November 23, 2020
Settlement and Recap
The National Center for Policy Analysis is suing its own officers and directors for gross negligence, mismanagement of money and breach of fiduciary duty.
The suit, brought by Kevin Buchanan (appointed receiver for the organization) says that, “The three-year demise of the NCPA could serve as a Harvard Business School case study on how to destroy a successful, relevant, and influential organization.”
This lawsuit was remanded to the bankruptcy court by judicial order, where a trustee represented the interests of creditors with over $1 million in claims. The Bankruptcy Trustee has now settled with eight of nine defendants.
When John Goodman and Pete du Pont left the NCPA in June 2014, they offered both orally and in writing to help the organization fulfill any outstanding donor obligations and to encourage donors to continue their support of the organization.
The board of directors rejected this offer and instead engaged in a public relations battle with John Goodman. Toward that end, the board hired a public relations specialist named Merrie Spaeth, who boasts that she was the source of the swift boat television ads used to smear John Kerry during his presidential bid. According to the respondent in one NCPA lawsuit, Spaeth was hired for the purpose of “swift boating” the NCPA’s own founder and leader.
According to the Buchanan petition:
At the direction of the executives and board members of the NCPA, and to the absolute detriment of the NCPA, the NCPA engaged in a self-destructive public relations battle with former NCPA president and founder, Dr. John Goodman. As part of that effort, the NCPA published false and defamatory statements about Dr. Goodman in press releases, email messages, and website postings.
Seven bad things happened as a result of that activity:
- One result: A barrage of negative publicity. If you type the words “National Center for Policy Analysis + sex scandal” into a Google search engine, 6 of the first 8 items that pop up are all news items generated by the NCPA itself.
- A second result: According to the Buchanan lawsuit, “the NCPA was forced to pay Dr. Goodman more than half a million dollars to settle a libel and slander suit,” money that Goodman used to start a new think tank – the Goodman Institute.
- A third result: After losing the lawsuit, most board members resigned. When they resigned, they stopped giving.
- A fourth result: Most serious NCPA donors, including virtually every foundation in the country that had been supporting the organization, eventually quit giving. Donors cited the negative publicity as one reason.
- A fifth result: Out of concern for their own good names and reputations, many of the NCPA’s top scholars ended their association with the organization – including the economists who ran the NCPA’s highly respected Tax Center. Today, most are working with the Goodman Institute.
- A sixth result: The atmosphere created by the negative PR campaign became so toxic that no one in the public policy business would accept the position of CEO, despite several offers. (Apparently, no one wanted a repeat performance.) Attempts to get other think tanks to rescue the NCPA by taking over the organization also failed, partly for the same reasons.
- A seventh result: Unable to attract qualified personnel, the NCPA turned to managers who had no experience or background in the world of think tanks and public policy research. It hired three such managers over the course of three years.
Within six months of the departure of Goodman and du Pont, the NCPA admitted in court documents that it had lost $2 million in contributions (about 40% of the NCPA’s entire budget). The reason: bad publicity.
At about the same time, the NCPA filed a number of frivolous lawsuits against leaders of the Dallas business community — the same people that the NCPA depended on for both financial contributions and goodwill. These actions led to the loss of donations and support from the Dallas business community.
For example, the Buchanan petition says:
The NCPA sued its own board secretary, Mike Baggett, and every single partner of his law firm, Winstead, P.C. At the time, Mr. Baggett was arguably the most prominent attorney in Dallas, and Winstead P.C. the city’s largest law firm. The NCPA pleadings, which contained false, defamatory, and highly salacious language, were widely covered by the local media. On information and belief, the NCPA, through the baseless lawsuit, was attempting to embarrass, humiliate, and extort money from some of the very people it depended on for financial support and good will.
The NCPA spent 31 years building a positive relationship with the Dallas business community. That relationship was destroyed in the space of a few days.
These actions may yet prompt the Texas Attorney General’s Office to intervene on behalf of the general public – as it has in other cases of non-profit abuse. At least one NCPA board member has filed a formal complaint and asked the Attorney General to intervene.
However, bad as the above actions may seem, they are not the basis for the Buchanan lawsuit.
Summary of the NCPA’s Lawsuit Against its Own Directors and Officers
As 2014 drew to a close, the prospects looked dire for the NCPA. But all was not lost.
The organization still had 60% of its former budget intact, including some multi-year grants that were pledged to continue regardless of bad publicity. It had a treasure trove of publications online and linked to by viewers in countries all over the world. It had 30 years of relationships with politicians, scholars, other think tanks, news reporters and talk show hosts.
It had ongoing programs that provided income and support. For example, it had:
- A long relationship with the Hatton W. Sumners Foundation, including sponsorship of a luncheon series that bore the foundation’s name.
- A summer student program cosponsored by Gen. Tommy Franks and his organization.
- A debate program with participating students, teachers and high schools around the country.
- A health policy blog with some of the nation’s top health policy experts contributing.
- And Daily Policy Digest, which summarized research from all the country’s top think tanks and made the results available by email to as many as one million viewers.
Two and one-half years later, all this would be gone.
According to the Buchanan petition, the Defendants breached their fiduciary duty by
The approval and hiring of Joshua Galloway as CFO for the NCPA. It was discovered in January 2016 that Mr. Galloway embezzled between $600,000.00 and $1,000,000.00. When asked why he did it, Mr. Galloway said there was too much temptation and opportunity.
The petition states that the Defendants improperly and illegally used restricted grant funds for operating expenses, including paying their own salaries and expenses:
All told, funds in excess of one million dollars ($1,000,000.00) were illegally and improperly used for operating costs and expenses. Upon information and belief, this practice was never reported to the full board of directors or to the individuals and foundations who donated the restricted funds.
Buchanan petition also says that during the period from 2016 until February 2018, NCPA executives and board members failed to manage expenses to prioritize NCPA operations, failing to pay the following:
- NCPA’s internet service provider, resulting in the loss of control of the NCPA website;
- The auditor, which prevented access to the most recent audit, access that the NCPA needed to obtain gifts from most large foundations; m.
- The rent, which led to the landlord blocking access to the premises and important and vital documents including the board books, board minutes, and board resolutions; and
- The storage company, preventing the NCPA access to their own archives.
As a result,
At the time the NCPA closed its doors, the organization could not communicate with the outside world over the internet, could not raise significant money, and could not access its own archives, records, and documents.
In a separate document presented to the bankruptcy court, Buchanan states that the Defendants breached their fiduciary duty because of the way the organization was managed over the final three years of its life. “Assets that might have been valuable to other organizations turned out to be virtually worthless.” For example:
- The NCPA had a very successful luncheon speaker series – going back for more than two decades. But the NCPA could not at the end provide the names and addresses of the people who were invited to, or attended, those luncheons.
- The NCPA’s valedictory message bragged about its very successful high school debate program – with workshops, sample cases and debate materials. But the organization was unable at the end to supply the names and email addresses of the students, teachers, debate coaches and others involved in the program.
- The NCPA also boasted about its student essay program. But it could not in the end supply the names and email addresses of the students involved or the parents, teachers, schools and various organizations who supported the program.
- Daily Policy Digest was universally praised in the public policy community. Yet the NCPA could not in the end provide the email addresses of the subscribers or the open rates for its emails.
- The NCPA had a very successful Health Policy Blog. Yet it could not in the end furnish the email addresses of the people who participated.
The organization still received an offer of $10,000 for these programs. But their value plunged to zero when the NCPA website’s URL was sold for $7,500 and all of the NCPA’s Internet links were broken. In one instant, several hundred thousand people lost their connections to programs that vanished from online visibility forever.
The petition says that after the NCPA closed its doors, Defendants stripped out assets, sold them at below market value and pocketed the money. In the process they destroyed the organization’s most valuable asset: it’s intellectual property:
During the period from 2017 until February 2018, NCPA executives and board members failed to preserve the intellectual properties and online library of the NCPA that included thousands of documents, charts, graphs, etc. that had been created over thirty-four (34) years and by more than $100,000,000 in voluntary contributions.
Prior to July 2014, the NCPA’s Internet site received in excess of 150,000 visits each month by users from more than 190 countries. Based on information and belief, the amount of traffic alone would provide an estimated advertising revenue stream of twenty thousand dollars and no cents ($20,000.00) per month. However, the NCPA executives and board members failed to maintain control and eventually lost documents, communications, videos, and other historical records that were not only valuable assets of the NCPA, but historical archives for the public as a whole.
Instead, the NCPA executives and board members sold the rights to the NCPA domain name for a minimal amount and consequently lost control of the NCPA’s most important and valuable asset, the NCPA’s library.
Because the NCPA executives and board members virtually gave away the NCPA’s most valuable asset, hundreds of thousands of links have been destroyed and thirty-four (34) years of NCPA studies, brief analyses, backgrounders, blog entries, photos, videos, and other online documents are now lost to convenient Internet access, forever.
After the Roman general Scipio conquered Carthage, it is said he sold the captives into slavery and sowed salt in the ground so that nothing would ever grow there again. Even so, Carthage today still has ruins.
By contrast, had the dissolution of the NCPA been carried out as planned, there would be no ruins left at all. Convenient Internet access to all evidence that this noble institution once existed has vanished – for all eternity.