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White Collar Mafia: How the Chicago Symphony Orchestra Fundraisers Get Away With Fraud.

We have in previous posts highlighted the curious fact that the nonprofit Woodruff Art Center (comprising the High Museum of Art and the Atlanta Symphony Orchestra) decided several years ago to purchase the for profit fundraiser SD&A.

We have also highlighted that while under the control of the Woodruff, SD&A spent several years trading places, every year, with DCM Telefundraising while raising money for the San Francisco Ballet. And that while trading places the elusive and mysterious Diamond-Tel, Inc was sandwiched in-between the two and was also raising money for the ballet. We have pointed out that the companies involved all provide essentially the same service and that as a result there is no legitimate reason for the San Francisco Ballet to have switched back and forth between SD&A and DCM. This in turn has raised concerns and questions about collusion and antitrust violations by the companies.

Additionally we have asked to what extent did the Woodruff benefit from SD&A having access to the databases of the Woodruff’s competitors? Woodruff states that SD&A was “under separate management” but what exactly does that mean? Did SD&A share no information with the ASO and Woodruff? How were decisions made? To whom were reports sent if at all? If reports were not sent from SD&A to the Woodruff how can the Woodruff claim to know what was going on with its for profit subsidiary? Given that the Woodruff has already been questioned about its curiously lax handling of money in regards to the embezzlement fiasco that engulfed the organization a few years ago, and that neither the Woodruff nor the Department of Justice could account for a discrepancy of over $300,000 dollars in what was reported as having been embezzled and the amount adjudicated, one might have additional questions regarding The Woodruff’s sense of ethics. As well as their accounting.*

But then there is also the issue of SD&A and DCM being in merger talks in 2015 – while SD&A unsung hero Oaks Spalding was engaged in a siege with the Chicago Symphony Orchestra Development Office. That siege concerned the CSO’s inflated database which included dead people, ignored requests to be placed on the do not call list and hundreds if not thousands of former patrons who had not contributed in as long as 30 years – and crucially – that the inflated database was presented by the CSO Development Office to corporate sponsors in exchange for millions of dollars in support.

Spalding persisted in asking the Development Office to cull the database and was consistently rebuffed. And subsequently fired.

As we asked some time ago: Did SD&A engage in merger talks without telling the Woodruff? Did the Woodruff come close to essentially cornering the market on fundraising for the arts by acquiring both SD&A and DCM?

Why did the merger fail?

Why was Oaks Spalding fired?

Did Spalding’s questions compromise the merger?

These are all interesting and so far unanswered questions but we have a new wrinkle in this saga.

Several years ago the University of Pennsylvania did a study on what it calls Urban Anchors. That is how large cultural institutions like the Art Institute of Chicago and the Woodruff live in and with their local communities – how they stay afloat financially and how they impact the cities in which they reside.

Buried in the report in the section on the Woodruff there are two interesting comments. The first discusses the odd nature of the nonprofit Woodruff purchasing the for profit fundraiser, SD&A. (emphasis added)

“The Woodruff also owned an additional, and more unusual, asset: a for profit company that provides telemarketing fundraising services for nonprofit cultural organizations. The Woodruff acquired this company, called SD&A Teleservices, Inc.(SD&A),in 2004 as a way to provide additional revenue  streams to the Atlanta Symphony Orchestra. Based in California, SD&A is separately managed and financed. Owning a for profit company is extremely rare for a nonprofit organization and can be quite complicated legally and financially. Despite this, and although SD&A produce minimal profits initially, the Woodruff hoped its expertise in the arts industry would create a competitive advantage enabling the company to thrive…”

What does it mean if the purpose of the purchase was to provide “additional revenue” for the ASO but SD&A was “separately managed and financed?”

A competitive advantage? Based on what? The fact that SD&A was while owned by the Woodruff and raising money for the ASO, also raising money for the CSO, the S.F. Ballet and was trading places with DCM with whom it was later to engage in merger talks?

But, we then come to the next interesting fact in the U Penn report (emphasis again, added)

“As the Atlanta region grew, hundreds of new arts organizations were created. However, the Woodruff remained the most recognized arts institution and received by far the most private financial support. Explained Veronica Njoku, “For many years, a lot of the big companies give to the Woodruff fund and feel that they’ve given”... The Woodruff’s dominance on the fundraising scene – aided by the fact that the Board is composed of the biggest corporate leaders in the region – had created a legacy of resentment among other Atlanta arts organizations…”

So the board of the Woodruff is comprised of the people who run the corporations who are giving to the Woodruff…while the Woodruff owns a for profit fundraiser who in turn is running a system where-in inflated lists are presented to corporations in exchange for donations and was at one point engaged in merger talks with another fundraiser who was also raising money in a dubious if not illegal manner.

Which brings us to the following also from the study:

“The Woodruff began to reach out to smaller arts organizations, offering assistance in areas such as ticketing and marketing. One effort that created lot of good will toward the Woodruff was a collaboration on ticketing. The Woodruff used a specialized and expensive computer program to manage ticket sales, fundraising, and marketing. Licensing costs exceeded the capacity of most small or even mid sized arts organizations; sublicensing, however, was a possibility. The Woodruff, at the behest of a small arts organization and with help from MAACC (Metro Atlanta Arts Culture Coalition), offered to act as the master license holder in a consortium…”

What the study somehow neglects to mention is that if you connect the dots then The Woodruff was not offering to act as the license holder in a consortium so much as it was offering the nonprofits it had brought to the brink of financial ruin a chance to save themselves by selling out to the Woodruff and having SD&A handle their fundraising and ticket sales.

Notice the study says The Woodruff would handle ticketing but doesn’t mention that just a few pages previously it had reported on The Woodruff’s purchase of for profit SD&A who handles fundraising and tickets for The Woodruff.

In the white collar world of fundraising it’s a consortium. Anywhere else it might be called extortion.

Which brings us to another interesting issue. SD&A we are told was an independent outfit “spun off” from marketing giant, MKTG.

Except that what we aren’t told in the descriptions of how the Woodruff does business is the following, courtesy of The Motley Fool discussion page:

“Just thought a summary of all of MSGI and its holdings might be of interest:

Marketing Services Group, Inc. is a leader in the Internet and marketing services industries. MSGI’s revenues have grown from $16 million in fiscal 1996 to in excess of $100 million on an annualized basis. GE Equity holds 22 percent of a position in MSGI and CMGI is the owner of 10 percent as a result of MSGI acquiring direct CMGI.

First let us examine the structure of MSGI. MSGI is organized into two business divisions: the Internet Group and the Marketing Services Group. The Internet Group’s mission is to acquire, invest incubate Internet companies. The MSGI Internet Group provides Internet marketing, e-commerce applications, Web development and hosting, online ad sales and consulting. Its Marketing Services Group provides strategic planning, direct marketing and database marketing, telemarketing and telefundraising, media planning and buying and fulfillment. Similar to CMGI, MSGI will continue to grow by leveraging the synergies it has across all its companies in marketing, technology and capabilities.

For clarity’s’ sake just remember that MSGI is essentially a dependent of GE Equity, and that MSGI has two subdivisions:

One for internet Groups and the other for Marketing and that unfortunately the marketing division has the same name as the parent company – MSGI and that  MSGI will continue to grow by leveraging the synergies it has across all its companies in marketing, technology and capabilities.

And that:

MSGI is composed of the following companies:

CMG Direct Corporation: CMG Direct is a leader in traditional direct marketing and marketing solutions. CMG Direct’s latest Internet development, PermissionPlus, empowers Web marketers to profile website visitors, learn their purchasing intentions, direct visitors to relevant content, market and communicate to them through permission based e-mail marketing and track, analyze and manage responses, thus creating true ongoing communications with their customers. This Web application enables companies to automate website customer acquisition and increase customer lifetime value.

Pegasus Internet: Hosting and maintenance, marketing and advertising and design of web sites. Clients include theater groups, Atlanta and Boston, and San Francisco Symphony Orchestra, Musicals (Phantom, Les Miserables, Miss Saigon), Lincoln Center, and my favorite Ravinia Festival (1 mile from my parents home outside of Chicago ).

Stevens-Knox Inc.: State of the art mailing list technology

SD&A: Specializes in telemarketing for nonprofit organizations. No other telemarketing company in the country has our breadth of experience and success with nonprofit organizations. Clients include performing arts organizations, universities, colleges, environmental groups, public broadcast stations, Zoos, and libraries. SD&A have over 300 clients in total. This site is hosted and designed by Pegasus
Internet.”

So let’s unpack this:

MSGI owns multiple subdivisions including SD&A and Pegasus. SD&A gets purchased by the Woodruff (while still apparently maintaining its status as a subsidiary of MSGI) and Pegasus (who is clearly a subdivision of MSGI) just happens to apparently handle the e-commerce side for multiple nonprofits that have their fundraising handled by…SD&A and at roughly the same time, the Woodruff is muscling smaller nonprofits to the edge of bankruptcy and then like some sort of lubed up greasy nonprofit cavalry swooping in to offer “salvation” in the form of signing these little fish up to have their fundraising handled by…SD&A…who is fundraising for nonprofits whose internet side is handled by…Pegasus…who is a subsidiary of SD&A’s former/current parent, MSGI Inc.

Cozy system.

Or collusion and antitrust?

Coercion? Or the rough and tumble of doing business?

Well, per the Penn Study we know that the same people who were making contributions to the Woodruff were also on the Woodruff’s Board of Directors so like some old cartoon you can go to the complaint department only to find that the person you want to complain about…is the also the guy to whom you make the complaint.

And keep in mind that SD&A also ignored do not call requests, and dead people populate its databases and that they in turn present that bogus information to the development offices of nonprofits across the country.

Which brings us to the Pittsburgh Cultural Trust.

Founded in 2000 by a member of the Heinz dynasty to assist in the revitalization of downtown Pittsburgh the PCT worked to rebuild old theaters and to create an urban cultural center.

From the PCT’s wiki page:

“…the PCT created…a consortium in which several nonprofit art organizations would join forces. These include: Pittsburgh Ballet TheatrePittsburgh Civic Light OperaPittsburgh Public TheaterPittsburgh OperaPittsburgh Symphony Orchestra.”

All of whom have their fundraising handled by…DCM…except for, the Pittsburgh Opera and the Pittsburgh Symphony Orchestra…who have their fundraising handled by DCM…and…SD&A.

Correlation is not causation.

But the consortium model is interesting if not downright curious.

The same companies with the same sketchy methods keep showing up next to each other alongside large, prestigious nonprofits that in several cases have formed a “consortium” that funnels revenue to the same two sketchy fundraisers. Who keep following each other around the country like a pair of heckle and Jeckles. And in the case of DCM has hired and moved and protected convicted serial fraudster Jacqueline Berkaw.

And so we are left with the same questions:

Is this collusion and antitrust?

How did serial fraudster and graduate of Lompoc Federal Prison, Berkaw, ever get hired and why is she still employed? (having been exposed in Chicago and now employed at the Houston Ballet where, on behalf of DCM, she runs the telefundraising office and has access to thousands of credit cards)

Did the Woodruff try to acquire DCM in addition to SD&A?

Why did the merger talks fail?

Was an official merger unnecessary because the collusion and antitrust was successful?

Would a merger have brought unwanted attention to the shady databases?

How many thousands of patrons have had their credit cards stolen?

What if anything is the Illinois Attorney General’s Office for Charitable Trusts doing?

Why hasn’t the CSO told its patrons about Berkaw?

What did their internal investigation discover?

Is MSGI Inc crooked?

Was there no need for a merger as DCM is in effect already part of the MSGI Inc family?

And finally we draw your attention to the newest wrinkle in the fundraising efforts of the CSO.

Faced with the Office of Charitable Trusts acting like a hall monitor who never takes a break the CSO and DCM have finally agreed to make sure that requests to be placed on the do not call list are respected. However, they have also decided to make a small but significant change to the database.

Patrons who have not contributed in over a year and in some cases ten or more years are, per usual, being solicited. These patrons are known as Lapsed Single Ticket Buyers. When they agree to again contribute financially they are no longer listed as returning patrons or renewals but instead are listed as “new single ticket buyers” which of course creates a false positive and inflates the database giving the illusion of a growing and thriving community.

This information is presented to the corporate sponsors who in exchange for accepting this fabrication and distortion of the facts provide large sums of tax deductible contributions totaling millions of dollars.

If it walks like a fraud, and quacks like a fraud, it’s almost certainly a fraud.

See the U Penn study here:

http://penniur.upenn.edu/uploads/media/arts-and-culture-institutions-as-urban-anchors.pdf

Relevant pages for The Woodruff range from 134 to 147

See the Motley Fool summary here:

http://boards.fool.com/msgi-summary-11023115.aspx

*for a review of the Woodruff’s embezzlement saga, see the link:

https://rauldukeblog.wordpress.com/2017/06/05/burning-down-the-house-the-woodruff-art-center-and-the-missing-money/

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