Foundation Probed Over Cultural Gifts : Wells Fargo May Have Promoted Business Interests, Officials Say

The San Francisco-based Wells Fargo Foundation is being investigated by the California attorney general’s office to determine whether it violated tax laws with grants to some leading California cultural institutions.

State officials met in San Francisco on Tuesday with foundation executives to determine whether Wells Fargo Bank, a separate entity that finances the charitable foundation, illegally promoted its business interests through foundation grants to about a dozen state arts and cultural organizations--including Los Angeles’ Music Center Opera and Orange County’s South Coast Repertory theater.

Deputy Atty. Gen. Yeoryios Appalas, who is conducting the investigation in San Francisco, said that a “pattern of activities” by the foundation “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.”

Said Appalas: “We will be looking at their entire grant-making portfolio.”

Called ‘Self-Dealing’

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.”

One of the reasons the state is looking into Wells Fargo’s donations, said Appalas, is that it is not appropriate for a corporation to make grant decisions for its charitable foundation. If Wells Fargo is found to have violated the law, it could face state and federal tax penalties.

Foundation officials have denied any intentional wrongdoing in their grant-making procedures, but they have also acknowledged at least one “oversight” regarding their dealings with the bank and that some bank executives accepted free tickets to arts and cultural events in part sponsored by foundation grants.

The state investigation appears to focus on more than $550,000 in grants that the foundation has made to various institutions since 1985.

Among the grants being examined, Appalas said, are three 1987 donations: $125,000 to the Music Center Opera, a five-year $150,000 contribution to the South Coast Repertory and $15,000 to the Monterey Bay Aquarium.

The attorney general’s office also is believed to be looking into Wells Fargo Foundation contributions to the San Diego Museum of Art, the Mexican Museum in San Francisco and San Diego’s Old Globe Theatre, sources familiar with investigation said Tuesday.

The probe was sparked by allegations by a former Wells Fargo Foundation employee, David Rompf of San Francisco, who says he was fired by the foundation earlier this year.

Rompf said Tuesday he was the program officer for the foundation from August, 1987, until April of this year. “My main responsibility was to review and analyze grant proposals,” he 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.”

Among the documents Rompf said he provided to authorities was a one-page memo purportedly written by Los Angeles-based Wells Fargo Bank Vice Chairman John Grundhofer to foundation President Ronald Eadie. In it, Rompf said, Grundhofer suggested that the foundation should contribute money to South Coast Repertory as “a springboard” to visibility in the community and that Eadie should develop a grant program “that maximizes our exposure and benefits for the dollar.”

Grundhofer also is a member of the South Coast Repertory’s board of trustees.

Rompf said the memo was written on Wells Fargo Bank stationery and was dated June 25, 1986. The foundation board decided to give SCR its grant at a meeting the following December.

Appalas declined to specify what documents he is reviewing in the investigation.

Grunhofer could not be reached for comment.

Wells Fargo officials declined to discuss Rompf’s employment history with the foundation. They did not dispute the existence of the Grundhofer memo but said its content was subject to different interpretation than that given by Rompf.

Bank officials did address other allegations that Rompf brought.

Wells Fargo spokeswoman Kim Kellogg confirmed that bank executives received 20 tickets for the opening night performance and society gala of “La Boheme” starring Placido Domingo at the Los Angeles Music Center Opera in September, 1987, which was partly underwritten by a foundation grant. The tickets to the performance and party sold for $600 each.

Kellogg also acknowledged that the bank had committed “an oversight” regarding free tickets to the Monterey Bay Aquarium in exchange for the $15,000 foundation grant. Two hundred free passes were distributed to Wells Fargo bank branches to give out to customers, Kellogg said. “The foundation wasn’t aware the tickets were given out,” she said.

Kellogg conceded that “we will have to pay penalties if we have violated any IRS or state regulations.”

David Emmes, producing artistic director of South Coast Repertory Theatre in Costa Mesa, 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. “There hasn’t been a trace of anything improper. I find this (investigation) utterly preposterous.”

Grundhofer joined the South Coast Repertory’s board of trustees 1980, when he was the bank’s Orange County regional manager.

The attorney general’s office is also questioning Grundhofer’s receipt of tickets to the Music Center’s “La Boheme.”

Complimentary Tickets

Wells Fargo’s Kellogg said the $12,000-worth of complimentary tickets to the opera were sent to Grundhofer at the bank, but she believed the bank had made a separate $40,000 donation to help underwrite the opening night gala. That, she said, would justify the receipt of the tickets by bank officers.

John Howlett, director of marketing for the opera company, said he knew “absolutely nothing” about a bank donation. “The only thing we have ever seen from them was a check for $125,000 from the foundation,” he said.

Rompf asserted that “The (foundation internal) memos clearly show--from the foundation and the Music Center--that the tickets were given only in connection with the $125,000. And if (Wells Fargo is) trying to say that the tickets were given in return for something else, the attorney general has documents saying something very differently.”

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

There is nothing wrong with an organization’s policy of inviting corporate or individual donors to events free of charge, Silk said. If free tickets are accepted, however, their value could be considered a form of income by the recipient and taxed accordingly.

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.