Nonprofit that Collapsed Amid Scandal Sues Accounting Firm

A San Francisco nonprofit that went out of business after failing to account for $19 million in donations is suing its auditor.

The suit, filed by PipeVine's court-appointed receiver, seeks unspecified damages as a "result of the acts, omissions and breach of duty by defendant Grant Thornton,” according to the San Francisco Business Times. The complaint go on to say that "in its oral and/or written reports or statements, defendant Grant Thornton made untrue and/or misleadingly incomplete representations or failed to state material facts."

PipeVine was a spinoff organization of United Way of the Bay Area, which was audited by Grant Thornton. It became a stand-alone organization in 2000 and annually processed more than $100 million in donations. It closed operations in 2003 after it was discovered that some donations directed to charities actually went to PipeVine's day-to-day operations.

Grant Thornton, in an e-mail to the San Francisco Business Times, said the suit “is without merit and will be vigorously fought.” The firm argues that it recommended that PipeVine's management investigate the fact that PipeVine was overspending donations collected for charities. That was in January 2003. The firm later suspended audit work after meeting with the board of directors.

While PipeVine is the plaintiff in this particular lawsuit, it faces massive legal problems of its own. Because PipeVine did not have unemployment insurance, the state of California has issued a claim for the amount the state will have paid former PipeVine employees since the nonprofit closed two years ago.

PipeVine also owes charities at least $8.3 million. United Way of the Bay Area has agreed to pay $3.45 million to the receiver for an agreement that he would not pursue any claims against it. The charity also agreed to let other nonprofits to collect funds first, subordinating its own $3.5 million claim against PipeVine.

"This is an unusual case. Everybody involved in it agrees it's unusual," receiver David Bradlow said. "You have an entity processing literally hundreds of millions of dollars of employee donations to charities, and not all of it was sent to the charities that were supposed to get it."

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