NEW YORK – Before Hillary Clinton completed her first year as President Obama's secretary of state, Wall Street analyst and investor Charles Ortel calculates $17 million went missing from Clinton Foundation financial reports.
"The Clinton Foundation and the Obama Administration presented to the public a false narrative, namely that when Hillary became Secretary of State, the Clinton Foundation had to guard against conflicts of interest," Ortel explained in a second report he made available to WND exclusively before publication.
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Ortel says the public record appears to confirm that the Clinton Foundation's various components were reported as one consolidated entity to the IRS, despite the foundation's claim that appropriate changes were made when Hillary Clinton became secretary of state.
The Clinton Foundation explained that when Hillary joined the Obama Cabinet, the foundation closed the Clinton Health Access Initiative Inc., known also as CHAI, which had been operating as a program of the Clinton Health Foundation. CHAI was then re-opened it as a separate organization responsible for filing its own IRS tax Form 990, which discloses financial information to the public.
The reorganization, Ortel says, was an opportunity for the Clintons to transition from the financial statements of what he calls "Old CHAI," ending Dec. 31, 2009, into the financials of the 'New CHAI,' beginning Jan. 1, 2010.
Analyzing all available financial statements for the Clinton Foundation and CHAI in the transition, including cash flow statements, Ortel has determined that approximately $17 million disappeared from CHAI.
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WND reported Thursday Ortel has concluded that while Hillary Clinton was appointed to the board of directors of the Clinton Foundation in 2013, after she had resigned as secretary of state, she is complicit in what he has described as systematic financial fraud warranting a criminal investigation. WND reported Wednesday that Ortel found the Clinton Foundation's explanation for why it was divided into three, legally separate tax-exempt organizations to be "misleading and false." As WND reported Tuesday, based on Ortel's findings, a prominent lawyer and a top government watchdog in the nation’s capital are calling for the Clinton Foundation to be shut down. In his first report, Ortel found what he characterizes as an elaborate system devised by the Clintons to enrich themselves through schemes such as skimming tens of millions of dollars from U.N. levies imposed on airline travelers.
Ortel's detective work required him to examine financial statements not just for the Clinton Foundation and CHAI at the beginning and end of the relevant years, 2009 and 2010, but also to evaluate cash flow statements that document the financial position of the Clinton Foundation and CHAI during each year.
In reality, Ortel alleges, Old CHAI had never been validly constituted as a tax-exempt organization, "even though it was used for years as a leaky conduit where foreign governments, major donors, and the general public directed hundreds of millions towards seemingly worthwhile causes, that instead were diverted and fraudulently mismanaged."
Ortel further alleges that from July 2002, when the Clinton Foundation formed Old CHAI through March 2010 when New CHAI was formally authorized by the IRS as a tax-exempt organization, "large sums of money went missing – facts that emerge from close review of publicly available filings made by the Clinton Foundation, and theoretically overseen by executives and directors."
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Ortel points out that state and federal law put the burden of proof on the Clintons to prove the $17 million was not diverted in a fraud designed to financially benefit the Clintons and their close associates.
In this regard, Ortel's investigation differs from the Peter Schweizer's investigation of the Clinton Foundation, reported in his bestselling book "Clinton Cash." The crime of bribery that Schweizer alleges places the legal burden of proof on the accuser, not on the Clintons. If the Clintons should face a charge of bribery in a criminal proceeding, they would be presumed innocent until proven guilty.
In numerous interviews, Schweizer has admitted that without access to documentation of the Clintons' thinking and actions related to various foreign contributions to the Clinton Foundation and its subgroups, such as Hillary Clinton's State Department emails, he lacks proof of a quid pro quo.
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Instead of bribery, Ortel is accusing the Clintons of "inurement," an offense that is defined at law as using a charity for personal financial benefit or for the material financial benefit of close associates, including those managing the charity, working at the charity, or affiliated with the charity in some other way, such as being a member of the charity's board of directors.
When it comes to inurement allegations, the burden of proof shifts.
State and federal law requires regulators to shut down the organization and typically fire the board of directors. The charity is thrown into receivership once accusers demonstrate a pattern of financial mismanagement that suggests it is being fraudulently operated to commit the crime of inurement.
The financial mismanagement may be as simple as missing important dates for financial information to be officially filed with government authorities or irregularities in audit information.
The disappearance of $17 million, Ortel argues, is reason enough for regulators to shut a foundation down and to throw it into receivership.
He states in his report: "On the specific date between December 31, 2009 and January 1, 2010, approximately $17 million appears to have been diverted out of Old CHAI at a time when New CHAI allegedly had not yet opened a bank account and before New CHAI received its state and federal authorization to operate as a tax-exempt entity, a event that appears to have occurred in March 2010, when New CHAI appears to have received an IRS tax-exempt authorization letter."
Ortel said it's only one of the "several instances where I believe we can document that substantial sums of money, measured in the millions and tens of millions of dollars, were diverted."
"The crime," he said, "is an untold number of donors in the United States and around the world, typically giving relatively small sums, placed the money they gifted to the Clinton Foundation into the fiduciary care of the Clintons, only to have their charitable donations be diverted from the charitable purpose for which the funds were given."
He said the pattern in the $17 million that went missing in the transition from the Old CHAI to the New CHAI "seems consistent with the assumption the Clintons were operating the Clinton Foundation and its subgroups in a fraudulent manner in order to mask inurement, the diversion of the funds to the personal benefit of themselves and their associates."
The IRS defines "inurement" in strict terms: "A section 501(c)(3) 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 the net earnings of a section 501(c)(3) organization 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."
"[IRS] Regulation 1.501(c)(3)-1(d)(1)(ii) states that an organization is not organized or operated exclusively for exempt purposes unless it serves a public rather than a private interest," reads an IRS memorandum titled "Overview of Inurement/Private Benefit Issues in IRC 501(c)3."
"The regulation places the burden of proof on the organization to demonstrate that it is not organized or operated for the benefit of private interests such as designated individuals, the creator or his family, shareholders of the organization, or persons controlled directly or indirectly by such private interests," the IRS memo continues. "The statement that an organization must serve a public rather than a private purpose is a basic tenet of the law of charity."
As WND reported, 2010 was a key year in the history of the Clinton Foundation, as the Clinton Health Access Initiative Inc., the largest single part of the Clinton Foundation, was separated into a new entity when Hillary Clinton was appointed secretary of state.
For purposes of analysis, Ortel termed "Old CHAI" the corporate structure of the Clinton Health Access Initiative, Inc., prior to 2010, and "New CHAI" to refer to the Clinton Health Access Initiative Inc. in the period 2010 through 2013.
Ortel noted that by Aug. 31, 2011, the accounting firm BKD prepared financial statements for New CHAI for 2010 that have been portrayed as independently audited financial information, free from material misstatements and not omitting material facts.
Yet, Ortel noted, the Statement of Financial Position for New CHAI as of Dec. 31, 2010 deliberately omits presentation of the opening Statement of Financial Position as of Jan. 1, 2010.
Ortel further noted that although BKD omitted to create an opening balance sheet for New CHAI, BKD did provide a balance sheet for Dec. 31, 2010, a statement of activities for 2010, and a cash flow statement for 2010. From these available pubic documents, Ortel was able to derive an opening balance sheet for New CHAI as of Jan. 1, 2010.
Ortel concludes, "We were also able to discern that $16.9 million in cash within Old CHAI was removed from its balance sheet as of 31 December 2009, before the opening balance sheet for new CHAI was struck as of 1 January 2010."
An elaborate criminal scheme?
Focusing on the transition from Old CHAI to New CHAI, Ortel alleges the officers and board of directors ran the Clinton Foundation as "an elaborate criminal scheme" aimed at enriching the Clintons and their close associates, accomplished by failing to file independently audited financial reports as required, filing instead inaccurate, incomplete and intentionally deceptive financial statements.
"Unlike individual taxpayers who stand a small chance of being audited by the IRS after they volunteer information concerning their income and expenses on relevant tax forms, all public charities of the size the Clinton Foundation has been since its original authorization as a tax-exempt organization must procure an independent audit of their financial statements by a competent and empowered firm of accounting professionals who have access to all relevant supporting details and independently confirm material amounts directly with third parties," Ortel argues in his second report on the Clinton Foundation.
"After this extensive confirmatory work is completed in all relevant domestic and foreign jurisdictions, an independent audit must be attached to the tax-exempt organization's IRS filing, as elements of the IRS Form 990 and supporting schedules call for reconciliation of numerous financial figures with information contained in the independent audit, prepared by certified accounting professionals," he stresses.
Ortel based his second report on the Clinton Foundation on the understanding that directors, executives and employees for any kind of enterprise bear a public responsibility to ensure in delivering financial reports that reliable control systems are in place and functioning effectively. Otherwise, there is no reasonable assurance reported financial statements are accurate or that the reported measures supposedly used in audits designed to assess performance are valid.
"For activities such as the Clinton Foundation, including the Clinton Global Initiative and the Clinton Health Access Initiative, Inc., having effective internal financial controls in place should have been a top priority, to the board of directors as well as the Clintons themselves," Ortel wrote.
Instead, his analysis "reveals that the crucial control function required for responsible financial management was neutered, perhaps by devious design."
Ortel further argued that without effective financial controls in place and responsible operations, the revenues reported by the Clinton Foundation as a whole, as well as its various components, such as CGI and CHAI, are likely to be recorded incorrectly, missed or diverted.
'Scheme to mask inurement'
In his second report on the financial management of the Clinton Foundation Report, Ortel argued the Clintons used the organization of the Clinton Foundation and its various subcomponent "initiatives" to manipulate financial statements in "audit reviews" to cover up a criminal inurement scheme aimed at adding tens of millions of dollars Bill's and Hillary's net worth after they left the White House.
Ortel charges the irregularities, inconsistencies, errors, and other omissions he has documented in operational management and financial reporting of the Clinton Foundations in general and the Clinton Health Access Initiative, Inc., CHAI, in particular, uncovers how the Clintons played "an elaborate shell game," manipulating the largest constituent element of the Clinton Foundation for personal gain.
Ortel buttressed his conclusion with a detailed analysis of the Clinton Foundation financial regulatory reporting in the years 2009-2011, as Old CHAI morphed into New CHAI.
"Absent effective controls, it should not be surprising the Clinton administration's financial reporting of direct and indirect program expenditures, fund-raising charges, and overheads have been repeatedly misallocated, misstated, and misreported since inception," Ortel reports.
He warns law enforcement authorities and the charitable-giving public in the United States and worldwide that the Clintons' pattern of mismanaging and improperly reporting the Clinton Foundation was conducted since inception "most likely with fraudulent intent, designed almost certainly to result in a systematic pattern of inurement to the personal benefit of the Clintons and their close associates in direct contravention of the core state and federal laws upon which the theory of tax-exempt charitable giving depends."
Clinton Foundation financial reporting: 2009
In the Clinton Foundation Annual Report for 2009 on page 50, a financial summary shows the Clinton Health Access Initiative, CHAI, was the single largest portion of the charity. Its stated program service expenses of $173.4 million constituted 73.5 percent of total expenses, stated as $235.8 million. The next largest program was the Clinton Global Initiative, with just $13.2 million in stated expenses, or 5.6 percent of total expenses.
Reconstructing combined statements from the information about the Clinton Foundation for 2009 found on the New York State Charities Bureau website, Ortel confirmed that CHAI in 2009 was the single largest program operated by the Clinton Foundation that year.
Yet, the financial statements Clinton Foundation created for 2009 apparently did not fully consolidate all entities involved in its activities worldwide.
"Rather than provide a clear and thorough understanding to the public of its financial performance, the Clinton Foundation presented and still presents a muddled view of its financial results during 2009 that never was independently vetted by professional accountants and outside experts," Ortel wrote.
"Meanwhile, the Clinton Foundation passes off the deceptive work of BKD LLP, a Little Rock-based accounting firm, that itself is ill-equipped to serve its required function, as a legally mandated independent auditor of the Clinton Foundation's entire, far-flung operations."
While the 2009 Clinton Foundation financial statements were reviewed by BKD, Ortel argues it is unclear whether the Clinton Foundation officers and board of directors limited BKD's mandate to performing a review. Nor is it clear how intensively auditors from BKD may have attempted to inform themselves concerning the nature and extent of the Clinton Foundation.
"The BKD audits on the Clinton Foundation website appear to be 'audit reviews,' limited to examining financial records provided to BKD by the foundation's officers and directors," Ortel explained to WND.
"There is no indication the Clinton Foundation hired an independent auditor to go back to original receipt and expense records and validate the financial statements the officers and the board of directors presented to the charitable-giving public in the United States and around the world as a accurate and complete record of the foundation's financial record."
Furthermore, Ortel notes, the Combining Statement of Activities for 2009 and the Combining Statement of Financial Position at 31 December 2009 are referenced in the table of contents to the Financial Report for 2009. But both are omitted from the package of financial information included in the report that the Clinton Foundation website purports to be the complete financial report for the foundation.
"This omission is material, and the question of whether the omission is deliberate deserves close scrutiny by legal authorities and by the general public," Ortel argues.
Ortel, a frequent guest on television and radio and a contributor to publications such as the Washington Times, began his Wall Street career in 1980 with Dillon, Read, & Co., followed by the Bridgeford Groupand the Chart Group.