Facts

ZeroDivide is a San Francisco-based nonprofit public benefit corporation registered in California that ceased operations in 2016 due to financial insolvency and focused on bringing technology to low-income communities. The company operated two primary programs: the Digital Bridge and the Renaissance Journalism Center. The Digital Bridge program provided technical assistance and capacity building to other nonprofits and public entities, like libraries, to upgrade their technological infrastructure. Meanwhile, the Renassiance Journalism Center advanced equity in reporting of news stories by journalists. In California, the Attorney General has primary responsibility for supervising charities, charitable trustees, professional fundraisers, and others who solicit charitable donations. Charities are required to register and file annual financial reports with the Attorney General's Registry of Charitable Trusts. On April 5, 2022, the People by and through Rob Bonta, the California Attorney General, filed a lawsuit against ZeroDivide and ZeroDivide's directors and officers, alleging violations of California's charitable trust laws, including the Supervision of Trustees and Fundraisers for Charitable Purposes Act, the Nonprofit Public Benefit Corporation Law, and the Charitable Solicitations Law. The People sought damages from the directors and officers and penalties for the violations of the law. The next day, the parties entered into a written agreement to resolve the lawsuit.

PLAINTIFFS' CONTENTIONS: Plaintiffs alleged that between 2014 and 2016 the California Endowment, California Wellness Foundation, Ford Foundation, Vesper Society, Whitman Institute, and Wyncote Foundation provided restricted donations to fund defendants' programs. Plaintiffs also maintained that unbeknownst to donors, defendants misspent approximately $606,000 in restricted donations meant to fund its charitable programs and instead utilized these donations to cover salaries and benefits for employees who did not work on those programs or to fund other programs. Moreover, defendants' board of directors were aware of the misconduct but failed to prevent it. Finally, plaintiffs argued that defendants failed to file the required annual reports with the Attorney General's Registry of Charitable Trusts and failed to maintain adequate financial records in violation of California charity laws.

DEFENDANTS' CONTENTIONS: Defendants denied all allegations in the complaint except those necessary to establish jurisdiction. Defendants maintained that the settlement does not constitute evidence of an admission of fault or liability by them.

Result

Defendants are liable for a $326,008 payment to Community Initiatives, the fiscal sponsor of ZeroDivide's former program, the Renaissance Journalism Center; $30,000 in penalties; $100,000 in attorney's fees; and $8,525 in late filing fees. Further, defendants Guillermo, Edwards, Murchinson, Iwataki, and Quan shall wind up and dissolve ZeroDivide no later than sixty days after the judgment is entered. Finally, defendants Guillermo and Veneziano are enjoined from acting as a director or officer of any nonprofit or charitable organization in California for three years following the judgment.

Other Information

Counsel for Tessie Guillermo gave the following statement: ZeroDivide was an honorable and game-changing philanthropic leader, ahead of its time, that benefitted countless vulnerable individuals and communities through its work and support to create equity and narrow the digital divide for the underserved. This case highlights the dilemma not-for-profit organizations can face from a scarcity of unrestricted funding, i.e., when precisely to abandon both the fundraising and the mission. The Attorney General's answer and legal theory remain untested given this settlement. The defendants stand by their unequivocal denial of the allegations in the complaint. Also, Tessie Guillermo had retired as CEO nearly a year prior to the end of ZeroDivide's operations. Even so, the defendants collectively agreed to settle the matter rather than undergo the expense and disruption of litigation.