Comments on ponzi scheming CGA promoter case

I am somewhat surprised that the recent federal appeals court running that I reported on about Robert Dillie (http://plannedgift.blogspot.com/2009/08/important-legal-ruling-impacting.html) hasn't been discussed (besides the republishing of my post on OnPhilanthropy.com and the Planned Giving Design Center).

One of the comments I heard from a colleague was that "it was an old case." Of course, I wanted to scream.

True, the actual facts of the case were old news but the facts have nothing to do with the problems that might be caused by the ruling (published just this summer). It is the ruling that matters; the level of the court (just below the Supreme Court) and their approach to analyzing whether gift annuities are investments or not. It is not even whether the court was correct in its approach or not(it may very well have been wrong).

You have to put yourself into the mind of a plaintiff's attorney. I should know - I was one and I spent several years making people feel miserable (especially older attorneys resting on their laurels). I didn't always need the law or logic on my side - all I needed was an inch. Something to give us standing to start the case, negotiations, etc.. Admittedly, we bluffed our way into many situations. Sometimes we "won" on air - sometimes we got crushed, but we always caused trouble for someone.

One thing that I have learned since joining the non-profit world full time in 1998, charities sit in an extremely weak legal position. Law suits (or even threats of law suits) never go well for them - even with top pro-bono counsel. I can't tell you how many litigation situations I have been involved with where the charity had the better case but opted to settle or not pursue a rightful claim. Maybe it was the potential public relations fallout, maybe charitable executives who didn't want the entanglement, maybe it was fear over costs or staff time.

No matter the reason, charities are sitting ducks in general when faced with potential litigation. Here comes a U.S. Court of Appeals which flat out says that most of the standard gift annuity marketing is our proof that gift annuities are investment products. It is just nice and dry firewood for attorneys of unhappy CGA donors, or worse yet, unhappy children or other beneficiaries of CGA donors.