Tuesday, June 21, 2016

Skrocki’s Script

"How to squander $52m of charitable money in 6 months" by Sacha Pfeiffer Globe Staff  May 23, 2016

This may set a record for most belated Spotlight follow-up story ever.

An e-mail recently landed in my inbox from a surprise correspondent: a federal prosecutor in Anchorage.

“Ms. Pfeiffer,” began the message from Assistant US Attorney Steven E. Skrocki of the Department of Justice, “a long time ago you authored a Spotlight piece on inheriting trustee seat positions.”

He was referring to a 2003 Boston Globe Spotlight Team story I wrote about an insidious yet common practice at private foundations, which are tax-exempt funds set up to support charitable causes. Foundation trustee jobs, as I reported, are routinely handed down from relative to relative, even though those heirs may have no family ties to the wealthy founders.

And trustees are often highly paid for little work.

One of those well-compensated hand-me-down trustees was Mark J. Avery, then 44 years old, who inherited the position when his father died. Avery’s job at the $350 million May and Stanley Smith Charitable Trust and $150 million May Smith Trust paid a handsome $600,000 a year. On top of that, he billed the San Francisco-based trusts for legal work by his law firm.

When I called Avery to inquire about his compensation, this was his reply: “I get sick and tired of people wondering about how much I get paid and why.”

Back to that e-mail. “We’ve never forgotten the piece you did back then, nor Mr. Avery’s quote,” Skrocki wrote, “and [we] thought you may appreciate the end result so many years after your article.”

Then Skrocki told me this made-for-Hollywood story: In March, an Anchorage jury convicted Avery of numerous counts of fraud and money laundering, and on Monday he was sentenced to 13 years in prison. His crime? Burning through $52 million of May Smith Trust money in six months, the biggest private fraud case in Alaskan history. The trust was intended to support an elderly widow and go to charity after she died.

Avery’s blizzard of spending in 2005 included purchasing an air charter company (despite having no background in aviation), Gulfstream executive jets, World War II military aircraft, Czech fighter planes, helicopters, rocket launchers, a patrol boat, and a yacht. He also paid off more than $600,000 in personal debt and bought a $700,000 home.

In the small town of Anchorage, it was an unusual orgy of spending that quickly drew the attention of the FBI, IRS, and other law enforcement officials. One of them was Skrocki, who questioned the source of Avery’s funds — and became even more suspicious after reading my Globe story.

“We started Googling him,” he told me, “came upon your article, and thought: Maybe this is where he’s getting the money.”

Skrocki and others launched a federal investigation in 2005, and discovered that Avery had persuaded his two fellow trustees — now dead, but at the time in their 70s and “medically challenged” — to “loan” him $52 million in Smith funds. Avery told them he planned to use the money to start an aviation company that would be used for trustee travel, according to court documents.

Instead, he went wild, making extravagant purchases that prosecutors said “did nothing” to benefit the trusts. Within months, the company was crumbling, Avery was on the cusp of bankruptcy, and the $52 million was gone.

At trial this February, Avery claimed he was simply an ambitious entrepreneur bamboozled by an untrustworthy business partner. The aircraft, he said, were meant to be used for legitimate money-making ventures, including training the Philippine Air Force and conducting US security details in Africa....