Michelle Obama's old law firm is representing ACORN's board in an internal embezzlement case that legal experts say could result in criminal charges.
During the presidential campaign, Barack Obama and his running-mate, Joe Biden, insisted they had nothing to do with ACORN after the inner-city advocacy group became engulfed in controversy over voter-registration fraud.
However, federal election records showed that the Obama campaign paid ACORN subsidiary Citizens Services Inc. $832,598 for get-out-the-vote activities, of which $80,000 went directly to ACORN. CSI and some 290 other ACORN subsidiaries operate out of the same building on Elysian Fields Avenue in New Orleans that serves as ACORN's national headquarters.
A sister organization sharing that New Orleans address – Citizens Consulting Inc. – is at the center of the embezzlement scandal, court records show.
Dale Rathke, brother of ACORN founder Wade Rathke, worked at CCI, where he kept the books for all of the ACORN-affiliated groups across the country. He is accused of embezzling almost $1 million in faulty credit card charges while working there. He allegedly spent some $40,000 a month on lavish travel and entertainment.
Wade Rathke and other officers of ACORN –a nonprofit organization that receives government as well as private foundation grant money – allegedly knew about the theft and tried to cover it up, court papers reveal. ACORN has raked in more than $126 million in donations and tax dollars since 1993.
But the scandal recently has cost ACORN financial support from major donors, including the Catholic Church, which has frozen donations until ACORN can assure the church it has cleaned up its operations. Other foundations have severed ties to ACORN.
Wade Rathke has stepped aside as chief organizer of the group's domestic operations, but critics note he remains aboard ACORN International Inc. as its president.
The ACORN board last month abruptly fired members of an internal committee it set up to audit the books kept by Rathke's brother at CCI.
One of the fired auditors, Karen Inman, said the ACORN board's actions will lead to a criminal investigation.
"Why would you want us not to clean up things?" she asked. "Why would you not want to do your own investigation instead of bringing in the sheriff?"
She reckons the authorities will soon have to investigate ACORN. The group did not return phone calls.
Loyola University law professor Dane Cioilino says ACORN officers who knew about the embezzlement may have violated their fiduciary responsibilities by failing to report what happened. It's also possible they may have committed the federal crime of "misprision" if they did anything to cover it up, she told the New Orleans Times-Picayune.
Worried about its legal exposure over the handling of the embezzlement, ACORN's board has retained Michelle Obama's old Chicago law firm, Sidley Austin LLP.
Sidley Austin was founded by liberal activist Howard Trienens. Michelle Obama worked there as an associate lawyer from 1988 to 1991, overlapping briefly with the tenure of 1960s terrorist and ex-convict Bernardine Dohrn, once considered by the FBI to be "the most dangerous woman in America."
Dohrn, who was not licensed to practice law, got a job at the law firm thanks to her husband Bill Ayers' family connections to Trienens.
The Obamas met at Sidley Austin when Barack interned there after his first year at Harvard Law School. After law school, Barack represented ACORN in a voter registration case.
Matthew Vadum of the Capital Research Center in Washington, a think tank that studies the politics of philanthropy, says the government should investigate ACORN under federal racketeering laws.
He says the group has racked up more than $3 million in federal, state and local tax liens which appear to stem from its failure to pay employee payroll taxes.
He says ACORN's financial operations are tightly controlled from the top and largely hidden from public view.
"ACORN moves money around its networks with a boldness and agility that (Colombian druglord) Pablo Escobar would have admired," Vadum said.
Jim Terry of the Consumers Rights League agrees.
"ACORN has a long and sordid history of employing convoluted Enron-style accounting to illegally use taxpayer funds for their own political gain," he said.
The interlocking directorates of ACORN's 294 affiliates also concerns watchdog groups, who find it difficult to determine which funds are used for charity and which are used for political activities not allowed under ACORN's status as a 501(c)(3) nonprofit charity.
Also, its board operations are not transparent. Meetings are seldom held, and those that are held have no minutes on file, observers say.
At least one watchdog isn't waiting for the feds to act. The Ohio-based Buckeye Institute has filed a civil action under state racketeering laws, arguing ACORN has engaged in a pattern of corrupt activity that amounts to organized crime.
President-elect Obama helped train ACORN leaders as a community organizer in Chicago. He also was once employed by ACORN affiliate Project Vote.
Last year, he promised a meeting of community organizers that he would meet with ACORN and other organizers after winning on Election Day.
"Before I even get inaugurated, during the transition, we're going to be calling all of you in to help us shape the agenda," Obama said.
"We're going to be having meetings all across the country with community organizations," he added, "so that you have input into the agenda for the next presidency of the United States of America."