Attorney General Ellison restructures charity and replaces its leadership following more than $2 million in self-dealing transactions
Settlement overhauls the nonprofit’s governance after it funneled contributions to insider-owned businesses and amassed $700k in debts to its founder
September 3, 2021
September 2, 2021 (SAINT PAUL) — Minnesota Attorney General Keith Ellison announced today that his Office has replaced the leadership and overhauled the governance of the Minnesota nonprofit BFW Institute of Education & Research (“BFW”), also known as Pain Free Patriots, in a settlement agreement filed in Ramsey County District Court. BFW allegedly violated Minnesota law when its leadership directed that its charitable grantees seek pain relief only at insider-owned businesses, made grants of more than $2 million to those insider-owned entities over a period of four years, and turned a blind eye to hundreds of thousands of dollars in debt that BFW’s founder, Douglas V. Huseby, directed BFW to take from and make payable to him and his affiliated entities.
“Nonprofits that serve our military servicemembers are entrusted with not only charitable dollars but the public’s trust and commitment to do the right thing. Any nonprofit’s money should be used exclusively to further its charitable mission, and not to line the pockets of its insiders while doing so,” Attorney General Ellison said. “Under its prior leadership, BFW breached its duties and that public trust by letting conflicts of interest run rampant, and its board of directors failed to recognize and prevent these abuses from occurring. I am optimistic about BFW’s future under its new leadership, however, and thank them for working with our Office to put controls in place to protect the organization and its charitable mission going forward.”
BFW issues grants for pain-relief care to veterans, first responders, law enforcement personnel, and their family members. The court order that the Attorney General’s Office filed today alleges that, under prior leadership, BFW approved only its related pain-relief provider, Ultimate Wellness Center (“UWC”) for grantees to seek care. BFW’s relationship with UWC — which is wholly owned by BFW’s founder — had never been competitively evaluated, appropriately documented, or negotiated at arm’s length.
BFW’s structural issues also contributed to unchecked conflicted decision-making. These conflicts took several forms, including:
• Four of BFW’s five directors had a financial interest in or were otherwise affiliated with UWC or in the two entities subcontracted to provide patient care at the clinic.
• None of BFW’s “approved provider” relationships, financial transactions, or other conflicted director arrangements were disclosed to or discussed by the Board of Directors when it entered into transactions, renewed agreements, or elected directors to the Board.
• Save for one, none of BFW’s board members signed required annual statements disclosing potential conflicts.
• BFW gave its founder and its Treasurer the authority to borrow money on behalf of the corporation and did not require the Board to approve loans—even those taken from BFW’s founder.
As a result, BFW became heavily indebted to its founder and his related entities. BFW started borrowing money from its founder and his businesses as far back as FYE 2012, when it owed $88k. As of FYE 2020, BFW owed $712k to its founder individually and $1k to one of his businesses. The loans were not board-approved, had no written agreement, and some were not disclosed on BFW’s tax returns as insider loans. The loans were ostensibly taken out to fund veteran care, but grantee checks were to be redeemed only at insiders’ for-profit care providers. From 2016 through 2019, BFW made $2,020,607 in grants for care that were to be redeemed at those insider-owned providers.
In this court order filed today, BFW agrees to secure the wholesale replacement of its board of directors and officers, including permanent separation from the organization of BFW’s founder, Douglas V. Huseby. The new BFW board will undertake formal reviews of the debts owed to its founder and determine all claims and remedies BFW may have arising out of the Attorney General’s allegations. BFW will also implement a series of governance reviews and changes, including adopting a written policy requiring competitive arm’s-length bidding for services, and take other steps to prevent these same types of abuses from happening again.
A copy of the settlement is available on the Attorney General’s website.
In Minnesota, boards of directors and executives owe fiduciary duties to act in the best interests of the charities that they serve, including putting the interests of the nonprofit above any personal financial interests. The Attorney General’s Office has additional information about these fiduciary duties, as well as other resources to help nonprofit leaders properly serve their organizations, on its web site at http://www.ag.state.mn.us/Charity/InfoNonProfits.asp. To review this information — or to file a complaint about a nonprofit — contact the Attorney General’s Office by calling 800-657-3787 (Greater Minnesota) or (651) 296-3353 (Metro area) or submitting an online complaint through the Attorney General’s website at http://www.ag.state.mn.us/Office/Complaint.asp.
Tips before donating to charities claiming to help veterans:
• Do your homework first. Investigate how a charity actually uses donations that it receives. People can research this information using the “Search for Charities” tab of Attorney General’s website, http://www.ag.state.mn.us, or by calling the Attorney General’s Office at (651) 296-3353 or (800) 657-3787.
• Be wary of high-pressure tactics. Don’t feel pressured to donate on the spot just because a charity claims to have an urgent need. This should be especially true if the person asking for money contacts you through unrequested telemarketing calls or mail solicitations. Reputable charities will happily accept your donation when you are ready to give.
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