Schwarzenegger Traded Charity Appearance for Prop. 49 Gift

About a year ago, 150 celebrities and power players gathered at the Beverly Park estate of rocker Rod Stewart for cocktails, Wolfgang Puck food and sassy stage banter from the likes of “The Practice” star Camryn Manheim. The aim of the $1,000-a-plate event: to raise money for three charities, including Arnold Schwarzenegger’s Inner-City Games.

But in the end, none of the $260,000 raised at the soiree would find its way to any of the three philanthropies. Instead, the money disappeared in a massive charity fraud, court papers show. The event was the last in a long series of fund-raisers organized by Aaron Tonken, who now faces a federal criminal charge and a civil suit filed by the state attorney general over the Hollywood bashes that he brokered.

Schwarzenegger, however, didn’t walk away empty-handed. The box-office star’s Inner-City Games -- recently renamed After-School All-Stars -- ultimately received $50,000 from one of the backers of the Rod Stewart event in a later transaction, as Tonken scrambled to make good with the three charities.

What’s more, in exchange for appearing that evening, the actor had demanded that a separate donation be made to his Proposition 49 after-school initiative. Tonken eventually contributed $62,500 to Proposition 49 campaign coffers, using money that he borrowed after the charity fund-raiser.

The ballot measure to fund after-school programs, which passed in November, was an important steppingstone in the political career of Schwarzenegger, who is running as a Republican candidate for governor in the Oct. 7 recall race.

State officials stress that Schwarzenegger committed no wrongdoing in demanding a quid pro quo for showing up at the charity event. And they say Tonken’s Proposition 49 donation was legal, assuming charity money wasn’t used.

Still, some in the philanthropic arena say Schwarzenegger and Tonken should have disclosed to those supporting the fund-raiser that the actor had a side deal to help bankroll his political initiative.

“It’s not full disclosure of the facts,” said Paulette Maehara, chief executive of the Assn. of Fundraising Professionals, a group that sets standards for charities. “It’s not a practice I would ever consider doing.”

James Ferris, director of USC’s Center on Philanthropy and Public Policy, agrees that the arrangement should have been made plain to event underwriters and beneficiaries. “Things should be out in the open so you can see the relationships,” he said. “That’s an easy one.”

For their part, spokesmen for Schwarzenegger say there was nothing wrong with the arrangement, and dismissed the notion that it was unusual or should have been disclosed.

“People who command a lot of influence say ... ‘If I’m going to help your cause, I expect something in return,’ ” said Chip Nielsen, who was general counsel to the Proposition 49 campaign committee.

But others describe the political donation as extraordinary -- and troubling. “I’ve never heard of such an arrangement,” said James M. Greenfield, a retired charitable fund-raiser who has written frequently on his profession. “In the world of normal fund-raising, this would be very unusual and downright unethical.”

Hollywood, however, is hardly a normal world when it comes to the business of philanthropy.

In fact, according to those familiar with the scene, it’s quite common for stars to make side deals with organizers in exchange for showing up at charitable events. Those deals can range from perks such as limousines, first-class hotel suites, air travel and even cash, to special donations to a celebrity’s favorite cause. According to people familiar with the federal and state investigations into Tonken’s activities, agents are examining whether such quid pro quo arrangements may have violated tax or charity laws. Schwarzenegger isn’t known to have had any other side deals with Tonken and isn’t believed to be under investigation.

George Bird, Tonken’s lawyer, declined to discuss specifics of the Rod Stewart event. But he said: “Aaron is penniless. He did not personally financially benefit from his work as a promoter. What the investigation will discover after the attorney general has concluded a review of all the facts and all the documents is that celebrities benefited.”

At the time of the fund-raiser at Stewart’s place, Tonken was at the end of a meteoric rise in Hollywood that saw him morph from star-struck outsider to elite fund-raiser with access to top celebrities.

The September 2002 event, billed as “United in Great Cause for an Evening to Remember” honored actor Kelsey Grammer and Schwarzenegger. In addition to Schwarzenegger’s charity, the Performing Arts Foundation and the City of Hope were to receive proceeds.

Schwarzenegger -- who had met Tonken a year earlier at an Inner-City Games event honoring Muhammad Ali -- became involved in the gala at Rod Stewart’s home after Jill Eisenstadt, his Hollywood publicist, received a letter from the rock star requesting that the actor be honored, according to Schwarzenegger’s associates.

Papers filed by state officials in Los Angeles Superior Court portray a charitable affair that behind the scenes was in shambles, with hundreds of thousands of dollars missing. Stewart even demanded an accounting through his lawyer, the documents note, but Tonken refused.

The papers also show that to underwrite the event, a private foundation headed by Los Angeles socialite Cynthia Gershman donated $690,000. She is named as a codefendant in the state complaint against Tonken for allegedly misusing her foundation’s funds.

Edward A. Klein, a lawyer for Gershman, calls her “an innocent victim of Tonken.” Tonken’s attorney, Bird, disputes that. “Such a statement is disingenuous with a capital D,” he said.

According to the state’s complaint, Tonken never delivered any of the money raised at the Stewart event -- the $690,000 that Gershman put up or the $260,000 from the evening’s auction and ticket sales -- to the three charities. Instead, he deposited the funds into his own bank accounts, state officials maintain. They also contend that Tonken lied about how much money he controlled in connection with the event, claiming that he received only $125,000 in all.

By the attorney general’s reckoning, the Performing Arts Foundation alone should have received $450,000. As for the Inner-City Games, it was to have received up to $100,000.

The Schwarzenegger camp initially had proposed that all proceeds from the fund-raiser go to Proposition 49 rather than to his charitable foundation. But event planners said that would interfere with the event’s tax-deductible status, and instead they agreed that a separate, personal contribution of $125,000 would be made by Gershman.

That money never materialized, however, leading Schwarzenegger’s camp to press Tonken for payment. “Mr. Schwarzenegger would never have appeared at the Unified Event on September 19 but for the commitment of Ms. Gershman and Mr. Tonken that the Initiative was going to receive $125,000,” Schwarzenegger attorney Martin Singer wrote to Tonken’s lawyer.

To placate the Schwarzenegger team, Tonken hurriedly borrowed $125,000 from a private lender. He gave half to the Proposition 49 campaign and half to the Performing Arts Foundation, according to people familiar with the situation.

Meanwhile, some of the Stewart event’s key backers say they never realized that Schwarzenegger’s attendance had hinged on a political contribution. Minnesota hearing aid magnate William Austin, who underwrote $125,000 of the costs, said, “I didn’t know anything about Prop. 49.”

That Schwarzenegger’s advisors would agree to do business with Tonken was itself a surprise. Singer earlier had considered suing Tonken on behalf of Sylvester Stallone, when Tonken was slow to pay tens of thousands of dollars to help the sick child of Stallone’s maid -- a condition for getting the actor to show up at another Tonken event.

By the time of the Stewart fund-raiser, Tonken’s reputation in Hollywood’s close-knit fund-raising community was imploding, with other high-profile galas experiencing major problems. He also had filed once for bankruptcy protection and had a long history of civil litigation in the Los Angeles courts.

When all was said and done, $50,000 did wind up flowing to the Inner-City Games Foundation, thanks to a donation from Austin, the Minnesota philanthropist. But the whole episode gave the Schwarzenegger camp cause for regret.

“Do I wish we hadn’t done the event? Yes,” said Eisenstadt, Schwarzenegger’s publicist. “Ultimately, Arnold or any celebrity gets involved in these events to raise money for good causes, and in this case not enough money was raised for anyone.”