United Way Assumed $200,000 in Aides’ Loans
The Los Angeles-area United Way used donated money to assume more than $200,000 in loans due a major California bank after the bank was unable to collect the debts from two executives of the nonprofit agency, The Times has learned.
United Way Inc. took over the loans from First Interstate Bank, then known as United California Bank, in 1981, paying the bank both the principal and interest due, according to the men who owed the money.
The loans account for the bulk of more than $300,000 that the charity loaned to five of its executives beginning in 1980.
United Way’s board of directors was not informed of any of the loans, United Way President Francis X. McNamara Jr., who had been vacationing in Boston, said in three interviews over the past several days.
However, McNamara said he advised United Way’s chairman at the time and at least one other key volunteer. “At all times I have cleared with the appropriate volunteers exactly what has been done,” he said.
Kenneth R. Wilcox of Valencia, senior vice president in charge of fund raising for United Way Inc., has yet to make a payment on the $62,900 unsecured loan at 12% interest that United Way assumed from First Interstate Bank in 1981.
Repaid $750 of $165,328 Loan
Kaj Sorensen of Westlake Village has paid $750 on his $165,328 mostly unsecured loan since he left United Way in 1985. Sorensen’s loan was made interest-free on several conditions, including a requirement that he surrender $5,000 in his retirement fund when he resigned as an associate regional vice president.
Wilcox and Sorensen, in separate interviews, said they never asked United Way to make good on their debts. Sorensen said he advised United Way officials when the agency took over his loan that it was “a bad practice” to use charitable gifts for such large loans to employees.
Wilcox and Sorensen said they were surprised when McNamara told them in 1981 to sign papers transferring the debts from the bank, the state’s fourth largest, to United Way.
Norman H. Barker Jr., who has since retired as chairman of First Interstate Bank, said the bank asked United Way to make good on the Wilcox loan. He said he was not certain about whether the bank asked United Way to assume the Sorensen loan.
“While there was no guarantee, I certainly felt there was a moral obligation of the United Way to make good these credits,” said Barker, who is a former United Way chairman.
In other developments Tuesday:
- Dwayne Smith, president of the Los Angeles County Business License Commission, said that because of the loans he will propose today suspending United Way’s permit to solicit donations in unincorporated areas of the county pending an investigation of its finances.
A county ordinance requires charities to submit financial data and obtain an information card making disclosures about its finances before seeking donations. Suspension of the information card could have a serious effect on United Way because it campaigns year-round for donations.
- Carol Kornblum, chief of the California attorney general’s charitable trust division, said a preliminary inquiry into United Way’s finances and tax returns has been started by James Cordi, the supervising charitable trust attorney for Southern California.
However, Kornblum said her office may excuse itself from the case because Andrea Van de Kamp, wife of state Atty. Gen. John K. Van de Kamp, is on United Way’s board.
- Robert Burns, general manager of the Los Angeles city Social Services Department, said his office has decided against any immediate action affecting United Way’s information card for soliciting donations within the city because “it appears that once it was brought to his attention, United Way Chairman Roy Anderson began moving forthrightly to deal with this. If he had not, we would be camped on United Way’s doorstep.”
- Anderson met with all 216 United Way employees at the charity’s Mid-Wilshire headquarters to discuss the loans and other issues. Anderson said it may be several more days before he has enough information about United Way’s financial practices to make a statement.
Wilcox and Sorensen said they received loans to help them buy houses in Southern California after they were hired from Ohio United Way agencies in 1980.
Both men said they were unable to repay the “swing loans” they obtained from First Interstate Bank when their houses in Ohio did not sell. Wilcox said he ultimately lost $30,000 on his Cleveland-area home and Sorensen said he lost more than $100,000 on his home in Columbus.
“The interest rate then was so high that my loan started out at about $118,000 and then grew to $142,000 or so when United Way took it over,” Sorensen said. “United Way bought the loan from the bank. I never asked them to. I just figured the bank would foreclose or whatever and force me into bankruptcy.”
Wilcox said that when he became unable to make payments on his loan a bank officer began calling. “Then the calls stopped and all of a sudden one day Frank just said ‘Sign this and this and this’ and I did,” Wilcox said. “I never asked United Way to make good on my debt.”
Advised of both men’s comments, McNamara said: “That’s not the way it was.” He declined to elaborate.
McNamara said he arranged for United Way to pay off the bank notes because “with the prime rate at 21%, there was no way either of them could pay off these loans when their houses didn’t sell.”
Didn’t Co-Sign Loans
United Way did not co-sign the loans, McNamara said. But he said the charity asked United California Bank to make the loans and that this request obligated it to make good on the loans.
Two bank presidents who are also top United Way volunteers, and who asked not to be identified, said bankers often make loans at the request or suggestion of major clients. Both bankers said, however, that unless United Way had co-signed the loans they would not have asked the charity to make good on them.
McNamara said the United Way chairman at the time, Wallace W. Booth, chairman and chief executive officer of Ducommun Inc., approved the use of charitable funds to pay off the bank notes. Booth was traveling Tuesday and could not be reached for comment.
Earlier, McNamara said that unsecured loans to Gary Erickson, former executive vice president, and Alice McHugh, senior vice president for planning and resource development, were made with the approval of then-United Way Chairman Walter Gerken, chairman of Pacific Mutual Life Insurance, and George Moody, president of Security Pacific National Bank.
Gerken and Moody are aware of McNamara’s comments, aides said. Neither has responded to repeated requests for comment.
United Way Inc. is the largest single such federated fund-raising organization in the country. This year it reported raising $85.5 million in pledges to help 350 human care agencies in Los Angeles County and western San Bernardino County.
Other Southern California United Ways reported Tuesday that they have not made loans to employees, but have received numerous queries from corporations and donors about their policies.