The directors of a major nonprofit homeless and AIDS housing provider, Praxis Housing Initiatives, have been operating a separate for-profit housing enterprise under the Praxis umbrella, funneling hundreds of thousands of dollars from the nonprofit's coffers to develop a host of lucrative family shelters that are run through for-profit entities the directors control, City Limits has learned.
Company documents and receipts also show that Praxis CEO G. Sterling Zinsmeyer, former president of the Stonewall Democrats, a gay political club, and executive director Rev. Gordon Duggins have made a number of dubious purchases using Praxis dough, including gifts and personal items.
Perhaps the most shocking expense: $5,000 paid by the nonprofit to bail out a friend of Duggins, Antonio Fernandez, a.k.a. King Tone, imprisoned leader of the Almighty Latin Kings and Queens Nation street gang who in 1997 was arrested for punching his ex-girlfriend in front of her 11-year old daughter, a charge that was later dismissed.
“That was a mistake,” Zinsmeyer said, claiming all money borrowed from Praxis for both the bail and the for-profit shelters has been paid back. (He did not provide documented evidence by press time.) “So far, we've probably made all the mistakes you can make. That's how you learn.”
But the city Department of Investigation and the New York State Attorney General might not be so forgiving: Both are reviewing possible “fiduciary improprieties” at Praxis.
Duggins declined to comment. Said Praxis' attorney Amy Millard in a statement, “We've been cooperative with all investigations and continue to do so. We're confident it will be established that [my clients] have at all times provided a great service to the population they're dedicated towards.”
She did not, however, comment on the organization's spending habits. Among other questionable expenditures: In 1997, Duggins used a Praxis credit card to buy $685 worth of home heating fuel near his home in Bethlehem, Connecticut; he spent $968.85 at Toys 'R' Us, mostly on PlayStation video games; and at Macy's, he spent nearly $1,000 on designer clothes, including $175 in underwear.
“It's a huge scandal,” said Praxis founding chair Cyril Brosnan, who resigned last summer after years of frustration and disgust with both directors. “We were never told about a for-profit. We were never told anything,” he said. “I'm culpable for not being tougher. If they go to jail, I should go, too.”
Founded as a nonprofit in 1996, Praxis claims to house hundreds of homeless men and women through arrangements with the city Department of Homeless Services and the HIV/AIDS Services Administration; about half of the group's $7.3 million budget comes through government grants, the rest through rents paid by the city.
For $90 or more a night, the city sends clients to the Dawn Hotel and Heights Residence in Harlem, the Bronx's Park Overlook, and Pacific Place and Pacific Dean Residence in Brooklyn. These sites are managed by Praxis but run through for-profit entities controlled by Duggins and Zinsmeyer, state and tax records show.
It's by no means unusual or illegal for nonprofit groups to set up for-profit subsidiaries. However, it gets dangerous when their funding streams mingle to benefit company executives, lawyers say, and those executives do not disclose that information to their board of directors, or to the Internal Revenue Service.
At the Dawn Hotel, for instance, audits show initial loans in the form of “non-interest bearing funds” were drained directly from Praxis to get the hotel renovated and running.
“That's a pretty risky venture,” said Mark Owen, former head of the IRS's tax-exempt organization division. He says that type of loan might violate certain fair-market laws. “Who borrows money with no interest? That's a diversion of assets, an excess benefit transaction.”
In misleading fashion, early Praxis literature also advertised the Dawn, along with the Latham Hotel, a for-profit project that tanked in 1997, as part of the nonprofit's portfolio of hotels. A confidential letter written by Zinsmeyer states that about $300,000 of Praxis' money was lost in the Latham.
As recently as 2001, Praxis had yet to disclose the executives' relationship and transactions with their own for-profit ventures on its tax-exempt returns, as is required by law.
“That's huge,” said Fred Rothman of the American Institute for Certified Public Accountants. “It's absolutely verboten to take money from the public to furnish a private interest. It shouldn't be happening. To not disclose direct concerns that share leaders is equally troubling. It begs the question, 'Why hide?'”
Zinsmeyer is confident all official inquiries will be resolved, but he has decided to move on. He plans to leave Praxis after DOI's investigation, he said, move to New Mexico, and start a new career, maybe in film. “Eight years has been enough,” he said. “Was everything perfect? No. Did we make mistakes? Yes. But the organization deserves to continue.”