Originally published on Forbes.com.
Monday, a federal grand jury issued an indictment against Kermit Alan Washington]. Washington played basketball for several NBA teams including the LA Lakers and the Boston Celtics. He was drafted by the Lakers in 1973 after graduating from American University. He played from 1973 to 1982 and tried to make a comeback with the Golden State Warriors in 1987, but was only on the roster for eight games. The best remembered moment of his professional career was a punch he threw that nearly killed Houston Rockets player Rudy Tomjanovich. The punch was long remembered as indicated by this New York Times story from 2005.
”I know the reason I haven’t been in the league, and I understand that — I understand the perception of Kermit Washington,” Washington said by phone
Redemption Through Charity
Washington’s founding of a charity to help the needy in Africa is seen in the NYT story as something of a redeeming factor.
He has made more than 25 trips to Africa, working with doctors and nurses to establish medical clinics and orphanages. Washington said the N.B.A. had been generous in financing the delivery of medical supplies.
”I have never changed,”Washington] said. ”People don’t know who I am. I have good in me and bad in me. They see Kermit Washington. I see in Africa, those people don’t have any chance. I am lucky.”. In 2011, Joe Freeman of The Oregonian wrote a story – Kermit Washington’s post-NBA legacy: helping Africa.
Over the years, Washington has used his NBA connections –he works as a regional representative for the National Basketball Players Association – to gather autographed shoes from Kobe Bryant, Dwight Howard, Steve Nash and Carmelo Anthony, among others, and auction them off on eBay. Washington convinced Ron Artest to donate money to create a medical lab at the clinic and the NBA Players’ Union to help raise awareness and money.
Washington has called in favors from old college friends, old teammates and business leaders from the Northwest and Virginia, where he lives. He also accepts donations on his web site, projectcontactafrica.com.
Project Contact Africa
It is saddening that Washington’s indictment relates to his involvement with Project Contact Africa. He is charged with corruptly interfering with internal revenue laws, conspiracy to commit wire fraud, obstruction of justice and aggravated identity theft. According to the Depart of Justice Press release:
The indictment alleges that Kermit Alan Washington, 64, used a charity he founded and operated, Project Contact Africa (PCA), to defraud donors, eBay and PayPal and the Internal Revenue Service (IRS). In order to induce individuals, including former professional athletes, to make donations to PCA, Washington falsely represented that 100 percent of the donations would go to Africa. However, Washington diverted charitable donations from PCA to buy gifts and pay personal expenses, including rent, vacations, jewelry and entertainment.
This is not Project Contact Africa’s first appearance in the criminal rodeo. Last October, Reza Davachi pleaded guilty to conspiracy in a scheme that involved the sale of Microsoft and Adobe security product key codes, essentially software piracy on a grand scale.
Federal agents seized approximately 5,040 Microsoft operating system certificates of authenticity – valued at $1.26 million – while executing search warrants at Davachi’s residence and business. Davachi also admitted that he used Project Contact Africa, a charitable organization, as a way of operating his for-profit Rez Candles Inc. business, which sold a host of items online, including illicit, unauthorized and counterfeit software. Davachi was aware that the stated purpose of the charity was to “support a medical clinic in Africa for needy families and children” and children suffering from HIV.
Davachi managed and maintained the online presence for the Project Contact Africa charity by a person identified in court documents as Individual F, in exchange for a payment to Individual F of approximately $2,000 per month beginning in early 2012. By using the charity’s account to sell his items through the eBay charity store, Davachi saved thousands of dollars per month in various fees that he would have otherwise had to pay eBa]. During this time, the Project Contact Africa eBa PayPal account took in approximately $12 million in revenue, and eBay PayPal sustained losses of approximately $908,231 due to the waived fees.
Customers of the Project Contact Africa eBay charity store were under the impression that “100 percent” of the proceeds of sales were intended to go to the charity when, in fact, Davachi and Individual F agreed that only a portion of the proceeds would go to the charity; the remainder would go to Davachi and Rez Candles Inc., which, in turn, would use these proceeds to purchase new inventory. Davachi and Individual F intended to repeat this cycle for their benefit.
I guess it might not be too hard to guess who Individual F was.
Administration Costs Probably Should Not Be Zero
This is something of a sensationalist story and I can see that barely two hours after the press release that gave rise to it, it is already widely covered, so rather than rehash what you might get from USA Today, I’d like to focus on a lesson that might be drawn from this debacle. And it is a lesson that is valid even if it should turn out that the charges against Mr. Washingtonare not sustained.
From what I have been able to gather so far it is pretty apparent that Project Contact Africa (a d/b/a for the Sixth Man Foundation) is not an entirely bogus charity.
Taking Mr. Washington as at face value, he was moved to be very hands on his charitable activities. When he raised money he wanted it to go directly to the people in need and he emphasized this in his appeals. A fund -raising email that is quoted in the indictment stated: “there is no and I mean no administration cost at all”.
What Mr. Washington stands accused of in the indictment are things like diverting fees that he was entitled to PCA and then PCA funds to personal use. Then there is that software license ebay thing. And there is backdating of minutes. The really oddest thing is aggravated identity theft for listing Teresa Gipson as the Secretary of Project Contact on the Annual Report, without, you know, telling her about it. And then there were the 990s. Don’t get me started.
Some sound administration including if the dollars warranted it reviewed and audited financial statements would have helped Mr. Washington avoid the temptation to fall into these foolish moves. And they are foolish. Regardless of Kermit Washington’s guilt or innocence on the indictment, he will not go down in history as an accomplished fraudster.
I think the lesson here may be that the metric of low administration costs as a way of evaluating charities may have become a bit overdone. Audits, internal controls, no, we don’t want to take money out of the mouths of starving children to enrich bureaucrats and accountants.That is probably overdoing it just a bit.
If Kermit Washington had found an established charity with good infrastructure to sponsor his programs or, assuming it was critical that he have his very own charity, had found a professional to keep him out of trouble, this story would have had a happier ending.