HGABA faced legal action by Texas AG over phony raffle
Charity does not begin in the bars
October 31, 2004
After five years of dealing with the scumbar owners, very few of us believed that the light of goodness and honesty shined down on them when they shut down their phony raffle scam earlier this month.
According to documents released this weekend by the Texas Attorney General’s office, the HGABA was given a very clear choice:
Either make some major (and unprofitable) changes in how they conducted the raffle, or face legal action that would keep the raffle from going forward.
The raffle scam was started in late August – HGABA bars were selling tickets at $10 a pop for a chance to win a used Harley Davidson motorcycle. The association just recently got its non-profit status from the IRS, although they had been raising money under suspicious circumstances for nearly five years.
The Texas Charitable Raffles Act allows certain charitable and non-profit membership organizations to generate income to support their cause.
It allows raffles for only five reasons:
(1) "Charitable purposes" means:
(A) benefitting needy or deserving persons in this state, indefinite in number, by:
- (i) enhancing their opportunities for religious or educational advancement;
- (ii) relieving them from disease, suffering, or distress;
- (iii) contributing to their physical well-being;
- (iv) assisting them in establishing themselves in life as worthy and useful citizens; or
- (v) increasing their comprehension of and devotion to the principles on which this nation was founded and enhancing their loyalty to their government
After BD starting asking questions and requesting documents (including IRS records), HGABA put in their own version of damage control, complete with lawyers and CPAs.
Hello, spinmeister. Goodbye, logic
The biggest question was, Who was supposed to get the money raised from the raffle?
There’s nothing on the ticket to explain the charitable purpose or cause that HGABA is supporting with this raffle - other than themselves.
On the back of the ticket, you read that the motorcycle being offered for raffle is for fund raising purposes to support the HGABA.
The HGABA’s lawyer would not disclose to BD whom the association planned on giving the money to or how they intend to spend it for the support of the HGABA.
Their attorney’s answers to other questions (click here to see complete letter) about the raffle seemed to be dodging the issues.
He answered questions submitted by BD while waiting 30 days on HGABA’s IRS documents to be released:
“What is the charitable purpose of the HGABA, as documented to the IRS in its application for 501(c)(6) status?”
The HGABA has no charitable purpose. Charitable organizations typically request treatment under 501(c)(3). According to the Internal Revenue Code, 501(c)(6) organizations include,
Business leagues, chambers of commerce, real estate boards, boards of trade, or professional football leagues (whether or not administering a pension fund for football players), not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.
The purpose of the HGABA is to promote business and commerce in the Lower Greenville Avenue area of Dallas, Texas. However, the HGABA, like many other non-charitable tax exempt organizations, wishes to raise money to benefit a charitable purpose. As a tax exempt organization, the HGABA qualifies to conduct a raffle subject to Chapter 2002 of the Texas Occupations Code.
“What is the charitable purpose of the HGABA Raffle?
The raffle will benefit a “charitable purpose” as defined in §2002.002 of the Texas Occupations Code concerning Charitable Raffles.
Busted, and then some…
BD’s sources say that when the idea for the raffle was originally proposed (about five minutes after someone told them he wanted to sell his motorcycle for $10,000), no one even thought about what to do with all the money.
Some HGABA folks simply believed they could sit on the cash like a chicken hatching her eggs, and then spend it as they wish whenever they wish.
The Texas AG’s office opened their investigation into the scam in early October, but by Texas- OU weekend, all the posters promoting the raffle were gone from the windows of the scumbars.
According to the letters and emails released by the Texas AG, the scumbar attorney was working hard to make the state believe his two biggest lies:
The raffle was being operated properly
The money was going to a charity other than HGABA.
These discussions continued for nearly two weeks, but by early October the AG’s office realized what we already knew:
On October 6, the AG sent a letter to the HGABA attorney, demanding an answer within 48 hours.
The letter destroyed the HGABA’s arguments, and left no doubts that the HGABA was in violation of the law.
Lie #1 – HGABA cares about the welfare of the community
The AG’s first salvo was blunt:
Based upon the information contained within your letter of September 10 [to BD], it appears that the HGABA may be in violation of the Act.
You have indicated that HGABA intends to donate the net proceeds [after paying $10,000 for the motorcycle] from the sale to a charitable organization. The statute addresses use of all proceeds for the charitable purposes of the organization.
HGABA does not have any charitable purposes.
Lie #2 – The raffle is legal, cuz the Attorney General said it was
In his letter to BD, the HGABA attorney wrote :
The HGABA and its counsel have been in contact with the Attorney General’s Office to make sure that the raffle is conducted in full compliance with state law.
The AG’s staff was not happy with that answer:
This office is aware that the HGABA made efforts to inquire about the Act before holding the raffle.
As explained, however, the Office of the Attorney General is prohibited by law from providing legal advice to individuals.
In plain words:
Lie #3 – We will give the money away
When the raffle started, the scumbars planned to just sit on the money, spending it on their advertising campaigns as they had for nearly five years.
Now they had to find someone – anyone – to take the money.
BD asked the scumbar attorney:
Answer: That was none of BD’s damn business.
He really said:
The HGABA is only required to disclose this information at the request of the IRS, State Attorney General, District Attorney or County Attorney.
BD contacted local charities who were on the short list and made them aware of what the HGABA was trying to do.
The leaders of two charities BD spoke to were very blunt:
We will not take money from this raffle or the bars. And they better not use our name to sell the raffle tickets.
The letter went further, noting that HGABA would not even tell the AG who was getting the money.
But which one??? Now the AG drops the hammer on HGABA
Consequently, although the raffle appears to be in violation of the Act, this office has determined that, in light of the above considerations, it would not be in the public’s best interest to use the resources of this office to initiate legal action to prevent the raffle from going forward on November 20, provided that HGABA agrees in writing to the following conditions:
Summary only, see full text here
- HGABA will identify the charity getting the proceeds of the raffle in writing
- Distribute those monies within five days of conducting the raffle
- Bear all costs of the raffle, including the cost of the motorcycle purchase
- Not make any misrepresentation to the public about the raffle
- Abide by the conditions of the (Charitable Raffles) Act
- Agree in writing that HGABA can never sponsor another raffle again, even if this one is approved
Hey, Don, drop your pants and take it like a man
The HGABA held a meeting of its members– all twelve of them – after realizing they were treading in deep doo-doo.
On October 12, HGABA president Don Nedler wrote to the AG’s office and put up the white flag of surrender -
After meeting with our members, HGABA has decided not to conduct the charity raffle as planned.
All members have been instructed to issue refunds.
We have the names and addresses of the purchasers on the ticket stub, retained by the sellers.
The next day, he wrote to the raffle’s coordinators –
We have canceled the charity raffle. Please return your raffle ticket books to Chicki or Bryan so the association can issue refund checks to you.
But he put the responsibility of refunding the money for tickets sold on the members, not the association -
We also need to refund the money for all tickets sold to the purchasers. The names and address are on the ticket stub.
The refunds need to include the attached letter and must be made by check.
To be safe, and protect yourself, I would suggest you return them by Registered Mail.
The refund letter did not take any responsibility for the actions of HGABA.
Due to circumstances beyond our control, we are canceling the Harley Davidson charity raffle…
Enclosed please find a check for the purchase amount of the ticket.
On behalf of HGABA, we’d like to thank you for your generosity and support.
Let BD suggest his own version of the letter -
Due to the stupidity of our association’s few members and our attorney, our motorcycle raffle scam has been canceled by order of the State of Texas.
Apparently we cannot take your money and use it to advertise our businesses, like we have been doing for five years.
And since no legitimate charities in Dallas will take the money, we have no choice but to return it to you.
We are deducting the cost of postage, the envelope, our time and gasoline from your original $10 ticket – enclosed please find a refund check for $2.50.
The Hysterical Greenville Avenue Bars Association