Attorney general finds MOCA broke laws, imposes light 'corrective actions'
The Museum of Contemporary Art didn’t just spend itself into a financial crisis -- it broke state laws while doing it, an investigation by the California attorney general’s office has determined.
As a consequence, MOCA was ordered to take two “required corrective actions” -- hiring a consultant to help it come up with newer and better financial procedures, and special training for all museum board members “to ensure that they fully understand their fiduciary duties.”
The museum has complied, says Charles Young, the former UCLA chancellor who was brought in as chief executive to begin cleaning up the financial mess after philanthropist Eli Broad saved MOCA’s bacon in December 2008. Broad pledged $30 million when the museum’s reserves were virtually tapped out.
Belinda Johns, who heads the attorney general’s charitable trusts section, reported her findings and gave MOCA its “corrective actions” medicine in a two-page letter last November. It was released to The Times by the attorney general’s office this week after repeated inquiries. Johns wrote that “unreasonably enthusiastic expectations” about revenues on the part of the museum’s management led MOCA to overspend. Because the museum depends mainly on gifts, that translates to hoped-for big donations that never materialized. Moreover, Johns wrote, the board apparently did not learn of annual deficits until it was too late to act.
Instead of reducing spending, MOCA paid some of its bills with money from endowments that donors had earmarked for other purposes, Johns found; she noted that the law requires either that nonprofits get written permission from donors before using restricted endowments in other ways, or that they obtain court orders overriding the restrictions. “The withdrawals we reviewed did not follow this standard,” Johns wrote.
Until 2009, the law also said it was OK to spend investment income generated by an endowment, but not the principal, and MOCA violated that as well, Johns found. Museum leaders went by the “theory” that they would pay back the money to the endowment later on, Johns wrote, but “there is no legal authority for withdrawals based on such a theory, and even if there were, it does not appear the board implemented such a plan in this situation.”
Through a combination of spending and investment losses, MOCA had run through all but $5 million of its investment portfolio as of December 2008, down from $38.2 million in mid-2000. The museum reports that investments totaled $14.2 million as of March 31, thanks largely to fresh donations.
MOCA’s "required corrective actions" are considerably less than what Pennsylvania’s attorney general exacted in a comparable case 10 years ago. He initiated a criminal prosecution, alleging that the chief executive of a nonprofit hospital and healthcare system improperly had spent more than $78 million of its endowment to prop up day-to-day operations while it went bankrupt. Sherif Abdelhak pleaded no contest in 2002 to a misdemeanor count of misapplication of entrusted property, and served three months in jail.
Johns’ portrayal of an uninformed MOCA board contradicts what The Times heard from some board members and former trustees as it covered the MOCA meltdown late in 2008. Rather than blundering forward unknowingly, former co-chairman Tom Unterman and others said, the museum followed a strategy of trying to spend its way out of deficits, on the theory that by keeping a high profile with attention-grabbing (and expensive) exhibitions, it could attract the high-rolling donors needed to turn things around.
But what turned up was the September 2008 global financial meltdown, which destroyed any hope that the spend-money-to-get-money plan could work. The board and the museum’s then-director, Jeremy Strick, put out an emergency plea for big donations and explored a merger with the Los Angeles County Museum of Art; eventually the board chose Broad’s bailout offer, and Strick resigned under fire.
-- Mike Boehm
Upper photo: MOCA sign. Credit: Liz O. Baylen / Los Angeles Times
Lower photo: A sidewalk scene outside MOCA on Grand Avenue. Credit: Los Angeles Times