Charity Used Bingo Revenue to Pay Salaries : Investigation: A financially strapped Chatsworth equestrian group that helped the disabled is the subject of an inquiry by the state attorney general.

The operators of a Chatsworth charity that for nearly two decades has helped disabled people learn to ride horses have acknowledged that for several years they paid salaries using revenues from charity bingo games, a violation of the state penal code.

The Institute of Equestrian Therapy, a tax-exempt nonprofit corporation, is the subject of a civil investigation by the state attorney general’s office, and has stopped offering riding classes amid financial difficulties and a bitter dispute between its two founders.

The problems came to light this month after the charity’s board of directors--despite the institute’s dismal financial straits--approved a payment of $72,000 in back pay to executive director and co-founder Jacques Fouchaux. The board also approved $13,000 for Gloria Hamblin, the co-founder and program director.

Fouchaux said he will use the money to reactivate the charity in late January. Hamblin, who has said she is willing to give up her back pay if that will help the charity survive, is one of two former board members questioning Fouchaux’s intentions.

Meanwhile, documents obtained by The Times and interviews with board members indicate that for several years the institute’s average annual payroll of about $100,000 was paid in part from charity bingo games conducted in Simi Valley.

Using bingo earnings to pay salaries is a misdemeanor carrying a fine of up to $10,000, said Peter Shack, a deputy attorney general in Sacramento.

Hamblin and Fouchaux both acknowledged that Simi Valley bingo revenues were used to pay salaries. They, and other organizers of the institute, say they were unaware there was anything illegal about the charity’s payroll practices.

But the potentially illegal payment scheme is just one piece of a complex array of problems faced by the institute, which has given hundreds of riding lessons per year to people with head injuries, autism, cerebral palsy and blindness.

Now, strapped by the recession and by new limits on bingo, the institute is struggling to meet its bills. It soon may find itself awash in legal problems too, because both founders are hinting they may bring legal action against the other.

Although over the years, Hamblin and Fouchaux had many disputes over how to run the program, Hamblin said salaries didn’t become a sticking point until the charity ran out of money in 1990, and Fouchaux, and later, Hamblin, continued to perform their duties without pay.

It was in June, 1990, that revenues from lucrative charity bingo games in Simi Valley were cut back by a new city ordinance reducing the number of bingo games charities could hold from two per week to one. The change sent the institute into a downward spiral, according to both Fouchaux and Hamblin.

In October of this year, the board voted to sell the institute’s two-acre ranch in Chatsworth. Then last month, a majority of the board approved the $72,000 in back pay to Fouchaux and the $13,000 to Hamblin.

The board also approved additional payments for Fouchaux of $3,000 per month from Oct. 31, 1992, through this year, according to minutes of the meeting provided by Hamblin and reports from board members.

The board did not take action to approve accrued back pay until after its funds ran out, an unusual course of action that may be subject to question under state common law governing nonprofit corporations, said Shack, the deputy attorney general.

Two board members--Hamblin and Thousand Oaks resident Greer Schell--opposed the board’s approval of back pay, and the continuing pay accruals. They argue that such financial obligations would absorb the profits from the sale of the ranch and gut the charity of its remaining assets.

The charity can expect to clear more than $100,000 from the sale of its ranch, reportedly worth more than $300,000, say board members. Fouchaux said a buyer has been found who is willing to lease back the property to the institute for riding lessons, and that the ranch is in escrow.

Hamblin and Schell have since been ejected from the board by the other board members. Now they are trying to prevent the sale of the ranch, alleging that Fouchaux, 65, plans to take the bulk of the proceeds and let the institute die. Fouchaux denies this.

“They have lost sight of the original intent of program--to provide riding therapy for the disabled--and to me, it’s come down to providing money for Jacques,” Schell said.

Hamblin contacted investigators with the state attorney general’s office who now are looking into the charity’s financial affairs, according to James Cordi, a deputy attorney general in Los Angeles.

In an interview last week, Fouchaux denied claims that he is stripping the charity of its remaining assets, saying he plans to use his $72,000 in back pay to continue the institute’s charitable services.

Former board member Schell was skeptical of Fouchaux’s statement, saying he never mentioned that when the payment was approved. “It was clear he would take the money,” she said.

Schell also questioned whether Fouchaux can continue the institute without Hamblin, who had been teaching all the riding lessons until she was fired by the board.

Fouchaux maintains the board’s vote simply provides a record of what he is owed because he has worked since October, 1990, without pay. He promised to funnel the payment back into the institute.

“The institute is my creation and I want to keep it running,” said Fouchaux, a former horse trainer from Tours, France.

Fouchaux said the sale of the ranch is necessary to relieve the institute of the burden of paying onerous mortgage payments of about $2,000 a month. That feeling was echoed by Thomas Fok, a board member from Chatsworth, who approved the back payments.

The sale of the ranch is needed because “we cannot pay the mortgage and cannot generate that much money to go on,” Fok said.

The issue of back pay only emerged after bingo revenues from Simi Valley dried up, and the institute could no longer funnel bingo funds illegally into salaries.

Simi Valley bingo records show that during peak years in 1988 and 1989 the institute was making more than $200,000 a year from the bingo games.

Although the institute also raised money through donations and through fees charged for lessons, the bingo games appear to have been the institute’s chief source of funds. Annual documents filed by the institute with the city of Los Angeles showing its total, yearly projected income list bingo as the primary source of the charity’s funds. Although the charity reported receiving money from some other sources, none were sufficient to cover the institute’s 1988 and 1989 payroll of about $100,000 per year.

When asked about the payroll, Fouchaux acknowledged that Simi Valley bingo games were the chief source of funds for salaries for himself, his wife, Georgette, who was the institute’s bookkeeper until recent years, and Hamblin.

Fouchaux said he didn’t know about the state law, and thought the restriction only applied to nonprofit groups operating in the city of Los Angeles, where the institute also has conducted bingo since 1991.

Simi Valley Deputy City Manager Laura Herron said payment of salaries through bingo proceeds is grounds for revocation of a city bingo permit. Fouchaux was sent a routine letter informing him of the law last July, Herron said.

The institute has not held bingo games in Simi Valley since March, but still holds a valid permit, Herron said, adding, “We are going to be looking into this further.”

Hamblin, who helped found the charity with Fouchaux in 1974, said she also was unaware of the state law. She said during the peak years of earnings from Simi Valley charity bingo--between 1987 and 1989--she was paid a salary of about $30,000 per year, and Jacques and Georgette Fouchaux each were paid about $36,000 per year.

The institute is one of several nonprofit organizations throughout the state that offer horseback riding lessons for the disabled. Until its organizers discovered bingo, it was a shoestring operation, the two founders said.

Fouchaux and Hamblin both took courses in equestrian therapy at a Michigan school, according to Hamblin. They joined forces to bring the new technique to California.

At first, they used borrowed horses and borrowed facilities to offer the classes. Both say they labored at part-time jobs and worked for the charity as devoted volunteers.

But charity bingo changed all that. Although Simi Valley has no records prior to 1987, Hamblin said the games were successful from the start. Records from later years show they often pulled in $15,000 or more per month for the charity.

Bolstered by its improved financial status, the institute began offering classes full time, and bought the ranch in 1987.

Yet even after 1990, with its financial condition steadily worsening, the institute continued to offer classes. The tragedy of the financial problems and investigations, many involved agree, is that a truly useful program could disappear.

Horseback riding offers many benefits to the disabled, Hamblin said. The gait of a horse moves the pelvis in a manner similar to walking, she said, allowing people who can’t walk to exercise joints and muscles.

Riding also increases balance and self-esteem for people with a range of disabilities, added Hamblin, who already is talking about starting a new therapy program if the institute does not survive or agree to take her back.

Over the years, the institute’s services have earned it a devoted clientele, who are now asking questions about why it is closing. Jack Rudofsky, a Chatsworth resident, said that his 23-year-old daughter, who suffered a brain injury in an accident in 1975, has gained confidence from her years of classes at the institute.

“It’s been of incalculable value to her,” he said. “I can understand problems between board members, but this is just such a vital thing, if it has to be closed down it should be done the right way.”

Former board member Schell, who herself is in a wheelchair and takes classes at the institute each Saturday, said she wants to see the institute continue at any cost.

“I love it so much, it disturbs me greatly that the program is being destroyed, seemingly destroyed,” she said. “It does so much good to be able to get up out of a wheelchair and to have that freedom--it’s wonderful.”

Times staff writer Doug Smith contributed to this report.