If an NPO is found to be shady, should they return donations received? My answer is a shrieking, “Hell Yeah!”. Soon we’ll find out if that’s legally feasible.
The Livestrong Foundation will soon face at least one lawsuit by refund-seeking donors arguing that the charity misled donors and misused charitable gifts. These allegations follow on the heels of founder Lance Armstrong’s recent admission of doping. Michael Birdsong, who claims to have donated more than $50,000 and raised approximately $65,000 for the foundation, told CBS News the reaction was similar to a child learning there is no Santa Claus.
Birdsong said he and other donors believed the Foundation gave money to cancer research, which he later learned was not true.
Second, Birdsong is outraged the foundation funded five staff members to fly to France for three weeks to tweet about Lance during the Tour de France. The trip culminated in a celebratory party on the Champs-Elysees.
Third, it appears that Livestrong sold its name to an unaffiliated for-profit company that operates livestrong.com. The for-profit company uses the website to sell health and wellness products. The Foundation is said to have made $2.5 million through this partnership.
Reporters also found that Livestrong had $103 million in assets, but only granted $5.2 million according to its 2011 tax return. This indicates a payout rate of 5 percent, meeting (but not exceeding) the foundation’s legal requirement. There is much public debate concerning the effectiveness of the payout rate. Some think it encourages foundations to maintain their principal assets—and therefore grant-making activities—in perpetuity. Others believe the rate should be higher, encouraging grantmaking today rather than in the distant future.
Let’s see how this one plays out, shall we?