SCR Benefactor Targeted for Possible Tax Law Violations

The Wells Fargo Foundation, which gave $150,000 to South Coast Repertory Theatre in Costa Mesa in 1987, is being investigated by the California attorney general’s office to determine whether the foundation violated tax laws with that grant and others.

Deputy Atty. Gen. Yeoryios Appalas, who is conducting the investigation in San Francisco, said Monday that a “pattern of activities” by the foundation, which is financed by the Wells Fargo Bank, “has given us reason to believe the foundation is being used by the bank to promote its corporate economic interests rather than to perform legitimate charitable work.”

“We will be looking at their entire grant-making portfolio,” Appalas said, adding that he could not comment on the source of his information. But The Times has learned that it is David Rompf, a foundation employee for a year until August, 1987.

Reached in San Francisco Monday, Rompf said, “I presented the documents to the state’s attorney’s office and the Internal Revenue Service showing that many of the foundation’s grants were made with the bank’s interests in mind. When I brought these concerns to the bank, my position was eliminated.”

Appalas said that bank executives received perquisites such as “complimentary tickets” to events produced by grant recipients and that “employees of the bank are being involved in the (foundation’s) grant-making decisions, which is inappropriate and appears to be self-dealing.”

David Emmes, SCR’s producing artistic director, denied that the nonprofit theater company had any “quid pro quo” relationship with the foundation or the bank. “Their support of SCR has been in the public interest,” he said.

“The law states that the donation must benefit the public and it may not to any extent benefit individuals of that corporation,” said Thomas Silk, a San Francisco lawyer who specializes in charitable trusts for Silk, Adler & Colvin.

Betty Lattie, a Wells Fargo spokeswoman, denied any wrongdoing. “I think there is a difference of opinion about what self-dealing is,” she said. “We don’t think in relation to South Coast Repertory there has been any.”

However, according to the San Francisco Chronicle, where the story surfaced Saturday, a 1986 memo by bank Vice Chairman John Grundhofer supported the 5-year SCR grant because “it’s important that we maintain our high profile in the community with carefully planned foundation gifts.”

Rompf, who made the Grundhofer memo public, said it directed the foundation to provide the grant to SCR so as to make contact with business people in the community.

Grundhofer is a member of the SCR board of trustees. He joined the board in 1980, when he was the bank’s Orange County regional manager. Grundhofer’s secretary said he could not be reached.

“I don’t see any problem with Grundhofer being a trustee of the theater,” Appalas said. “But the problem is with him telling the foundation to make grants to provide benefits for the bank.”

Betty Hall, SCR’s director of development, said that the theater provides free tickets for opening nights and galas to contributors and that Wells Fargo executives qualify for that perquisite. “But,” she said, “they have not availed themselves of that.”

Lattie acknowledged that bank executives received $12,000 worth of free tickets to a Los Angeles Music Center opera gala financed by a $125,000 foundation grant last year and that bank employees received hundreds of free passes to the Monterey Bay Aquarium in exchange for a $15,000 grant.

“We are reviewing these particular grants,” Lattie said. “If there are errors, we will rectify them. The facts are true, but the interpretation is not.”

Silk said common practice entitles a corporation to derive benefits such as a good reputation in the community from its charitable donations. But tax problems with the Internal Revenue Service arise, he said, if material benefits accrue to the donor corporation’s employees.

There is nothing wrong with SCR’s policy of inviting corporate or individual donors to events free of charge, Silk said. If free tickets are accepted, however, their value must be considered a form of income and taxed accordingly. Thus, the amount of the tax deduction for the charitable donation would have to be altered.

SCR’s Hall said that $100,000 of the grant helped underwrite the Collaboration Laboratory, and $50,000 went to ticket discounts for seniors and students. Wells Fargo has supported SCR since 1979.