Affirmative-Action Foe Is Facing Allegations of Financial Misdeeds

By CHARLIE SAVAGE, The New York Times, January 17, 2012

WASHINGTON — Ward Connerly, the black businessman who has been the face of the movement to end affirmative action for nearly two decades, is facing accusations from a prominent former ally that he has mismanaged — and exploited for his own benefit — donations to that cause made by fellow conservatives.

Moreover, a group Mr. Connerly founded to advance government policies that are race and gender neutral, the Sacramento-based American Civil Rights Institute, is under investigation by the Internal Revenue Service and by the attorney general of California, according to documents and interviews.

Mr. Connerly has faced accusations of profiteering before, as supporters of affirmative action highlighted his salary in an effort to discredit his cause. But this time, the allegations are more detailed and come from another significant movement figure: Jennifer Gratz, the named plaintiff in a landmark 2003 Supreme Court case that struck down a race-based admissions policy at the University of Michigan.

After she won that case, Mr. Connerly hired Ms. Gratz to conduct research and run campaigns supporting anti-affirmative action ballot initiatives. She resigned last September and, through her lawyer, sent the group’s board a five-page letter, a copy of which was obtained by The New York Times.

“For years, Ms. Gratz was aware of the allegations that Mr. Connerly received excessive compensation,” it said. “She presumed that the issue was politically motivated and raised solely by opponents of the organization’s mission. It has come to her attention, however, that there may be some merit to the allegations of financial impropriety.”

Interviewed by phone and e-mail, Mr. Connerly, 72, acknowledged that his group had had financial difficulties, but said its board had not responded to the letter because “90 percent” of it was false. He portrayed Ms. Gratz as a “disgruntled former employee” trying to “besmirch me personally” because she wanted to replace him.

The letter was written by Ms. Gratz’s lawyer, Robert N. Driscoll, a former deputy assistant attorney general for civil rights in the administration of George W. Bush. In a statement, through him, she said: “I thought it was important to make sure all board members were aware of what was going on even if doing so was unfortunate, sad and uncomfortable and even though it meant that I had to resign from a position within a cause that I will always hold near and dear.”

The dispute is alarming allies.

“I’m sorry to hear this because I’m a great admirer of both of them,” said Roger Clegg, the president of the Center for Equal Opportunity, which also opposes affirmative action. “She is a courageous, smart person — and Ward is also a courageous, smart person.”

A businessman and a former University of California regent, Mr. Connerly rose to fame in 1996 as the backer of a successful ballot initiative barring public institutions in California from taking race or gender into account. He later founded the institute and a related advocacy group and continued to call for “colorblind government” in matters like contracting and college admissions.

Ms. Gratz’s letter alleges a series of financial irregularities, starting with Mr. Connerly’s pay.

Late last summer, the institute belatedly filed disclosure forms for tax years ending in June 2008, 2009, and 2010. (The I.R.S. that summer had revoked the tax-exempt status of its related advocacy group for failing to file such forms.) They showed that his annual pay was between $1.2 million and $1.5 million each year — more than half its revenue.

Because charitable donations are tax deductible, according to I.R.S. rules no employee may get excessive compensation. Two other nonprofit groups opposing affirmative action, the Center for Equal Opportunity and the Center for Individual Rights, pay their leaders about $144,000 and $250,000, respectively.

Mr. Connerly said that “every penny which I receive is directly related to our mission,” and that he used some of his salary to pay others for research and legal work. He also said the group had reduced his pay to $850,000.

One reason Mr. Connerly has been a particularly effective advocate is that he is black. Mr. Clegg said there were “few people who can do or would do what he does,” adding that it is hard to set a salary on a job that requires enduring racially charged name-calling from fellow blacks.

A major financial supporter is the Lynde and Harry Bradley Foundation. Its president, Michael W. Grebe, said he was “very comfortable” that its donations to Mr. Connerly’s group were “being spent for public education programs.”

“He’s very effective,” Mr. Grebe said.

Ms. Gratz’s letter contends that the group has been “in financial crisis since March 2010” in part because of Mr. Connerly’s salary and legal fees related to the tax investigations, and has “ceased almost entirely” doing projects furthering its mission since June 2011.

Her letter also says the group has had trouble making payroll and “knowingly” under-reported what it paid employees on payroll tax forms — “irregularities” that “partly result from disruptions in revenue” but that “also appear to be designed to facilitate Mr. Connerly’s high salary.”

Mr. Connerly denied such allegations as “speculation and conjecture,” saying Ms. Gratz was not privy to administrative details. He also said educational activities by him and his group were “instrumental” in passing an anti-affirmative action initiative in Arizona in November 2010, and in laying the groundwork for a vote on a similar measure in Oklahoma set for fall 2012.

Ms. Gratz’s letter said five of the group’s eight employees “are family members” or have “personal or nonprofessional relationships with Mr. Connerly,” and raised questions about its “contracts for services and leases.”

For example, the letter said, the group contracted with a former longtime employee of Mr. Connerly’s profit-making firm to create a report on Oklahoma, for up to 120 hours at $60 an hour; it “consisted mainly of printouts from Wikipedia.”

While the letter did not explain its reference to “leases,” the group’s recent tax filings show that its rent tripled, to just under $70,000, after it moved to a different building about four years ago. Records show a group employee purchased the building in February 2008 for about $444,000.

Mr. Connerly said hiring people he knew was appropriate, given his group’s “controversial” mission. He also said he had instructed the employee to find new offices because they needed more room, and he approved the arrangement she had made.

Despite his salary, Mr. Connerly acknowledged that he had had financial difficulties; public records show that in 2010 and 2011, several hundred thousand dollars in liens for unpaid taxes were leveled against him. He said he was working on paying what he owed. In addition, a disclosure form filed with the IRS says the institute discovered last year that Mr. Connerly had submitted “unsubstantiated” business expenses from his credit card and cellphone bills. He had paid back $10,000 as of September, but still owed about $24,000.

Ms. Gratz was once Mr. Connerly’s defender. In 2008, when anti-affirmative action initiatives were on the ballot in Colorado and Nebraska, a liberal group ran ads portraying him as supporting such measures so he could pocket “nonprofit slush funds.”

Ms. Gratz made a video denouncing the ads as character assassination. But, her letter said, she subsequently realized that Mr. Connerly’s group had “not been adequate stewards of the resources the donors entrusted to the organization,” adding that she “will cooperate with any government investigation.”

Kitty Bennett contributed research.