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How Shames Threatened UCAN Staff with Mass Firings

One of the whistleblowers inside Utility Consumers' Action Network (UCAN) is attorney David Peffer. Despite his complaints about UCAN wrongdoing, he is (as of now) the lawyer handling the organization's battle against San Diego Gas & Electric's attempt to pass uninsured 2007 and future wildfire costs to customers instead of shareholders.

On March 24 of last year, Peffer wrote a letter to the UCAN board. Peffer described a staff meeting that had occurred a week earlier. Peffer had been excluded but learned of what happened from those who attended. Here's what Peffer told the board about the meeting:

"Shames stated that unless the staff can assuage his concerns regarding the staff's contentiousness and whistleblowing, he intends to dissolve UCAN," Peffer reported. When pressed, Shames said he would maintain UCAN as a shell organization "but eliminate most or all of UCAN's staff."

Shames would stay on at least through the conclusion of the current rate case. "When asked, Shames stated that he was certain that the board would enact any recommendation he made."

Peffer told the board, "I believe that Michael is serious about his threats to dissolve UCAN. I believe at some point Michael will approach the board with a proposal to do so...I strongly suggest that the board consult with counsel regarding the legal and ethical implications of allowing Mr. Shames to engage in collective punishment, terminating UCAN's staff in retaliation for my whistleblower complaint."

As it turned out, the board announced its intention to file for dissolution shortly after receiving a subpoena from the U.S. Attorney's office demanding delivery of numerous financial documents dating back to 2004. Peffer's letter of March 24, 2011 appears prescient, indeed.

Pictured: David Peffer from UCAN website

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One of the whistleblowers inside Utility Consumers' Action Network (UCAN) is attorney David Peffer. Despite his complaints about UCAN wrongdoing, he is (as of now) the lawyer handling the organization's battle against San Diego Gas & Electric's attempt to pass uninsured 2007 and future wildfire costs to customers instead of shareholders.

On March 24 of last year, Peffer wrote a letter to the UCAN board. Peffer described a staff meeting that had occurred a week earlier. Peffer had been excluded but learned of what happened from those who attended. Here's what Peffer told the board about the meeting:

"Shames stated that unless the staff can assuage his concerns regarding the staff's contentiousness and whistleblowing, he intends to dissolve UCAN," Peffer reported. When pressed, Shames said he would maintain UCAN as a shell organization "but eliminate most or all of UCAN's staff."

Shames would stay on at least through the conclusion of the current rate case. "When asked, Shames stated that he was certain that the board would enact any recommendation he made."

Peffer told the board, "I believe that Michael is serious about his threats to dissolve UCAN. I believe at some point Michael will approach the board with a proposal to do so...I strongly suggest that the board consult with counsel regarding the legal and ethical implications of allowing Mr. Shames to engage in collective punishment, terminating UCAN's staff in retaliation for my whistleblower complaint."

As it turned out, the board announced its intention to file for dissolution shortly after receiving a subpoena from the U.S. Attorney's office demanding delivery of numerous financial documents dating back to 2004. Peffer's letter of March 24, 2011 appears prescient, indeed.

Pictured: David Peffer from UCAN website

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Comments
22

AMES ADMITS ONE OF REASONS FOR UCAN DISSOLUTION IS ALL THE MONEY SPENT ON LAWYERS, ETC. On Tuesday, long-time San Diego bankruptcy/liquidation lawyer Bob Ames, chief operating officer of UCAN, told staffers at a meeting that one reason the so-called watchdog organization is dissolving is all the money spent on specialists that are looking at the internal problems. (In particular, the U.S. Attorney's office has demanded financial documents going back to 2004.) That UCAN is running out of money is hardly surprising. First, it hired attorney Paul Dostart to investigate charges against chief executive Michael Shames. Dostart is still working for UCAN. Then it hired criminal attorney Gene Iredale, and still another attorney to handle the dissolution, and a forensic accounting firm. This is an organization whose gross income is normally less than $2 million, although it spiked up to $3 million one recent year. Two whistleblowers, David Peffer and Charles Langley, believe that Ames's statement was fashioned to make other staff members resentful of the two whistleblowers. "He [Ames] wants to turn the staff against us," says Langley.

March 1, 2012

I would like to know what the lawyers and forensic accountants did for their fees. It's fairly easy to determine if donations are being skimmed. An auditor would obtain a listing of donors and send a postcard to each donor asking them to mail in copies of their cancelled checks. The auditor would then inspect each check to see if the check was deposited into UCAN's bank account. An auditor could easily identify any checks that were either cashed or stolen and diverted to a non-UCAN bank account. The forensic accountants hired by the UCAN board should have been able determine if there was skimming with little effort and cost. This situation should have been cleared up years ago.

March 1, 2012

That could probably catch a few diverted contributions, if that was the real issue. But how do you know whom to ask? You would only know of previous donors, not new ones.

March 2, 2012

Of course, as you know, Burwell, much depends on whether the employer actually WANTS the forensic accountant to trace where the money went. Organizations often hire forensic accounts to HIDE rather than FIND where money went. Clearly, UCAN's regular accountant did not look adequately into where funds went. Will the just-hired forensic accountant be given the mandate and the tools to trace the money? Have key records been destroyed? Have the UCAN board and its hired guns been on a mission to hide the truth rather than discover it? These are questions that must be answered before definitive conclusions can be drawn. If someone tipped off UCAN top brass that the FBI would be looking into the books, could those books have been altered? Was the board serious when it promised it would look into the alleged irregularities, such as the misspelled accounts where big sums landed? The U.S. Attorney's subpoena has misspellings (Red Rock, the CEO of Nucor) It appears it was done quickly. Is the US Attorney serious about pursuing this? Is the AG serious about looking into whether the dissolution is legitimate? These are important questions. Best, Don Bauder

March 2, 2012

A lot of hands in the "non profit" till.

March 2, 2012

Yes, and much of the money raked in by UCAN-hired lawyers and accountants, who may be paid to cover up rather than expose the irregularities, comes out of the pockets of low-income San Diegans who have joined UCAN. Tragic. Best, Don Bauder

March 2, 2012

Prosecute the board?

Still waiting for substance from Shames . . .

March 2, 2012

Well, Shames announced publicly that UCAN filed for dissolution so that it could smoke out Aguirre and his clients, the whistleblowers. But at the same time, COO Ames told staffers that a major reason for the filing is that UCAN is running out of money, having hired all this high-priced talent whose mandate may be to conceal the truth rather than find it. So which is it, folks? Are you filing to smoke out the whistleblowers or filing because you have drained the till to hire the outside specialists? Best, Don Bauder

March 2, 2012

http://www.kpbs.org/news/2012/feb/29/ucan-dissolving-amid-investigation/

KPBS's Evening Edition Television program did a great 7 minute Video interview of both David Peffer and Charles Langley by Joanne Faryon.

March 2, 2012

Yes, Peffer and Langley did a great job on that TV program. I hope they go on more. Best, Don Bauder

March 2, 2012

You would only need to find a few diverted or stolen checks to prove there was theft. You cannot cash a check without having your driver's license number recorded on the check. Any stolen checks would likely have to be deposited into a bank account set up by the prepetrator with a name similar to that of UCAN. Copies of checks from donors would provide all the information needed to identify the thief, if there is a thief. With regard to the Nucor payment, this is obviously a tax scam. Corporations are not permitted to deduct the costs of lobbying congress or influencing public opinion on matters that affect their business. Nucor obviously funded the documentary to convince the public that trade sanctions are needed against China. So Nucor funneled the money through UCAN in order to convert a prohibited expense into a legal charitable deduction.

March 2, 2012

You are correct that finding a few skimmed checks would make the case, and that is not necessary to find them all. But that may not have been the case here; maybe it was money-laundering, pure and simple. And that suggests dirty deeds of the drug-running sort. This could really turn out to be a bucket of snakes, couldn't it?

March 2, 2012

There are certainly some very serious questions. Shames practiced law when he was not in the bar. (He later rejoined the bar.) There is the money in the misspelled accounts; this has not been explained. Shames was taking a 10% bonus on intervenor fees without board members' knowledge, although he claimed they knew. The running of the $1 million through UCAN for Peter Navarro's China-bashing film has not been explained. He did not get permission of the board to set up that deal. And there are many other questions. Best, Don Bauder

March 2, 2012

Corporations are not permitted to deduct the costs of lobbying congress or influencing public opinion on matters that affect their business.

Are you sure about this??

I can not believe that costs to lobby the Congress are not tax deductible. But I really do not know.

March 2, 2012

The lawyers I talked with -- all of whom specialized in the field -- said that corporations could take public interest expenses off their taxes. I did not discuss lobbying, because that was not a subject of the column. Best, Don Bauder

March 2, 2012

surfpuppy619 I'm kinda surprised that you're not aware of this. I can't recall the exact name of the legislation, but it was in the budget bill that Clinton signed into in his first year in office. As I remember it, as is typical, every Repub voted against the budget bill in the House and Gore ended up having to cast the deciding vote in the Senate because some Dems also voted against it. Imagine how much more money would be spent trying to influence Congress if it was still tax deductible.

March 3, 2012

As I remember it, as is typical, every Repub voted against the budget bill in the House and Gore ended up having to cast the deciding vote in the Senate

I remember this vote-but do not recall what it was over.

The entire system is rigged, so I am surprised that lobbying is not tax deductible.

Saw a GOOD interview on Bill Moyers last night-I have never watched this guy but was told about this segment-and it is spot on;

“Winner-Take-All Politics” by authors Hacker & Pierson

In its premiere episode, Moyers & Company dives into one of the most important and controversial issues of our time: How Washington and Big Business colluded to make the super-rich richer and turn their backs on the rest of us.

Bill’s guests – Jacob Hacker and Paul Pierson, authors of "Winner-Take-All Politics: How Washington Made the Rich Richer — And Turned Its Back on the Middle Class"", argue that America’s vast inequality is no accident, but in fact has been politically engineered.

http://billmoyers.com/episode/on-winner-take-all-politics/

March 3, 2012

Burwell, when I was preparing the Nucor piece last August, I called four tax lawyers and one tax accountant. Generally, the consensus was that if Nucor could show that the movie was for a public purpose, the company could have paid the production company directly and still gotten a tax writeoff. The accountant believed that running the money through a nonprofit might more easily meet with the approval of shareholders. You are suggesting that my sources were wrong. If true, it wouldn't have been the first time. Nucor itself explained that it was Navarro who wanted the money diverted through UCAN, and Nucor had no objections to that. Best, Don Bauder

March 2, 2012

The problem is that it appears that Navarro will own the documentary and will realize profit from the documentary. The documentary is to be produced by a profit making LLC, not a tax exempt organization. Giving money to Navarro to produce a documentary made for profit is not a public purpose. If this is the case and Nucor transferred the money directly to Navarro, the payment would be treated as a nondeductible gift from Nucor to Navarro. Nucor shareholders would not have to approve a $1 million payment. Most CEOs have authority to pay expenses without board authority. I think Nucor is paying Navarro as part of an orchestrated lobbying effort to enact tariffs against imported Chinese steel.

March 2, 2012

You may be right, Burwell, but we don't know if the production of the movie was intended to be for profit. For that matter, we don't know if the movie has ever come out. Navarro, the co-author of the book, and Shames all refuse comment. Best, Don Bauder

March 2, 2012

The link below summarizes the rules and indicates that Nucor cannot deduct costs incurred to influence public opinion about elections or legislative matters. I think Nucor gave Navarro $1 million to produce a documentary that was intended to influence the public to press Congress to enact tariffs on Chinese imports. I think the FBI will get to the bottom of this. However, I support and applaud Nucor's efforts to enact tariffs on Chinese products.

http://www.ehow.com/info_7749375_contributions-political-campaigns-tax-deductible.html

March 2, 2012

Good points as always, Burwell, but it would seem to me that the question revolves around whether the movie would have been intended to sway the opinions of politicians for legislative purposes. The parts that I read were about the general topic of China and its abuses. Nucor has given to others who echo and are in a position to publicize the anti-China views of its chief executive. So the company could argue that the movie was meant to educate the public, but not necessarily influence legislative matters. But as you say, the IRS might not buy that argument. Best, Don Bauder

March 2, 2012

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