The $1 Million Embezzlement at ACORN

Prominent voices on the left are divided over how to address the unfolding scandal at ACORN, the nationwide community organizing, housing and voter registration group.


This scandal is not the one that concerns fraudulent voter registrations by ACORN workers. And it’s not the scandal concerning the Bush Administration’s agreement to allow taxpayer money for the Fannie/Mae Freddie Mac bailout to go to ACORN housing nonprofits. This is the scandal concerning the embezzlement of almost $1 million by ACORN’s financial officer, the cover-up engineered by his brother, who is ACORN’s founder and longtime leader, and the reaction of ACORN’s supporters in the community of community organizers.


ACORN is suffering from the fall-out created by the discovery that Wade Rathke, its founder and long-time leader (1970-2008), failed to notify police when he discovered in 2000 that his brother Dale, ACORN’s chief financial officer, had embezzled $948,000 from the group. Instead, Wade Rathke allowed his brother to leave the payroll of Citizens Consulting, the ACORN affiliate that handles its financial affairs, and go to work as his $38,000 a year “assistant” at ACORN headquarters. Prior to making this decision Rathke discussed the embezzlement with some of the organizers who comprise ACORN’s senior management, but he did not inform ACORN’s 51-member board of trustees.


The Rathke family signed a restitution agreement in which they promised to repay the amount stolen at the rate of $30,000 per year. They have repaid $270,000. In return ACORN promised to keep quiet about what was called a “misappropriation.” Dale Rathke remained an ACORN employee until May 2008 when a whistleblower caused the uproar that led to his firing and his brother’s resignation.


ACORN is organized to discourage easy scrutiny. Dissidents note that although Wade Rathke resigned from ACORN, he retains his position as “chief organizer” at ACORN International LLC, a private company with overseas offices. ACORN’s local chapters are not independent nonprofits, but some ACORN housing corporations are tax-exempt 501(c)(3) public charities, which allows them to get federal grants, and other ACORN-related groups are 501(c)(4) advocacy groups. ACORN itself is incorporated as a nonprofit, but not a 501(c)(3), hence not subject to IRS oversight.


After interviewing over a dozen insiders, veteran philanthropy watcher Pablo Eisenberg writes in the Chronicle of Philanthropy (October 2) [subscription required] that the scandal illustrates what he considers failings characteristic of nonprofits. For instance, Wade Rathke was a charismatic leader who set the ACORN agenda. He made sure that ACORN headquarters controlled the actions of its network of 103 affiliates in 38 states, which did not have independent charity status. He also made sure that ACORN’s board and senior staff always dealt with him and not with each other. Eisenberg is a former director of the Center for Community Change, one of the first community organizing groups, so the absence of democratic decision-making at ACORN must be particularly discomforting to him.


Eisenberg reports that Rathke’s close friend Drummond Pike has given ACORN $738,000 to pay off the restitution money still owed by Rathke. Pike is president of the Tides Foundation in San Francisco. Wade Rathke used to be listed as a member of the Tides board of trustees but his name no longer appears on its website.


On his blog, Drummond Pike recounts the phone interview he had with Eisenberg. Pike was disappointed that Eisenberg kept asking him questions about how to reform ACORN’s management and organization, making it more transparent and accountable. Pike noted that ACORN is not a tax-exempt charity and so doesn’t have to follow IRS rules. He writes:


“ACORN is about building power. Power comes from scale, strategy, and accountability. If 38 different state ACORN’s hired their own organizers, how in the world would one develop accountability? How could you hold to a national strategic plan on issues if you had to convince 38 different boards and the staffs they had hired to participate? And then, as every funder knows, the fights over resources would be legion.

To turn the question on its head, why can’t an organization of low income people achieve scale, have an effective national office that holds all threads accountable, and drive a single strategic agenda? Why can’t an ACORN have a Chief Organizer with significant authority to manage the near 1000 person staff working for the members?”


As for Rathke’s cover-up, Pike thinks he did the right thing.


“Wade did nothing wrong. When faced with a choice between public prosecution and likely bankruptcy or the private restitution deal, ACORN’s leadership chose the latter. Did Wade support this to simply protect his brother? I argue no. If the survival of the organization was not also at stake, I do not believe they would have decided what they did.”


(This entry can no longer be found on Pike’s blog, “Notes from the Left Coast,” but it is contained in the Aug. 19, 2008 entry for Rathke’s blog, “Chief Organizer.”)


Rick Cohen, former head of the leftist National Committee for Responsible Philanthropy, laments the turn of events at ACORN on his blog, “The Cohen Report,” (July 25). But what is most remarkable are the 37 comments from former ACORN organizers and others familiar with the group that the blog provoked.


The commenters agree that Wade Rathke has “founder’s syndrome,” a condition that combines dynamic leadership, blindness and obstinacy. In other words, he’s a control freak, and a corrupt one to boot. Some suggest that ACORN was ripe for embezzlement, noting the complex maze of its affiliates—all located at 1024 Elysian Fields Ave. in New Orleans, which is also the address for SEIU Local 100, where Rathke continues to hold the title “Chief Organizer.”


Cohen, like Eisenberg, makes a point of calling for greater ACORN board oversight to provide transparency and accountability. His correspondents credit his good intentions but many seemed to consider him hopelessly naive about the way things really work at ACORN.


It’s reported today that several ACORN board members are suing the organization to gain access to its records, but other board members continue to defend Rathke, claiming he did nothing wrong.



Tags:  ACORN

Robert Huberty

Robert Huberty served as vice president of the Capital Research Center.
+ More by Robert Huberty

Support Capital Research Center's award-winning journalism

Donate today to assist in promoting the principles of individual liberty in America.

Read Next