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AG Harris announces charity fraud funds recovered to benefit HIV/AIDS patients

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Attorney General Kamala D. Harris has announced that a lawsuit against a charity for allegedly misappropriating funds intended to benefit people affected by HIV/AIDS has been resolved with a settlement of $1 million and the naming of the Community Foundation for Monterey County as the successor trustee of those funds.

In May 2010, the Attorney General's office filed a lawsuit to shut down the Monterey County AIDS Project after investigating allegations that former officers and directors of the charity had misappropriated money earmarked for HIV/AIDS patients from its coffers for their personal use and for-profit ventures.

"There should be no question about how a charity spends the funds of California donors," Attorney General Harris said. "This settlement will result in these precious charitable assets being used as they were intended, to provide housing for individuals with HIV/AIDS."

The Monterey County AIDS Project was founded in 1985 to provide support, resources and services, including housing assistance and hospice care, for HIV/AIDS patients in Seaside, north of Monterey.

At a hearing held today in the Monterey County Superior Court, a judge granted an order to designate the Community Foundation for Monterey County the trustee of a $1 million settlement from the charity's insurer, the United States Liability Insurance Company. As part of the September 2011 settlement, the 16 former officers and directors named in the lawsuit are barred from handling the funds of any California charity for at least five years.

According to the complaint, more than $2.8 million of charitable assets was "misappropriated, misapplied or wasted" over a decade. In 1999, the Monterey County AIDS Project listed assets of $2.1 million. By 2004, the assets had been reduced to $1.4 million, and by 2007, only $205,000 was left. In 2011, just over $10,000 remained.

The misappropriated funds included $1.8 million in cash and property from the estate of Douglas E. Madsen, a Monterey County resident. In May 2000, a court order specified that bequest be used for the sole purpose of housing persons with HIV/AIDS in the Monterey area.

Based on allegations that the money was spent on unauthorized expenditures, such as meals at expensive restaurants, personal expenses on credit cards, purchasing items for personal use at auctions, personal moving and storage expenses, a personal mortgage payment, and personal legal expenses, the Attorney General's office initiated an investigation and then the lawsuit, which resulted in the $1 million settlement.

The organization's record-keeping was sloppy and incomplete, which made it hard to determine exactly where all the money went. The Monterey County AIDS Project continued to provide housing and services for AIDS patients, but at a lesser level than its overall expenditures would suggest.

As part of today's order, the Community Foundation for Monterey County will serve as successor trustee of the Douglas Madsen Fund. The $1 million fund will provide housing subsidies for persons with HIV/AIDS, as intended by the donor.

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