The governance of a Minnesota nonprofit serving service members has been overhauled after it funneled contributions to insider-owned businesses and amassed $700,000 in debt to its founder.
Minnesota Attorney General Keith Ellison announced that his office has replaced the leadership and overhauled the governance of the BFW Institute of Education & Research (BFW), also known as Pain Free Patriots, in a settlement agreement recently filed in Ramsey County District Court.
“Nonprofits that serve our military service members are entrusted with not only charitable dollars but the public’s trust and commitment to do the right thing. Any nonprofit’s money should be used exclusively to further its charitable mission, and not to line the pockets of its insiders while doing so,” Ellison said in a release.
BFW allegedly violated Minnesota law when its leadership directed that its charitable grantees seek pain relief only at insider-owned businesses, made grants of more than $2 million to those insider-owned entities over a period of four years, and turned a blind eye to hundreds of thousands of dollars in debt that its founder, Douglas V. Huseby, directed BFW to take from and make payable to him and his affiliated entities.
“Under its prior leadership, BFW breached its duties and that public trust by letting conflicts of interest run rampant, and its board of directors failed to recognize and prevent these abuses from occurring,” added Ellison. “I am optimistic about BFW’s future under its new leadership, however, and thank them for working with our office to put controls in place to protect the organization and its charitable mission going forward.”
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BFW issues grants for pain-relief care to veterans, first responders, law enforcement personnel, and their family members. The court order that Ellison’s office filed alleges that, under prior leadership, BFW approved only its related pain-relief provider, Ultimate Wellness Center (UWC) for grantees to seek care.
BFW’s relationship with UWC — which is wholly owned by Huseby — had never been competitively evaluated, appropriately documented, or negotiated at arm’s length.
BFW’s structural issues also contributed to unchecked conflicted decision-making. These conflicts took several forms, including:
- Four of BFW’s five directors had a financial interest in or were otherwise affiliated with UWC or in the two entities subcontracted to provide patient care at the clinic.
- None of BFW’s approved provider relationships, financial transactions, or other conflicted director arrangements were disclosed to or discussed by the board of directors when it entered into transactions, renewed agreements, or elected directors to the board.
- Only one of BFW’s board members signed required annual statements disclosing potential conflicts.
- BFW gave its founder and its treasurer the authority to borrow money on behalf of the corporation and did not require the board to approve loans — even those taken from BFW’s founder.
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That led BFW to become heavily indebted to its founder and his related entities. BFW started borrowing money from Huseby and his businesses as far back as FYE 2012 when it owed $88,000. As of FYE 2020, BFW owed $712,000 to Huseby individually and $1,000 to one of his businesses, the release states.
“Those loans were not board-approved, had no written agreement, and some were not disclosed on BFW’s tax returns as insider loans,” the release continues.
The loans were ostensibly taken out to fund veteran care, but grantee checks were to be redeemed only at insiders’ for-profit care providers. From 2016 through 2019, BFW made $2,020,607 in grants for care that were to be redeemed at those insider-owned providers.
BFW has agreed to secure the wholesale replacement of its board of directors and officers, including Huseby’s permanent separation from the organization. The new BFW board will also undertake formal reviews of the debts owed to Huseby and determine all claims and remedies BFW may have arising out of the allegations.
BFW will also implement a series of governance reviews and changes, including adopting a written policy requiring competitive arm’s-length bidding for services and take other steps to prevent these same types of abuses from happening again.
Reach Julia LeDoux at Julia@connectingvets.com.
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