Jewish Charity With Hollywood Ties Accused of Fraud

Michael De Luca_Angelique Madrid_Dawn Hudson_Amy Pascal_guest_Brett Ratner - Getty - H 2018
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A wrongful termination claim from an American Friends of Shalva Israel executive raises questions about the management of a nonprofit that taps industry cash and hosts A-listers at its galas.

The New York-based American Friends of Shalva Israel made its splashy Hollywood debut at the Beverly Hills mansion of Jewish tycoon Stanley Black in September 2016. Having recently opened a Los Angeles office, the nonprofit — which is dedicated to assisting mentally and physically challenged children and their families through its parent organization in Israel, including a Shalva special-needs center in a West Bank settlement town — was on the hunt for glittery new West Coast patrons.

Producer Michael De Luca was the inaugural Spirit of Hope Dinner honoree. Universal film chair Donna Langley, Academy CEO Dawn Hudson and filmmaker Brett Ratner attended. CAA’s Adam Berkowitz gave a speech about 93-year-old Israeli statesman Shimon Peres, who’d died that day. And producer-director Jeremy Garelick (The Wedding Ringer), whose sister Carri would eventually go on to work for AFOS as its West Coast director, emceed: “Tonight I made three Love Guru jokes,” referring to De Luca’s infamous 2008 Mike Myers bomb, “which is three more than what made it into The Love Guru.”

It would prove to be the apex of AFOS’ Hollywood association. On June 14, Carri Garelick filed a wrongful termination lawsuit in U.S. District Court against the charity. In the complaint, Garelick alleges she lost her job “in retaliation … for questioning and complaining about fraud” she’d become aware of at Shalva, and refused to become complicit in the organization’s activity. Specifics in the filing were limited, perhaps to encourage a settlement, but she contends that donors and potential donors were misled “about how funds were being allocated,” and in subsequent documentation named a variety of AFOS officials, including executive director Leo Klein, as intended witnesses.

In its court response, AFOS denies her charge, indicating that she never voiced any such concerns and was solely “terminated on the basis of performance.” Garelick declined to comment for this story.

The previously unreported clash suggested there may be more to the tale of a nonprofit with ambitions of tapping into entertainment money. So The Hollywood Reporter conducted an analysis of AFOS’ publicly disclosed financial documentation, which as a nonprofit it provides to the IRS. (The most recently available is from two years ago.) It shows that during the half-decade between 2012 and 2016, its annual revenue less expenses steadily dropped from more than half a million in the black to $2.9 million in the red. Notably, throughout the same period, its grant-making to commitments in Israel more than doubled, from $4.1 million to $9.3 million.

“These aren’t indicators of good management,” says Thomas A. McLaughlin, a financial consultant for charities and author of Streetsmart Financial Basics for Nonprofit Managers, whom THR asked to review the IRS documentation. “It’d be helpful to know how they got that way.”

It’s an admission in a separate audited financial statement from 2016 that may hint at Garelick’s charge. The text references a $2.2 million term loan agreement with First Republic Bank. It “was used as an advance to fund program activity against future cash payments” on pledged donations for AFOS’ capital campaign, which sought to support its parent organization’s efforts to complete its 20,000-square-foot National Center building in Jerusalem in 2016 on time. Multiple board members entered into credit agreements on behalf of the organization, and the loan was eventually paid in full. AFOS secretary Jacques Semmelman, a New York-based attorney, insists “donors were well aware that their contributions were for the capital campaign.”

Independent observers are skeptical. “If you had made a pledge to a capital campaign, you are probably not going to be thrilled to know that it’s going to be allocated to fund a loan that was taken out because [AFOS] had a shortage of funds and wasn’t able to pay for its programs,” says Daniel Borochoff, founder of industry watchdog CharityWatch. “If you make a pledge and fulfill that pledge, you want to see that it’s going to the capital campaign, not for another purpose — even if that general purpose is good too.”

Aaron Dorfman, president of the National Committee for Responsive Philanthropy, agrees. “If the funds are restricted, they are supposed to be restricted,” he says. “You are not supposed to use endowment funds for operations. It’s not ethical — and in some cases, it could be illegal. Often when you see this kind of thing happening, it’s a huge red flag and there are potentially other problems with misuse of funds.”

Semmelman rejects the notion that AFOS has struggled with its finances. “There were two distinct campaigns, one the capital campaign [to complete the building], the other the annual operating campaign,” he explains, referring to ongoing programming costs in support of Shalva’s mission. “Over the past several years, the annual operating campaign has been healthy and robust, and there is no truth to any allegation that there has been a period of financial decline, let alone collapse.” (Semmelman notes that in 2016, the most recent publicly available year of financial statements, AFOS possessed “a healthy balance sheet with $2.7 million in net assets.”)

The Garelick suit continues to work its way through federal court. A trial is set for May 2019.

Oct. 24, 4:50 p.m. Updated Carri Garelick's employment chronology.