Open Letter: The case against me
After hearing questions and feedback from residents, I offer this open letter as a document outlining the details of my settlement with the AG’s office. The format begins with an overview, FAQs, and finally detailed background for anyone interested in knowing more. If you have any questions, feel free to email me at firstname.lastname@example.org and I will reply with answers and keep a collective Q&A document to publish on my website, DougSmithOhio.com
Anyone who knows me knows I would never misuse charitable funds, and there must be more to the story than what the AG claimed. I have spent my entire life in community service (and public service) because I believe in giving back to the community and using my talents to help others.
I did not misuse charitable funds. Though I have never possessed a strong aptitude for clerical administration as a skillset, I did not break any laws or do anything unethical. I hope the following information will provide clarity to why residents can continue to trust me and why - now more than ever - I will promote fairness, integrity and thoughtfulness as a public official.
Some individuals may use the AG’s untrue claims, the subsequent mutual settlement, and this document as a political weapon against me. I invite those individuals to truly seek the truth and understand the situation.
For everyone honestly looking for answers, I thank you and invite you to continue asking questions until you are fully satisfied.
I have lived with this lawsuit for two years. I have tried to consider every possible rationale for why the AG’s office made the claims they made, and have come to my own conclusions. Some are described below.
I did nothing wrong, did not break any laws, and achieved the goals and objectives identified in the organization’s sole contract - to provide education services in Franklin County schools.
Every day for two years, my wife and I discussed the lawsuit. It has taken much time, energy and money simply to defend against the AG’s limitless resources and immunity. My reputation, finances, and mental health were strained as a result of actions outside my control.
The analogy I use for this scenario is a roof.
Imagine I want to replace a roof on my house. At my disposal I only have gray shingles to cover the bottom half of the roof and black shingles to cover the top half. The shingles have different colors and come from different manufactures. I use the tools at my disposal to replace the roof. Upon completion, from an inspection, the roof looks incorrect. Upon closer inspection, the roof works and serves its purpose. Simply using a variety of shingle options is not wrong, and it is not against the law. There is a better way to construct the roof using industry best practices, but the roof works. This concept applies to my situation.
Sharing about my personal life is generally difficult for me, but I feel a public duty to share with you the truth. So, I make myself somewhat emotionally vulnerable to you in hopes you take a moment to know my side of the story - the true story.
What was I accused of?
The AG’s charitable law section filed a lawsuit against me in April 2020 claiming I misused charitable funds, falsified nonprofit documents to the state, and intentionally thwarted fiduciary responsibilities for a charitable organization.
None of the AG’s claims were true, nor did the AG pursue this in the mutual settlement agreement.
What were the claims?
Here is the information for their claims and the reasons why their claims were no good.
The AG supported the ‘misuse of funds’ claim in two ways:
They used bank statements from my personal, business, and nonprofit accounts to aggregate the amount they claimed was received by the nonprofit account only.
They cited specific expenses as questionable without understanding most of the “questionable” expenses were organization expenses. The other cited expenses were used from my personal compensation. This was not co-mingling because no one was owed this money, except me.
Regarding the falsified document, the AG supported this by showing public documents I submitted to the AG’s charitable law office. The documents were the annual reports that I (my organization) was not required to submit because the organization did not receive any charitable funds or donations. After my organization ceased operation (see below details), the AG’s office forced me to submit the past five years of annual reports within a day - or else be penalized heavily with fees. So, I submitted the reports on the same day. I am still unsure why they claimed the reports were false. They gave no viable explanation.
Regarding the fiduciary claim, they stated I did not have an active board of trustees to provide oversight of the organization. This is false. I identified people I considered board members and used their knowledge for guidance. Since the only funding source was from a service contract, I had constant oversight from the contracting organization. I attended quarterly board meetings with plenty of oversight. Read more details below.
Why would the AG’s office claim this in a lawsuit?
The events leading up to the lawsuit are detailed below. Generally, it is important to know that I had announced I was running for Ohio House of Representatives in early 2016. Since I was running as a life-long Democrat in the GOP primary, many institutional GOP leaders did not want me to succeed. After it was known I was a candidate for Ohio House, a known politically connected individual told the AG’s charitable law office to look into my organization because I was stealing from churches.
Of course, this was not true and the AG never claimed this even after investigating it thoroughly. However, I believe they were motivated to find something and make a case out of it. So, they found some inaccurate paperwork and made a case.
In March, the AG’s office and I settled a charitable law case that was filed by the AG April 2020. The AG’s office requested a settlement mediation meeting after reviewing my motions and affidavits submitted in late Fall of 2021. The mediation meeting was hosted by the magistrate in December 2021, and a settlement in earnest was approved. The subsequent three months were simply tweaking language and providing updates to the court.
The settlement was a mutual document drafted collaboratively between the AG’s office and me (and my attorneys).
The result is I pay a $20,000 civil penalty/fine to the state. Also, I voluntarily proposed and drafted the language that permanently enjoins me from incorporating a nonprofit and holding a position where I am given explicit access to charitable finances. I offered this language to avoid any accusation in the future.
The AG’s office does claim I did anything wrong, and I admit no wrongdoing.
The court order from the judge was a formalization of the settlement agreement. It is a standard action.
What does it mean?
The settlement is not a repayment of funds, and it is not restitution of any type.
I did not break any laws and I did nothing unethical. In retrospect, there was no reason to register for 501c3 status. The organization I started - Making Healthy Relationships (MHR) - never received any charitable contributions. The organization’s sole purpose was to fulfill a contract for services. The services contracted were to be provided by me and any independent contractor I needed to pay to fulfill contract deliverables.
The contract was for $50,000 per year from January 2012 to September 2016. The contract dollars were for me to spend at my discretion as long as I achieved contract objectives and could provide invoices with supporting documents.
I successfully achieved contract objectives each year, and was paid approximately $250,000 total over the five-year contract.
The contracting organization was the Ridge Project out of Toledo. The Ridge submitted an affidavit to the court stating I achieved the contract objectives and outlined their in-depth invoice review process.
The Ridge was awarded a contract with Ohio Department of Health to administer adolescent health education to Ohio schools. I was selected by the Ridge to provide services in Franklin County while about a dozen other organizations would serve additional territories.
The education program was primarily to teach students about goal setting, life skills, risk behaviors, and identifying and avoiding bullying and unhealthy behaviors. It was an evidence-based program approved by the Obama administration.
From January 2012 until January 2014, the contract was with Healthy Choices, my private business connected to a business checking account. Some of the other contracted organizations throughout the state suggested I obtain 501c3 status so I incorporated MHR.
Starting in February 2014, the contract was with MHR, connected to a nonprofit checking account. I worked with the IRS 501c3 department to understand the requirements and understood they had access to view my accounts at any time.
The contract was for services provided and for reimbursements paid to achieve contract objectives. I paid for organizational expenses out of my personal account with my own money. Then, I submitted invoices to the Ridge for payment. Because their money flowed from the federal government, it would sometimes take months to get reimbursed.
A conceptual example, in April 2014 I paid (with my own money) independent contractors / educators to present in schools, I paid for office rent and utilities, and copies of materials. I submitted the receipts to Ridge in May and would be reimbursed in June. I also tracked the time I worked on the project and invoiced the Ridge for that amount monthly. In some months, I paid myself with my own personal money, and provided a receipt with the invoice. Other months, I simply invoiced for time spent on the contract.
Many months, I paid expenses from my own personal money and never requested reimbursement. On average I spent $10,000-$15,000 per year of my own money to achieve the contract objectives without reimbursement.
During the contract, I had annual internal audits performed by the Ridge and attended quarterly board meetings to report progress. My books/records were open at all times.
In September 2016, the contract ended successfully, and MHR stopped providing education services. No more funds were received by MHR except for funds I personally placed into the MHR account to pay the costs of bank service fees and similar expenses.
In January 2018, the AG’s charitable law section required me to attend an “Examination Under Oath,” which is similar to a deposition.
Here’s where it gets interesting.
It is important to know some details about the AG Charitable Law Section’s role and purview. They are designated by Ohio Revised Code to oversee charitable organizations that meet two criteria: 1. Must have 501c3 status, and 2. Must receive charitable contributions (typically through solicitation of funds from the general public).
Remember, MHR never received charitable funds of any type.
When the AG’s Charitable Law attorneys started questioning me about my personal expenses and showed me documents from my private business Healthy Choices, I began to get suspicious. Because I had nothing to hide, I did not object to the questions. I tried to clarify for them the nature of the contract and that the organization existed to fulfill a service contract.
Even though the MHR organization was outside their purview, and I was entitled to spend the $50,000 annual contract at my discretion to fulfill the contract, they basically told me they disagree. They did not back this up with any facts or any specific law supporting their opinion.
In December 2019, the same AG attorneys sent me an “Assurance of Discontinuance (AOD)” document requiring me to pay $55,000 or there could be further legal action. When I called the AG attorneys to explain why I owed the money and why $55,000, they responded saying, “It seemed like a good place to start.”
I immediately retained counsel and my attorney began talking to the AG attorneys about the reason for the AOD. We could not make sense of it, and they did not provide any clear reason why I owed the money, to whom I owed the money, or why that amount was selected.
Shortly after, the COVID pandemic shutdown happened and we were not able to connect with the AG’s office in any meaningful way. In April 2020, without warning, they filed the complaint against me in Common Pleas Court. They did not inform my attorney, and I found out about it from City Manager Matt Greeson, who had been informed by the AG’s office that they filed the lawsuit.
All the documents are available on the Franklin County Court docket by searching “Making Healthy” if you are interested. There are a few thousand pages of documents I provided to the AG’s office in response to their complaint proving that I fulfilled the contract, and that MHR was not a charitable organization according to the law.
The lawsuit was filed in April 2020, and the first time I was able to talk to the AG’s office was April 2021 when they finally deposed me. Prior to that, they deposed three people, including my wife. After deposing my wife in December 2020, the AG’s office assured her attorney they would dismiss my wife because she obviously had no involvement with MHR. However, they kept her in the lawsuit and did not dismiss her.
The AG office’s argument changed several times from April 2020 to April 2021, and changed again after they deposed me. As a result, they deposed me again in July 2021.
Finally, I was able to submit motions stating my position and reasons why the AG’s arguments were incorrect. My motions were submitted in October 2021 and the AG’s office immediately requested a mediation settlement meeting.
The AG’s office has unlimited resources and I do not. After spending $40,000 on my defense to the point of mediation, I offered $20,000 to be done. I am confident I would have been successful in a trial, but at what cost? We projected the trial to cost approximately $50,000. Plus, after winning in a trial, there would likely be an appeal that would cost an additional $50,000 and likely take another year or two.
Since the state has immunity, it is extremely rare that that court would impose financial reimbursement to a defendant for incurred legal fees. So, I settled.
Two things I could’ve done better.
First, I should have never obtained 501c3 status. Since MHR’s only revenue was a service contract, I did not need 501c3 status.
Second, I should’ve used best practices in accounting. Though there is no law preventing the (clerical) practice I used, it was not a best practice and I take responsibility for that. I could have made it less confusing. This is another reason I proposed the settlement language enjoining myself from having direct access to charitable funds. Charitable funds and nonprofit funds should be managed by professionals who are trained for this purpose.
Hopefully, this explanation provides some clarification to the matter. Logically, it does not make sense that I would misuse funds. I knew the IRS could view my account. I knew, as a public official, I could be held to public scrutiny. My books were open.
Why accuse me of the $135,000?
The AG’s office never clearly identified what expenses they saw as a misuse, what account(s) I made purchases from. In contrast, I provided all the bank accounts, an accounting of the cash flow and the specific uses of the $50,000 per year I was entitled to spend to achieve contract objectives.
Why did the AG’s office use Sapphire Nightclub as a questionable expense in their complaint?
They never asked me about this expense. It was a legitimate organization expense. I worked on a project developing a similar education program in Richmond, Kentucky. Sapphire Nightclub was a bar/restaurant in downtown Historic Richmond where I purchased food during my one of my organization-based trips.
Why did the AG’s office include expenses from January 2012 to January 2014, when MHR’s bank account didn’t exist until February 2014?
There was no question this timeline was out of their purview.
How did the AG’s office obtain all my bank records from my personal accounts and business account without any notification?
I understand they have authority to access my MHR account since it was a nonprofit account. Not that it matters because I have nothing to hide; but, it begs the question.
Why include my wife, and keep her in the lawsuit?
The settlement language dismissed my wife entirely. But, why didn’t they dismiss her earlier?