Posted on: Friday, January 7, 2005
Unity House's spending out of control, court told
By Jim Dooley
Advertiser Staff Writer
Unity House Inc., the nonprofit labor organization seized by IRS agents last month, is in a "downward financial death spiral" and needs to remain under the control of a court-appointed receiver, according to newly filed court papers in the federal criminal case against former Unity House executive Tony Rutledge Sr. and his son Aaron.
Special U.S. Attorney Ted Groves, lead prosecutor in the fraud and conspiracy case against the Rutledges, argued in the filing that close federal control of Unity House and its estimated $42 million in assets should remain in place until completion of the criminal case. Trial is scheduled for May.
Groves cited an analysis of Unity House conducted last year by the Bank of Hawaii that stated the nonprofit "is unable to control spending, draining cash and liquid assets." The study estimated that Unity House "at current burn rates ... has 2.72 years of remaining life."
It said the organization suffered from "poor management oversight" that led it to make "questionable business decisions" including "high-risk venture capital investments."
The bank said examples of such investments included $3 million invested by Unity House in CeaTech USA, a Kaua'i-based shrimp-farming venture, and $1 million in Hoana Investment, a local high-tech company developing biosensory monitoring pads for hospital beds.
Attempts to reach officials of those two companies yesterday evening were unsuccessful.
The bank study did say that problems at Unity House were mitigated by the organization's hiring of private attorney Randall Harakal as chief executive and the appointment of a Bank of Hawaii official to the Unity House investment committee.
Tony Rutledge Sr. was president of Unity House until federal agents seized the company Dec. 14, locking Rutledge out and locking up the non-profit's assets.
Attorneys for Rutledge and his son, who also was a Unity House executive, have argued that the government takeover was unjustified and the defendants should have been allowed to file legal protests in advance of the seizure.
U.S. District Judge David Ezra has scheduled a hearing Tuesday on continued federal control of Unity House.
Groves repeated in paperwork filed this week that the Rutledges' management of Unity House was financially abusive and endangered its tax-exempt status.
Groves did say in the newly filed court papers that the defendants' personal assets, including "personal vehicles," should not be frozen.
A copy of Unity House's federal tax return, for the 2002 calendar year was included in the court filings and showed that the organization spent $4.5 million more than it took in and had net assets of $39.35 million.
Tony Rutledge Sr. was paid $148,916 in salary and another $40,000 in benefits, including an $11,0321 expense account, according to the tax return.
Unity House, which has been active in state and local politics, reported spending $380,516 on its "legislative program" in 2002.
Reach Jim Dooley at 535-2447 or at jdooley@honoluluadvertiser.com.
