In the spring of 2016, a San Francisco foundation called ZeroDivide collapsed abruptly, leaving unpaid debts, unanswered questions, and a trail of hurt behind.
Donations that it was holding for other charities disappeared. The foundation, which was supposed to help close technology gaps between rich and poor, failed to file federal informational tax returns. No explanation was forthcoming from Tessie Guillermo, CEO of ZeroDivide, or Carladenise Edwards, a health care executive who chaired its board.
Only last week did answers emerge to questions about ZeroDivide. California’s attorney general, Rob Bonta, filed a civil lawsuit against the foundation, Guillermo, Edwards, other directors, and David Veneziano, the foundation’s former chief financial officer, alleging that ZeroDivide deliberately misused about $606,000 in donations from the California Endowment, the California Wellness Foundation, the Ford Foundation, the Whitman Institute, Wyncote Foundation, and the Vesper Society.
The Chronicle broke the news about the missing funds at ZeroDivide in 2019.
In a press release, Bonta said: “Unbeknownst to donors, ZeroDivide began to dip into restricted funds to pay for a range of expenses, such as the salaries and benefits for staff and other programs that donors expressly did not want to fund.”
The officers and directors knew that what they were doing was wrong, the complaint says: “Guillermo and Veneziano intentionally misspent donations restricted by donors for particular charitable programs.” They also made misrepresentations to donors and engaged in “unfair, deceptive, or fraudulent” fundraising practices. Board members were aware of the problems and failed to act, the complaint says.
The active knowledge of wrongdoing and failure to do anything about it — is why the case is such an important warning for other nonprofits, legal experts say.
Gene Takagi, a prominent lawyer for nonprofits, drew several lessons from the attorney general’s findings.
“This judgment should provide caution to any charitable nonprofit considering using restricted monies for other purposes even if the intent is to replenish and repay the restricted fund from which those monies were borrowed,” he said.
Boards, he said, need to keep a watchful eye on any nonprofit’s finances, and this need is heightened whenever the nonprofit is experiencing financial difficulties.
Three-Year Ban on Charity Involvement
The lawsuit was settled immediately. ZeroDivide — which was never dissolved, although it hasn’t filed an informational tax return since 2014 — and its directors and officers agreed to pay $326,008 in damages and $138,525 in penalties, late filing fees, and lawyers’ fees.
A spokesman for the attorney general said that the damages and other fees will be paid by an insurance company that provided a policy protecting the directors and officers of ZeroDivide from liability. As part of the settlement, none of the defendants admitted “fault or liability.”
However, Guillermo and Veneziano will be prohibited for three years from leading a charitable organization in California, working in a paid or volunteer capacity as a fundraiser and soliciting, holding, or managing funds or assets for a charitable purpose in California or from Californians.
Accountability Matters
California nonprofit leaders who have followed the case, including those close to ZeroDivide, say they are pleased by the outcome.
John Esterle, co-executive director of the Whitman Institute, said: “We are very gratified to see the attorney general announce this settlement, which had been a long time coming.” Most important, he said, is that the leaders of ZeroDivide are being held accountable for what he called their “egregious behavior.”
By email, Jon Funabiki, the founder of Renaissance Journalism, a small nonprofit that was the biggest victim of ZeroDivide’s wrongdoing, and Valerie Bush, the organization’s executive director, said: “We view the results of the six-year investigation as a major victory in our effort to recover our missing grant funds and to hold ZeroDivide’s leaders accountable.”
ZeroDivide had served as a fiscal sponsor for Renaissance Journalism, which aims to support journalism that advances equity, racial, and social justice. As such, ZeroDivide was supposed to provide financial oversight and management for the nonprofit. Instead, the complaint says, about $530,000 of donations intended for Renaissance Journalism was misappropriated by Zero Divide.
Jan Masaoka, chief executive of the California Association of Nonprofits, said: “Too often we in nonprofits don’t like to admit that there has been misconduct by people and organizations that we have trusted and liked. Misdeeds often go without consequences. I appreciate the rigor with which the attorney general’s office conducted the investigation, and I’m glad that there are real consequences for those responsible.”
Founded in 1998 to bring the benefits of information technology to the poor, ZeroDivide raised more than $50 million from telecommunications companies, foundations, and government grants during its lifetime. As the organization’s unrestricted money ran low in the mid-2010s, Guillermo, Veneziano, and the board circulated a presentation that discussed the risks of “dipping further into restricted funds” to pay expenses, which they were not supposed to do, the complaint says. Budget documents reviewed by the directors “gave them notice of the misuse of restricted funds.”
High-Profile Leader
Before the troubles at ZeroDivide, Guillermo was a high-profile leader of California nonprofits.
For 15 years, she was chief executive of the Asian and Pacific Islander American Health Forum, an advocacy group that seeks to improve the health of Asian Americans, Pacific Islanders, and native Hawaiians. She spent a decade on the board of the California Endowment, including three years as its chair. President Bill Clinton named her to a White House Advisory Commission on Asian Americans and Pacific Islanders, she has spoken at the Aspen Ideas Festival, and she served on other boards, including the Nonprofit Finance Fund and the Lucile Packard Foundation for Children’s Health.
Even after the Chronicle’s reporting about the missing funds at ZeroDivide, Guillermo held on to lucrative board seats. As chair of the board of CommonSpirit, one of the nation’s largest nonprofit hospital chains, she was paid $153,750, the nonprofit’s latest tax return says. She earned another $36,401 as a board member of the Marguerite Casey Foundation.
Guillermo remains on the board at CommonSpirit, but is no longer chair. She has left the board of Marguerite Casey. She also sits on the board of the San Francisco Health Commission, a city agency whose members are appointed by the mayor, and the Cal State East Bay Educational Foundation.
Raja Zékaran, a lawyer for Guillermo, said in an emailed statement on Monday that “The defendants stand by their unequivocal denial of the allegations in the complaint” and “collectively agreed to settle the matter rather than undergo the expense and disruption of litigation.”
Lawyers for Edwards and Veneziano did not reply to email messages seeking comment.
