The case against 'nonprofits 1 and 2' in Fattah probe

WASHINGTON - Their missions were admirable: Boost education programs for Philadelphia schoolchildren and provide college scholarships.

But according to federal prosecutors and an Aug. 27 plea deal with Gregory Naylor, a longtime political aide to Rep. Chaka Fattah (D., Pa.), the two nonprofits founded by the congressman were also conduits in a scheme using federal funds to secretly repay an illegal campaign loan.

The plea lays out a sweeping conspiracy that prosecutors say involves former aides to the 10-term Philadelphia congressman and two charities he has long promoted and supported with taxpayer dollars.

Fattah has not been charged and in a statement last week said he has "never engaged in any illegal conduct" during his political career.

Both of the charities in the alleged deal fit into a web of Fattah-backed nonprofits, often led by close allies making six-figure salaries and often backed by federal funds delivered from Fattah's seat on the powerful Appropriations Committee.

In at least two other instances, the groups have faced questions about their spending - though Fattah has argued that they served worthy causes, such as childhood education or gun control, and defended their conduct.

One, Philadelphia Safety Net, was chided in a federal audit that questioned how it spent nearly two-thirds of the $771,137 it received through Fattah earmarks.

Another group founded to boost environmental activism among students in Philadelphia and the Caribbean sent children on a trip to a St. Thomas resort, though one federal audit said less than half the time was spent on the environment. The organization, the Caribbean-American Mission for Research, Education, and Action, was led by a high school classmate and longtime Fattah ally who made as much as $143,000 one year heading the group. The program has since ended.

The unfolding Naylor case is the one that has come closest to Fattah, though, and the first that suggests one of his favored charities was involved in criminal activity. It touches on two entities he has promoted for years: the Educational Advancement Alliance and CORE (College Opportunity Resources for Education). They are the "nonprofits 1 and 2" cited in the plea deal, The Inquirer has learned.

Naylor, in his plea deal, admitted his role in funneling federal dollars and charitable donations through the two groups, as well as private companies, in order to pay off a $1 million campaign loan Fattah received while running for mayor in 2007. The loan exceeded the city's $5,000 donation limit, prosecutors say.

Fattah is identified in the plea documents only as "Elected Official A," though the details describing the official make it clear that it is the congressman.

Fattah, who has sharply questioned federal investigators' actions in a long-running investigation, declined Inquirer interview requests last week. A spokeswoman requested that any questions be submitted by e-mail but then declined to answer them.

Fattah is the top Democrat on the Appropriations subcommittee handling spending on science and justice programs. Several of the agencies he oversees provided grants to the educational alliance and other charities he backed.

Ethics watchdogs have long railed against federal and state lawmakers who steer taxpayer money and private donations to charities that employ their family, friends, or allies, worrying about lavish spending far from public view.

Such ties have been part of the arrangements across the country and various levels of government, including those that sent former Philadelphia State Sen. Vincent J. Fumo, a Democrat, to prison and led to the ouster of U.S. Rep. Tom DeLay (R., Texas) and the bribery conviction of U.S. Rep. Randy "Duke" Cunningham (R., Calif.), among numerous other scandals.

"When members have close associations with nonprofits - setting them up, having family and allies run them - there are always risks of abuse," said Larry Noble, a lawyer with the nonpartisan Campaign Legal Center in Washington. "Quite a few have run into problems."

 Both the alliance and CORE had leaders close to Fattah, and benefited from his help.

CORE got $3.2 million in federal earmarks sponsored by the congressman in fiscal years 2009 and 2010, according to public data compiled by Taxpayers for Common Sense, a nonpartisan group that tracks government spending.

The alliance received $12.1 million in fiscal 2008 and 2009 via Fattah's earmarks, the data show.

Millions more went to both groups in previous years, though earmarks have been put on hold in Congress since 2011.

Fattah's photo and a letter from him appear on the first page of CORE's latest annual report.

Linked together for funding purposes for several years, CORE and the alliance both drew attention from auditors and the FBI at least as early as 2008.

A Department of Justice audit questioned $1.25 million in spending out of the $1.9 million in grants the department awarded to the alliance on CORE's behalf in 2005. The audit report, released in 2013, cited "unallowable" salaries and noncompetitive contract awards, among other concerns.

The auditors wrote that they referred information they found to Justice's Office of Inspector General Investigations Division, which examines allegations involving fraud, abuse, and integrity.

Early in CORE's existence, the alliance routed federal funding to the new group. But in a reversal, the Naylor plea documents say CORE gave the alliance $225,000 as a "loan payable" in 2008, and the money was later used as part of the plan to secretly repay Fattah's campaign loan. Other exchanges followed.

Months after that exchange, and as FBI investigators reportedly began contacting CORE officials, Fattah announced plans to close CORE, citing cuts in city funding as the reason for the closure. He later reversed course after obtaining more grants.

At least one of the nonprofits' leaders appears to have been a key figure, Person A, in the scheme prosecutors outlined:

Karen Nicholas, a former Fattah congressional aide, made $144,370 as the alliance's executive director, according to the most recent tax filing available online. (Nicholas' bio on the career website LinkedIn says she left that job last September.)

The chief executive of the alliance - identified in the plea deal as Person A and as a former Fattah employee but not by name - improperly wrote several checks, including one for $500,000 using charitable contributions, to help move the money that went to repaying Fattah's loan, prosecutors say.

Raymond Jones, a longtime Fattah political hand, chaired the alliance's board. He also led Philadelphia Safety Net, the now-defunct gun buyback group, where he made $152,980 in salary in 2010.

Nicholas' attorney, Ann Flannery, said neither she nor Nicholas would comment for this story. Jones did not return a phone message left at his home.

In an appearance Tuesday on WURD-AM radio, Fattah highlighted the help CORE has delivered.

"This was about $30 million that helped 24,000 kids in Philadelphia go to college," Fattah said. He said federal authorities have been looking at his group since 2007. "They found every 'i' dotted and every 't' crossed, but they spent a lot of time looking at it - and they looked at everything else I've ever touched or worked on."

Donyale Reavis, cousin to a Fattah legal aide, has led CORE since the summer of 2009 - after the payments related to Fattah's campaign loan were allegedly made and after its leadership was revamped.

She said CORE no longer relies on earmarks and instead is funded by its endowment.

She said she did not know if CORE is the nonprofit cited in the plea deal.

"We've never been contacted by anyone from any federal authority concerning this in the past five years," Reavis said.

She stressed that the program - which gives out college scholarships ranging from $150 to $4,500, and has helped about 27,000 students pay for school - should not be tarnished by actions taken under previous leaders.

Meanwhile, the alliance's latest tax report, filed in December 2013, showed a net liability of $1.1 million, despite listing $28.3 million in public support from 2007 through 2011.

A phone number for the group was disconnected.

@JonathanTamari

www.inquirer.com/capitolinq