how little we knew."


Firefighters National Trust took an improbable path to the national stage.

After launching Civil Communications, his software sales company, Careaga saw the charity as a way to "introduce Civil Communications to fire departments and police departments, who might be interested in purchasing the software we were creating for them," he said in a 2004 court case.

Then came 9/11 and millions in donations. Careaga abandoned Civil Communications and focused on the suddenly flush charity, though not before his private software company received $50,000 from Firefighters National Trust for "web development services."

Careaga and others worked long hours keeping up with the initial outpouring of money. By November, when he carried a check for $3,980,730 to Engine 1, Ladder 24 -- the New York City firehouse that was home to Fire Chaplain Mychal Judge, who died in the Twin Towers -- Firefighters National Trust had climbed out of obscurity and solidified its place as a significant post-9/11 firefighter charity.

With that prominence came the trappings of a major player. Although it was originally envisioned as a volunteer operation, Careaga took a $125,000 salary, while his No. 2 official received $100,000 a year. The charity also ran up large legal bills -- nearly all of which went to the Otto Law Group, led by the charity's secretary, David M. Otto, who was also the lawyer for Civil Communications. Overall, Firefighters National Trust paid Otto's firm $400,000.

There were laptops and BlackBerrys and airport lounge memberships for the charity's officers. In time, there were $10,000-a-month marketing deals with prestigious New York ad agencies, and discussions with Creative Artists Agency, one of the top talent houses in Hollywood. The stars of the television show "Ally McBeal" were working on a public-service announcement. Professional sports arenas hung banners with the charity's website address. The curator of a Salvador Dali exhibit offered to donate proceeds from a New York show. There were parties with Robert DeNiro and photo-ops with Ivana Trump.

There also were allegations of misspending, including airline tickets, expensive meals and other perks for the spouses of charity officials. Eighteen days after the terrorist attacks, according to a lawsuit filed by a former employee, charity funds were used to pay a $695 bill at Le Salon Paul Morey Spa in Seattle for Careaga's wife and the wives of two associates. More than two years later, after complaints to state and federal officials, Careaga wrote a personal check reimbursing the charity.

That same weekend, Firefighters National Trust paid nearly $5,000 at a resort lodge and spa outside Seattle for six people affiliated with the charity, and five of their spouses. Careaga's room bill was nearly $1,300. Officials said it was a business gathering, although Careaga later reimbursed Firefighters National Trust part of the $575 the charity paid for gift baskets of wine, snacks and spa products.

But in the months after 9/11, Firefighters National Trust had a stellar public reputation and remained a popular choice for donors. By July 2002, Firefighters National Trust had received more than $9 million, with nearly half of it still in the bank.

Charity officials had said that all of the money raised in the wake of the Sept. 11 attacks would be transferred to the New York Firefighters 9-11 Disaster Relief Fund, which was administered by the International Association of Fire Fighters. But after a dispute over the pace of payments, the union broke off ties with Firefighters National Trust, and the charity stopped sending money directly to New York. Instead, Careaga announced plans to set up a $3.5 million scholarship program for the children and spouses of New York firefighters.

"We felt very strongly that all of the money donated as a result of September 11th should go directly to the families in New York," Careaga said in a press release introducing the program. "It was clear to us that was the intention of the donors, and we are honoring those wishes."

But it never happened.

The "FDNY September 11th Scholarship Fund" was supposed to dole out $3,000 scholarships to children and spouses attending four-year schools, and grants of up to $1,000 for students at two-year colleges or vocational-technical schools.

But in tax filings, the charity reported granting just five $1,500 scholarships by the time Firefighters National Trust shut down.

Throughout the charity's second year, operational expenses dwarfed charitable giving, swallowing more than 90 cents of every dollar the nonprofit spent, including a million-dollar marketing campaign that failed to make a profit.

The charity also was being pulled apart by internal battles. In May 2002, Careaga fired the director of operations, Joseph Gagnon. Careaga cited Gagnon's poor performance and frequent absenteeism as he juggled his charity job with his work as a firefighter. Gagnon claimed he was terminated in retaliation for raising questions about the charity's finances.

Gagnon sued, and also contacted several of the charity's high-profile supporters in New York, claiming -- according to a countersuit -- that Careaga was embezzling money and that the charity was about to be shut down.

One by one, would-be deals -- including the Dali exhibit and Hollywood endorsements -- fell apart. The donations were drying up, too. From July 2003 to June 2004, Firefighters National Trust raised just $80,000 -- less than it made in an hour in the days after 9/11 -- even as the charity maintained a $300,000 payroll and reported half a million dollars in fundraising costs.

Careaga, meanwhile, had started looking at other opportunities, and in early 2004 became chairman and chief executive of both Nannaco Inc. and Reality Wireless Networks Inc., the first of a string of penny-stock companies -- most operated from a rented mailbox -- with which he and Otto, the charity's lawyer, would become associated. Both men were compensated with millions of shares of the low-priced stocks, while Careaga continued to collect his $125,000-a-year salary from Firefighters National Trust.


By the beginning of 2005, the fundraising was over and Careaga made plans to shut down the charity and transfer all remaining funds -- more than $1.9 million -- to Life Matters, a Greenwich charity run by husband-and-wife psychologists Michael Lonski and Evelyn Llewellyn that provided psychological counseling to firefighters.But the money flowed both ways.

While Careaga was working to send the leftover cash to Life Matters, he was also negotiating to have the charity hire a company he had recently created out of his home, called CDF Consulting. Within the year, Life Matters sent $150,000 to CDF Consulting.

Careaga defended the payment. "There was a significant amount of knowledge that needed to be transferred, and Life Matters felt it was in their best interest to get that knowledge and to have some assistance setting up some programs, so that's what I did," he said in a recent interview.

Careaga initially said he helped develop a counseling program, a post-traumatic stress program and scholarship programs, though he later acknowledged that LifeMatters has no scholarship program.

"You might want to talk to them specifically about the programs," he said, "because it's been quite a few years and I don't really recall off the top of my head what the programs were."

Peter Chavkin, a lawyer speaking for Life Matters and Lonski, said Careaga was not hired to help the charity develop counseling programs, but rather to help find new sources of funding, as well as identify additional firehouses and other sites that might benefit from Life Matters' services.

He said Life Matters retained Careaga's company for two years, but terminated the arrangement after a year because it was dissatisfied with Careaga's work.

When Firefighters National Trust forwarded its dissolution plan to Washington state officials, as required by law, an assistant attorney general warned against financial conflicts of interest.

"I would ... suggest exploring the possibility that any individuals currently associated with the Firefighters National Trust may personally benefit from a transfer to Life Matters," Jeffrey T. Even, an assistant attorney general, wrote in a January 2005 letter to Tracy Shier, one of the lawyers in Otto's law firm.

Shier, who was later disbarred in an unrelated matter, assured regulators that the transfer was clean, and Even sent another letter approving the plan "based on your representations that the distribution of assets is not conditioned upon any agreement to provide employment or any other financial arrangements to benefit any officer or director" of Firefighters National Trust.

Careaga said the Washington attorney general's office was aware of the arrangement. "We were very upfront with the attorney general and the attorney general approved," Careaga said in a recent interview. "They were completely fine about it."

But Even said last week that he didn't recall the consulting deal or the $150,000 payment.

"That doesn't sound like anything that was explained at the time," he said.

Even said he planned to review his correspondence with the charity to determine if he had been misled.

Eller, the charity's chairman, said he, too, was unaware of the $150,000 payment to Careaga's consulting company, although he later said it was possible it was mentioned at a board meeting, but "just didn't stick with me as anything that was unusual."

Chavkin, the lawyer for Life Matters, said the paperwork committing the $1.9 million from Firefighters National Trust was completed before Life Matters had finalized its consulting deal with Careaga.

"My clear impression from Mike [Lonski] and from the lawyer that handled this is that on Mike and Life Matters' side of things, there was no link between the distribution of moneys and the ultimate retention for one year of CDF," Chavkin said. "And Mike had been told that the attorney general's concern was only that the two not be linked as a quid pro quo."

Lonski and Llewellyn created Life Matters in April 2002, at the same time federal investigators were probing millions in questionable Medicare claims made by Lonski and his private practice, L & L Psychological Services. In October 2002, Lonski and L&L agreed to pay $4 million to settle allegations that they had bilked the federal government by filing false claims in the 1990s.

According to a civil complaint filed by the Justice Department, Lonski submitted bills to Medicare for as many as 106 diagnostic exams for the same patient, and for performing as many as 67 diagnostic exams in a single day. The complaint also alleged that Lonski charged Medicare for services provided to relatives, claimed movie screenings as "group therapy" and then billed the government for as many as 75 clients who watched the movies, and charged for specialized psychological services that were never delivered.

Under the settlement, Lonski was required to pay $750,000 up front, and the remaining $3.25 million in monthly installments based on his income.

The settlement also cut him off from reimbursements by Medicare and every other federal health program. But by the time the settlement was signed, Lonski and Llewellyn had already set up Life Matters, registering the charity at their home in Old Greenwich, which was recently valued at more than $3 million.

Careaga said he was introduced to Lonski by New York firefighters who had high regard for the Greenwich couple's programs. In late 2003, Firefighters National Trust began sending money to Life Matters to pay for grief counseling and training, and grants to the Greenwich charity topped $700,000 by the end of 2004 -- accounting for nearly half of Life Matters' income.

Bolstered by the funding, Lonski and Llewellyn paid themselves more than $480,000 in 2004, and an average of about $360,000 in the following two years. Lonski is still paying off his debt to the federal government -- and still counseling those affected by 9/11; on Friday, Chavkin said, Lonski was working at the World Trade Center site.

Careaga, meanwhile, has left the nonprofit arena and returned to the business world. But he said he is proud of his tenure at Firefighters National Trust.

"We did, I think, an amazing thing, and we worked very hard to be completely legitimate from the very first day, even before 9/11, and treated it with the utmost integrity and ethics," Careaga said. "And the bulk of the donations -- as much as 90, 95 percent -- went to its intended purpose, and as far as charities go, that's above and beyond the gold standard."

But those numbers aren't correct. Even by the charity's own bookkeeping, just 65 percent of the millions that poured into Firefighters National Trust went for what it counted as charitable purposes.

In its early promotional material, Firefighters National Trust said it was created partly out of frustration that many firefighter charities spend far too much on fundraising and administration. They pledged that overhead would never exceed 10 percent.

With charitable spending falling to pennies on the dollars while fundraising and administrative costs soared, board members decided it was time to pull the plug.

"Our charter was to take the money and spend it charitably, rather than spend it on us trying to learn how to run a charity," Eller said. "After a certain amount of time, the board was pretty much behind: You know, it would be better if we would just not continue.

"Whether we wasted more money than we needed to along the way, boy, that's a hard one to know."

Contact Matthew Kauffman at

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