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Re: Important RAAM changes  Anna Catharina B. Berge
 Dec 19, 2006 12:03 PST 
Doug,
Thank you for enlightening the situation for UMCA members.

As a board member this year we were never asked to voice our opinions on
any matters of significance.
I specifically asked about the relationship RAAM- UMCA. I was told that
there was nothing that required board approval in the RAAM - UMCA
relationship. At the time I received that answer, negotiations to
purchase RAAM were already well under way. I would therefore say that
the answer I received was a lie.

This is the reason I felt I could no longer stay on the Board of
Directors and I resigned the Wednesday before Thanksgiving. I never
received a letter from managing director regarding the purchase of RAAM,
I read it on the listserve. Interestingly the individual letter from the
managing director regarding the RAAM purchase was sent to some board
members, but never came to me. That letter was sent out to board members
a few hours before I sent my letter resigning from the post. I don't
understand why I was not informed. But this is not about me. I just did
not want the managing director to be able to use my name, to claim that
this was something the UMCA was doing. We were left totally in the dark
until the same day that the purchase of RAAM was presented onto the
ultracycling listserve as a 'fait accompli'.

I urge UMCA members to actively participate in the ultracycling
organisation, since this is about our non-profit corporation, and things
should be carried out openly and in accordance with the rules set forth
in constitution and bylaws.

Sincerely,
Cat.

Doug Sloan wrote:
 UMC-@aol.com wrote:
   
 Ultracycling & RAAM friends, Fred Boethling and John Hughes just signed
a letter of intent to buy RAAM from Jim Pitre and Lon Haldeman.
     

I write to urge the UMCA membership and the board of directors to take
time and critically analyze the purchase of RAAM discussed in John
Hughes' post. At minimum, anyone interested should be provided full
disclosure of the details and facts, if the UMCA is going to have any
involvement or if its director is going to have any involvement.

Big picture, it is my understanding that when the UMCA became a formal
non-profit organization, it would be run democratically, with open
discussions, and following all the rules that a membership oriented, and
governed, charitable organization should follow. Much to many people's
disappointment, it does not appear that it has been run that way. The
appearance is that the director has and is using the organization as a
mere means to further personal goals, with the concepts of membership
ownership and board of director governance mere formalities. Statements
like actions are "fait accompli" from him replace open exchanges with
board members, most troubling when the actions concern self-dealing,
such as the RAAM purchase recently disclosed. I'm told that the board of
directors was told little to nothing about it in advance of its
announcement, which is a grave concern for a membership owned charitable
organization. It also appears that a majority of the board members may
not be holding the director accountable, as a fiduciary to the
organization, as they should.

Contrary to what appears on the RAAM website, or at least not fully
disclosed there, I am told that UMCA assets (even if donated) have or
will be used to purchase RAAM "intangibles", then transfer in some
fashion the benefits of operating RAAM to certain individuals, including
the present director, John Hughes. This raises a number of very
important legal, business, and ethical concerns.

As a non-profit organization as designated by the IRS (a "501(c)(3)"
organization), and subject to state law, the UMCA charter, constitution,
and bylaws, the UMCA must be operated as a charitable organization, and
not for the benefit of certain individuals. The IRS states that "To be
tax-exempt under section 501(c)(3) of the Internal Revenue Code, an
organization must be organized and operated exclusively for purposes set
forth in section 501(c)(3), and none of its earnings may inure to any
private shareholder or individual."
(http://www.irs.gov/charities/charitable/article/0,,id=96099,00.html)

Further, "The articles of organization must limit the organization's
purposes to exempt purposes set forth in section 501(c)(3) and must not
expressly empower it to engage, other than as an insubstantial part of
its activities, in activities that are not in furtherance of one or more
of those purposes. This requirement may be met if the purposes stated
in the articles of organization are limited in some way by reference to
section 501(c)(3). In addition, an organization's assets must be
permanently dedicated to an exempt purpose." "An organization will be
regarded as operated exclusively for one or more exempt purposes only if
it engages primarily in activities that accomplish exempt purposes
specified in section 501(c)(3). An organization will not be so regarded
if more than an insubstantial part of its activities does not further an
exempt purpose." "The organization must not be organized or operated
for the benefit of private interests, such as the creator or the
creator's family, shareholders of the organization, other designated
individuals, or persons controlled directly or indirectly by such
private interests. No part of a section 501(c)(3) organization's net
earnings may inure to the benefit of any private shareholder or
individual. A private shareholder or individual is a person having a
personal and private interest in the activities of the organization. If
the organization engages in an excess benefit transaction with a person
having substantial influence over the organization, an excise tax may be
imposed on the person and any organization managers agreeing to the
transaction. "The organization must not be organized or operated for
the benefit of private interests, such as the creator or the creator's
family, shareholders of the organization, other designated individuals,
or persons controlled directly or indirectly by such private interests.
***No part of a section 501(c)(3) organization's net earnings may inure
to the benefit of any private shareholder or individual.*** A private
shareholder or individual is a person having a personal and private
interest in the activities of the organization. If the organization
engages in an excess benefit transaction with a person having
substantial influence over the organization, an excise tax may be
imposed on the person and any organization managers agreeing to the
transaction."

The UMCA Constitution states that it may accomplish its purposes by:
"Doing any other appropriate act to further the above purposes; however,
this organization is organized exclusively for one or more of the
purposes as specified in Section 501(c)(3) of the Internal Revenue Code,
and shall not carry on any activities not permitted to be carried on by
a corporation exempt from federal income tax under Internal Revenue Code
Section 501(c)(3) or corresponding provisions of any subsequent federal
tax laws."

The ***Constitution*** also states that "The Race Across AMerica (RAAM)
and the UMCA are legally separate organizations. The Race Across AMerica
(RAAM) is owned by an independent event organizer. The UMCA sanctions
RAAM to ensure the athletic integrity of the race; however, the UMCA is
not responsible for RAAM financially nor for the actions of the RAAM
director(s)."

Since the Constitution directly addresses this issue, expressly
addressing organizational, legal, and financial independence from RAAM,
it would appear that the UMCA cannot entangle itself with (purchase)
RAAM, unless there is an amendment to the Constitution, ***which would
need to be approved by two-thirds of the membership.***

The Bylaws reiterate the requirement to comply with 501(c)(3) charitable
restrictions. Most importantly, the Bylaws provide: "Section 2.
Prohibition Against Private Inurement: No part of the net earnings of
this corporation shall inure to the benefit of, or be distributable to,
its members, directors or trustees, officers or other private persons,
except that the corporation shall be authorized and empowered to pay
reasonable compensation for services rendered and to make payments and
distributions in furtherance of the purposes of this corporation."

It appears to me (and I'm not intending to give legal advice, only to
express a personal opinion based upon what I know) that this transaction
is a violation of the UMCA's own bylaws and constitution and potentially
the IRS Code as well. There appears to be the potential for a private
inurement concern, self dealing, lack of full disclosure, and even an
unconstitutional action.

Even if it is not illegal, and I suppose it's very possible that some
technical legal argument can be made that it is not, it does not appear
to be ethical or good business for the non-profit. There was not full
disclosure to the board and membership, and that fact alone suggests
that the participants themselves have something to hide. It does not
pass the "smell test."

It also may not be good business if the goal and reality here is that
the UMCA will be responsible for the potential liabilities of RAAM,
whether that be purchasing insurance, for negligence suits, or breach of
contract suits. The entanglement will likely result in the UMCA being
included as a potential defendant in any action related to RAAM.

There are many people who are extremely disappointed with the way the
UMCA has been run. There was hope what when it became a non-profit
organization, with all the formalities, that it would no longer be
characterized by dictatorial, secretive -- very un-democratic --
management, but that does not appear to have changed. With this
proposal, it only appears to be worse. Cutting a deal, without even full
consultation of board members and membership, to use the organization
potentially for personal gain should not be approved.

I have no personal quarrel with the UMCA management, board, or the RAAM
owners or prospective owners. However, I do have a quarrel with someone
potentially abusing the powers of a position with a non-profit for
personal gain, particularly when the details of the proposal were not
completely and thoroughly made available to the board and members at
every step of the way.

I would also suggest that, in any event, that the UMCA director should
not be also a person who is the owner or a partial owner of RAAM. It
raises far too may conflict of interest and private inurement issues.

If anyone wants to use solely personal assets to buy RAAM, and then
personally operate RAAM, them by all means go for it. However, a
non-profit's assets (or potential assumption of liabilities) and paid
staff should not be utilized for what should be a private transaction.
On the other hand, if, after full disclosure and debate, the UMCA
decides to buy and operate RAAM, then that may make sense, as long as
the Constitution is amended appropriately and the transaction is not
arranged to benefit individuals.

If I have some facts incorrect, I apologize; since there has not been
full disclosure, it is difficult to ascertain what's truly going on.
Nonetheless, it would appear that even if the facts are limited to
what's posted on the RAAM website, this transaction is still suspect and
inappropriate, and at minimum, has not been fully disclosed in advance
to the membership and board. I'll leave it at that and invite others to
weigh in as well.

Doug Sloan
Fresno, CA

cc: UMCA Board Members


   

--
----------------------------
Anna Catharina B. Berge
DVM, MPVM, PhD.
Associate Researcher
Veterinary Medicine Teaching and Research Center (VMTRC)
University of California, Davis,
18830 Road 112,
Tulare, Ca, 93274
Tel: 559-6881731 ext 203
Fax: 559-6864231
Cell: 559-7991699
	
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