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Navy Vets leader made an unchecked rise into elite circles

Bobby Thompson came out of nowhere, as if he'd fallen from the sky.

He landed in Tampa in 1998, walked wherever he went and kept to himself. His landlord thought he looked like a bum.

He lived in a run-down, $1,200-a-month duplex on 17th Avenue in Ybor City, where the view from the front steps is concertina wire atop the fenced parking lot behind the Cuesta-Rey Cigar factory, and beyond, an elevated section of Interstate 4.

Thompson registered to vote as a Republican and told people he was retired Navy. He paid his rent in cash and kept cases of tequila in his kitchen. A big fan whirred in the living room. The landlord said Thompson was so tight he wouldn't spring for an $85 room air-conditioner.

In 2002, he submitted an application to the IRS to certify as tax exempt a charity he called the U.S. Navy Veterans Association. He ran it from the duplex in Ybor City, along with a political action committee, Navy Veterans for Good Government.

A website was created that declared the Navy Veterans America's fourth-oldest such group. The site featured pictures of the nonprofit's top executives, including a retired Navy captain said to be a Texas investment banker.

State chapters opened. Membership soared. And after Thompson signed contracts with telemarketing companies, cash flowed, as Americans opened their wallets to support veterans and our fighting troops abroad.

Except almost all of it was made up — and not a donor or a real veteran or the IRS was any the wiser.

Over the next eight years, Thompson's group would report tens of millions of dollars of revenue, and he would travel the country and cozy up to the nation's most powerful politicians.

The scam, so brazen, went unchecked because the government pays little attention to whether charities are legitimate.

The Stanford study

Stanford University called its 2009 study "Anything Goes: Approval of Nonprofit Status by the IRS." It reported that oversight of applications for tax exemptions by charities is so weak it borders on "nonexistent."

Of 56,190 applications for tax exemption filed in 2008, almost 98 percent were approved, among them the Gateway Sisters of Perpetual Indulgence, an order of nuns in drag, and the International Society of Talking Clock Collectors, a guy who took photographs of his collection of talking clocks and posted them online.

"Obtaining recognition by the IRS as a public charity is an embarrassingly easy thing to do," the study concluded. "It is hardly an exaggeration to say that when it comes to oversight of the application process to become a public charity, nearly anything goes."

On July 3, 2002, "Lt. Commander Bobby Thompson'' — a stolen identity and a made-up title — applied for tax-exempt status for the U.S. Navy Veterans. He listed the nonprofit's address as "Suite 325," 7028 W Waters Ave. — a rented mailbox at a Tampa UPS store — the phone number as his cell phone, two made-up people as officers — Brian Reagan and Richard Barberry — and an invented connection to two established Navy veterans groups.

The IRS approved Thompson's application 33 days later. During the next eight years, Thompson's charity filed tax returns reporting income of more than $100 million.

The Stanford study recommended Congress allocate more money to bolster review of nonprofit applications and suggested raising the application fee for groups seeking a tax exemption.

Robert Reich, a Stanford professor who helped write "Anything Goes,'' says the nonprofit sector also needs to do its part; large, established groups could monitor whether organizations are legitimate.

More than 59,000 U.S. charities use "veteran" in their name, Reich says, and each loses when a group like the Navy Veterans deceives the public.

"Nonprofits have a vested interest in policing themselves and assuring that groups like the Navy Veterans don't undermine the trust people have in such groups.''

Across the pond

Robert M. Goodman is a British navy veteran who became chairman of a branch of England's Royal Naval Association.

In 2004, Goodman received a message from Thompson inquiring about becoming an associate member of the RNA.

On his application, Thompson listed his Tampa duplex address, his rank as lieutenant commander, U.S. Navy Reserve (retired), and named several military honors, including the Navy Distinguished Service Medal and the Defense Meritorious Service Medal.

Thompson wanted to join the RNA branch in Long Beach, Calif., and corresponded with branch secretary Kathleen Davis.

Mrs. Davis says Thompson sought membership in the RNA not only for himself but also for nine members of his Navy Veterans Association, men and women listed at Navy Veterans mailboxes from Tampa, Cincinnati and Minneapolis. Thompson sent $200 cash to cover the membership dues.

Mrs. Davis sent the RNA newsletter to Thompson's new members, including a "Mary Steenbergen," a Navy woman who happened to share a similar name with the actor. A few weeks later Davis received a nice note from Steenbergen saying how much she enjoyed the newsletter, especially an article about the Crimean War.

"It turned out Steenbergen had a special interest in the Crimean War herself," recalls Mrs. Davis, who turned 90 this year.

Two Christmases in a row, in 2007 and 2008, Thompson attended the RNA holiday party in Long Beach. He arrived by rented limo and offered to send it to pick up Mrs. Davis, who lived 135 miles away. She declined. Thompson introduced himself as "Commander," made a cash contribution to the RNA, and the chapter honored him with a plaque.

RNA Officer Richard "Dickie'' Powell remembers: "He was a bit scruffy with his ponytail, and he wore a blazer with a U.S. Navy Veterans Association emblem. It was somewhat baffling. It didn't appear to me that a Navy commander would appear scruffy like that.

"I remember him pulling out a wad of bills to give to us," Powell said. "He seemed quite in love with donating money to us."

Outgunned

Gary Snyder began tracking nonprofits after seeing abuses at a health care company where he worked.

For more than five years he has published an online newsletter called "Nonprofit Imperative." His conclusion: Though fraud runs into the billions, lawmakers don't care if there's not enough money to oversee nonprofits.

In Michigan, where Snyder is based, he said the review of nonprofit filings is handled by student interns. Many states employ no more than a handful of attorneys to oversee charity regulation.

Florida, like a lot of states, has too few staffers handling too much paperwork. The Consumer Services Division has a staff of 11 that handles registration, complaints and everything else for 15,295 registered charities.

Registration papers filed by the Navy Veterans listed addresses of three officers of the group's Florida chapter: Commander Bill Abrams, Vice Commander Rob Ray and vice president Dale West. Nobody at Consumer Services checked to see if the officers or their addresses were real.

None were. Abrams' address was a Hilton Hotel in Miami with no record of him. Ray's was an Orlando condo with no such owner. West's was a nonexistent address in Tarpon Springs.

"The bottom line is we take the information and we respond to complaints and that's it,'' said Consumer Services spokeswoman Liz Compton. "We don't verify the data. We don't have the personnel to do it."

The IRS

Imagine being able to raise money, pay no taxes on it and the government rarely notices.

The number of IRS-certified nonprofits has more than doubled since 1995, but the government devotes few resources to policing them.

From 2007 through 2009, only 87 out of 27,546 criminal investigations initiated by the IRS — less than one-third of 1 percent — involved tax-exempt groups. Those three years, the government won $41.2 million from nonprofits in tax assessments, fines, restitution and forfeited property.

That's a lot of money, but a drop in the bucket compared with what IRS audits get from private individuals and businesses. In 2008 alone, tax exams of individuals identified $14.9 billion owed to the IRS.

Marc Owens worked 25 years for the IRS, 10 heading the Exempt Organizations Division. A Washington, D.C., lawyer now, he represents clients in the nonprofit sector, including the Poynter Institute, which owns the St. Petersburg Times.

He says the business done by tax-exempt organizations represents as much as 12 percent of the country's gross national product. The IRS section overseeing these nonprofits — a "stepchild'' of the agency, Owens says — hasn't kept up. As recently as 2005, for every 1,000 tax-exempt organizations on file, the IRS examined only about one.

The sievelike oversight makes it easy for a "Bobby Thompson'' to do whatever he wants.

The IRS does not comment on audits and declined to say what prompted it, but last year the agency audited the Navy Veterans Connecticut chapter. No Connecticut officers or members took part in the audit, and Thompson claimed the chapter's records had been lost in a flood. The IRS gave the Navy Veterans a passing mark on the audit.

"It is truly a dream for someone who is willing to use a nonprofit to commit fraud," Owens says.

Why is charity oversight lacking? Congress' charge to the IRS is to collect taxes and make money for the government, Owens says. "And you can't do that with nonprofits."

His remedy? Shift regulatory responsibility to a new public-private agency under the IRS and make its records public. Freed of IRS privacy rules, he says, the agency could work more effectively with state regulators and disclose enforcement action.

"If you had an agency that was truly regulatory and not simply a bill collector, I think you could fix the problem.''

Roaches

On May 4, 2007, a man arrived by taxi at the Office Furniture Center on Kennedy Boulevard in Tampa. He kept the cab waiting while he selected a cherry laminated corner desk unit with credenza and hutch. He charged the $2,978.14 bill to his Navy Veterans Association credit card.

The customer made such an impression that 3 1/2 years later, the sales rep and the company president remember it like yesterday.

"He had on blue jeans, a wrinkled shirt, a fatigue jacket," said Edwin Celeiro, the president. "He reeked of marijuana."

"I thought he'd had a little smoke before he came in,'' said Richard Kurkendall, the salesman. "I remember this disheveled person who seemed a little crazy. It made me wonder what sort of business he was setting up."

The order was a custom job, and the pieces had to be assembled at the customer's duplex in Ybor City. The delivery man said he would never go back.

"The delivery guy said there were cockroaches running all over the place," Celeiro said. "It was a mess."

Kurkendall was amazed at a photo in the newspaper that showed their memorable customer posed with George W. Bush.

"It's unbelievable he could stand side by side with the president," he said. "It's a shame he was so successful at all this. He's probably sitting in the islands now."

Telemarketers, audits

A telemarketing company in Southfield, Mich., funneled the Navy Veterans most of its income.

Associated Community Services, which uses 1,000 cold-calling telemarketers, raised millions for the Navy Veterans and kept millions more for itself. Of each dollar donated, ACS kept 60 cents, and a related company that collected donation checks and prepared them for bank deposit got 25 cents. The Navy Veterans got 15 cents.

The telemarketer's fundraising contract, filed with several states, was signed on behalf of the Navy Veterans by its CEO, Capt. Jack Nimitz, and by the national secretary, Brian Reagan.

Neither man is real, nor is there evidence that any of the dozens of officers whose names are on other Navy Veterans documents exist, according to Ohio Attorney General Richard Cordray.

Cordray shut down the Navy Veterans in his state and obtained indictments of Thompson and Blanca Contreras, a Tampa woman accused of helping him, on charges of racketeering, theft and money laundering. Thompson is a fugitive.

Cordray says professional telemarketers should be required to shoulder responsibility as well. "If you're going to raise the money and keep most of it,'' he said, "you should do a little work up front to assure the charity is legitimate.''

Auditing of nonprofits is the province of the IRS. Cordray suggests that states adopt similar enforcement powers.

Thompson did what he could to avoid what little oversight there is, railing against government audits he called "socialistic" tools.

In Connecticut, where $200,000 is the annual income threshold that triggers an audit, the Navy Vets reported income three years running of $197,204, $198,354 and $197,205.

In Virginia, he paid lobbyists $23,540 and gave politicians $67,500 to pass a law this year exempting veterans groups from filing registration papers. A total of $55,500 went to the campaign of Ken Cuccinelli, who said if elected attorney general, he wanted to take over the regulation of nonprofits.

Texas state law requires that those who get assistance from a nonprofit sign receipts and that audits be made public. The Navy Veterans called those rules "discriminatory" and refused to do business there.

When the Navy Veterans needed auditors, the charity invented them.

The group's private CPA was Cee Smith, whose letterhead identified him as a disabled vet, and who was said to be unavailable for an interview because he was in combat in Iraq or Afghanistan. He never leased an office at the building he listed as his address, 2 Canal St., New Orleans.

To improve its credibility, the Navy Veterans sought accreditation from the Better Business Bureau. The BBB required an audit.

Thompson submitted a clip-and-paste audit by "Cee Smith'' that made the BBB suspicious. The audit provided details of the Navy Veterans "retained earnings," which nonprofits don't have, and the Navy Veterans demanded that the audit be kept secret.

"Our reaction was that it was one of the more unusual audits we'd ever seen,'' said Bennett Weiner of the BBB Wise Giving Alliance.

In a rare setback for Thompson, the group withheld accreditation.

Black tie

Thompson made himself comfortable at political events and black-tie balls, always preceded by tales of a distinguished Navy career and his directorship of a nationwide veterans organization.

Tampa developer and political benefactor Donald R. Phillips recalls meeting Thompson at a fundraiser for presidential hopeful John McCain, and again at the 2008 GOP convention in Minneapolis-St. Paul.

Phillips made a recent list of Tampa Bay's "most stylish men." His tastes run to aviation, big-game hunting and fine cigars. He owns a $2 million home in Tampa and a golf club in Lakeland.

From his shabby duplex, Thompson presented himself as having the pull of 66,000 Navy Veterans members. And, with more than $200,000 in personal political contributions reported, he out-contributed Phillips.

"Commander Thompson had quite a command,'' Phillips said. "He was always cheerful and charitable, and we saw him as a very credible supporter of causes we believe in."

In the summer of 2009, Thompson came in a tuxedo to a formal, invitation-only event in Washington put on by the Daughters of the American Revolution.

"It was one of those meet-and-greet, have an hors d'oeuvre and a glass of wine kind of things,'' said Gladys R. Haynes, national chairwoman of the DAR's committee for veterans services. "He said he headed up this group of Navy veterans, and then a check from him came for $2,500.''

Haynes wrote Thompson a thank-you note and sent it to the Navy Veterans "national headquarters" on M Street in Washington, another of the Navy Veterans' rented UPS mailboxes. She apologized for taking so long to write, saying she had been delayed by a family medical problem.

Thompson responded: "We all have problems. We all march on. We stand together. All of us. All vets."

Haynes invited Thompson to return for the DAR's Service for Veterans luncheon in July 2010. Thompson said he wouldn't miss it.

But he did. By then, he had cleared out of his Ybor City duplex and his attorneys had not been able to locate him.

On Aug. 5, Ohio authorities issued an arrest warrant that accused "Bobby Thompson" of stealing the identity of a man in Washington state.

Authorities still don't know who "Bobby Thompson'' is or where he might be.

Still legit

Nobody asked questions about the Navy Veterans until August 2009, when the Times visited Thompson's duplex to ask him about a contribution he made in a local County Commission race. Seven months later, the newspaper revealed the nationwide charity appeared to be but one man.

Several states ordered the Navy Veterans to stop soliciting money. The telemarketers canceled their contracts. An Ohio grand jury indicted Thompson and Contreras. During Thanksgiving week, the Navy Veterans' website went dark.

"We would love to run down Bobby Thompson,'' Cordray said. "We'd like to make an example of him. He made a lot of misery for all those who wrote checks to him.''

Federal agents raided Contreras' home in Tampa last summer, part of an ongoing IRS investigation requested by Sen. Jim Webb of Virginia, a former secretary of the Navy and a steadfast advocate for veterans.

Meantime, the IRS still lists the Navy Veterans as a legitimate charity.

Jeff Testerman can be reached at testerman@sptimes.com or (813) 226-3422. John Martin can be reached at jmartin@sptimes.com or (813) 226-3372.

How to fix it

Suggestions on how to improve oversight of the nation's nonprofits.

Shift regulatory responsibility to a new public-private agency under the IRS.

Marc Owens, who headed the IRS Exempt Organizations Division for 10 years, says the agency would be analogous to the National Association of Securities Dealers, which was set up apart from the Securities and Exchange Commission to oversee stockbrokers and brokerage firms.

It could be financed by the excise tax collected on the investment income of foundations. To keep it independent, its governing body would be appointed in part by the National Association of Attorneys General. Make its records public. Free of IRS privacy rules, it could work more effectively with state regulators and disclose enforcement action.

Require professional fundraisers who keep 50 percent or more of the money they raise to certify that the group they're soliciting for is legitimate.

If it's not, says Ohio Attorney General Richard Cordray, the telemarketer shares the liability.

Give state attorneys general the authority to audit nonprofits.

"Any charity receiving significant income should be subject to a random audit by the attorney general,'' Cordray said.'

Congress should allocate more money to bolster review of nonprofit applications and consider raising the application fee, now $400 to $850, for groups seeking an exemption.

Robert Reich, who helped author the Stanford study "Anything Goes,'' also suggests the nonprofit sector do its part: "The larger veterans groups might set up a website that monitors whether organizations are legitimate or questionable."

On the Web

To read "Under the Radar," the Times story that exposed the U.S. Navy Veterans Association, go to links.tampabay.com.

Navy Vets leader made an unchecked rise into elite circles 12/26/10 [Last modified: Monday, December 27, 2010 10:36am]

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