Robert Fellmeth, the ethics expert and law professor at the University of San Diego, says he wants ailing Utility Consumers’ Action Network (UCAN) to survive. Fellmeth founded the once-iconic watchdog in 1983 and shortly put one of his students, Michael Shames, in charge. Now Fellmeth has returned to the board: “We’re trying to do a restart with an independent board that nobody can question,” he asserts.
But questions abound. Does the new board really want to save the watchdog? Beginning in early 2011 and well into 2012, the board majority wanted to dissolve UCAN. Three of the four people who tried valiantly to save the watchdog fear they will be bounced. The fourth person was brought in to run the organization, begged the board to help her clean up the mess, and finally resigned in frustration.
The four who put their necks in a noose to save the watchdog are whistleblowers David Peffer and Charles Langley, board member Niel Lynch, and former executive director Kim Malcolm.
Peffer and Langley, who initially came forward with the information that led to the long-running United States attorney investigation of UCAN, have no assurances they will remain on the payroll. The current board is trying to rejigger the bylaws to oust Lynch, who, according to inside sources, was the one board member sympathetic to the whistleblowers’ revelations, while opposing dissolution. Malcolm now watches from the sidelines.
On March 4, 2011, Peffer informed the board of several irregularities, such as that UCAN was illegally avoiding independent audits and that a number of suspicious bank accounts existed with the name of the organization misspelled. Later, many other questionable activities surfaced.
On March 17, Shames warned the staff that if there were any more complaints, he would disband the organization with the board’s support. On March 25, four of the eight board members resigned and the chairman stepped down, remaining on the board for a brief time. “I think they felt that they did not have the time to look into the issues,” says Kendall Squires, who became chairman.
“For private reasons, I didn’t want to deal with this,” says Marc Lampe, an ethics professor at the University of San Diego who resigned. Lampe was close to Shames, who also taught ethics at the University of San Diego.
At that March 25 meeting, Paul Dostart, an adjunct professor at the University of San Diego School of Law, was appointed to investigate the allegations.
Before long, the majority of the board was agreeing with Shames that the best course was to dissolve. The whistleblowers saw that strategy as a way to jettison them. In early 2012, the board publicly stated its intention to go out of business — and also revealed that it was under federal investigation. Malcolm took over as executive director in May; the next month, Shames was off the payroll. By August, a disgusted Malcolm had resigned and agreed to become a consultant — but that lasted only until August 30.
As all this was happening, more questions surfaced. Investigators looked into class action lawsuits that Shames had parceled out to non-UCAN lawyers, including William Lerach, who later served time in prison. UCAN groups such as the Fraud Squad would come up with consumer complaints that became fodder for outside lawyers. But settlement money would not go back to UCAN. One employee called the Fraud Squad a “lawsuit generating machine” for Shames, who says that he did not make money on the suits.
On August 10, Malcolm wrote the board, “The problems are too numerous to consider them isolated instances.” Consultants have worked without contracts, she complained. The board had spent $700,000 on outside lawyers and consultants to address whistleblower complaints; some of the work was of little benefit and expenses could have been avoided. “UCAN engaged seven law firms that have charged UCAN $350-500 an hour,” she noted. Like most nonprofits, the watchdog could have used local lawyers at no charge or at discounted rates.
“UCAN engaged Mr. Dostart to investigate allegations against Michael Shames,” she wrote. Yet Dostart, his law partner, and Shames “are part of a close community of professionals at [the University of San Diego] School of Law.” At Dostart’s suggestion, UCAN hired Robert Ames, a bankruptcy specialist, as chief operating officer. “Subsequently Mr. Ames paid Mr. Dostart three times the $100,000 limit authorized by the UCAN board.” Dostart billed the watchdog $495 an hour for services that could have been done by junior employees for $15 or $20 an hour.
Moreover, Dostart had told Peffer that the misspelled accounts were inadvertent errors, but there was no way to know that because UCAN did not have the records. It still does not have the bank records, Squires, the board chair, who is stepping down, acknowledges. Dostart also explained away other apparent UCAN transactions when there were no records to make such judgments, Malcolm told the board.
I asked Dostart to comment on Malcolm’s statements and heard nothing.
On August 30, Malcolm resigned as a consultant, stating, “I am no longer willing to put myself on the line for an agency that cannot withstand normal amounts of scrutiny [and] appears unable to comply with state and federal laws.” In early September, she listed the unaddressed problems once again to the board.
On November 19, Hallen Rosner, lawyer for Shames, complained that the board had harmed Shames’s reputation and never retracted some of its statements. Rosner studied under Fellmeth at the University of San Diego and upon graduation formed a firm with him.
One of Fellmeth’s former students has been named to the UCAN board; another is the new executive director. Both a University of San Diego law professor and a law school grad joined the board but left quickly. Says Squires, “Fellmeth is not taking over [UCAN], but I can understand how it looks that way.”
Fellmeth says he is not stacking the watchdog; it’s just that he has had many students. He blasts Shames’s critics but says of his former students, “When they screw up, like Michael Shames may have, they didn’t listen to me.” ■
Contact Don Bauder at 619-546-8529