Is The Southern Poverty Law Center ($PLC) The Next Financial Bubble?
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[See also by Patrick Cleburne: Good News: SPLC loses $50 Million. Bad news: $PLC can afford it (2009); Will The Southern Poverty Law (And Investing) Center Return Its Madoff Money? (2010)]

Faces rather than figures supply the drama in this year's annual documents from the Southern Poverty Law Center ($PLC to—its Financial Statements and the IRS 990.  (The so- called Annual Report is really just a sales brochure).

A Changing of the Guard is underway (the Center threw itself a 40th Birthday Party this past April). Since 2009 the Board Chairman has been Howard Mandell, a Rabbi from Virginia Beach. The past year, two new Directors have been named. Ellen Sudow appears to be part of the $PLC's outreach to the homosexual community—amongst other involvements, she chairs the Governance Committee of "The Sexual Minority Youth Assistance League" (SMYAL). The other is a hedge fund manager called Andrew Fredman.

For those who are counting, this seems to mean that of the eleven Directors, one is Chinese, four are black, and five Jewish. Only one, James McElroy—notable for spearheading the effort to strip San Diego's Mount Soledad of its cross—appears to be of traditional American Christian heritage.

The arrival of Andrew Fredman is particularly interesting. He is a Managing Director of Fir Tree Partners L.P.—which the $PLC coyly does not name—a hedge fund based in New York.

Perhaps this casts some light on the $PLC's amazing "Money Mountain"—as I called it last year. This continues to grow. Total assets for the year ended October 31st 2010 rose 13.25% to $250.77 million—Net Assets (e.g. after deducting all payables) rose 14.39% to $228.7 Million.

The $PLC has never been wealthier.

David WangWhat the $PLC portentously calls its "Endowment Fund" also reached a record, up $27.3 Million to $216.2 million.

This terminology, of course, is blatantly deceptive. As I noted last year, with most charities

 …the term "Endowment Fund" would mean a pool of funds to which access is restricted, perhaps to income or a small percentage of assets.

But this is not the case with the $PLC. Only a tiny proportion of its assets are restricted. The nomenclature is just camouflage. It just means the $PLC has no intention of spending the money. As Dan Borochoff, President of the watchdog American Institute of Philanthropies told Bill O'Reilly in 2001: 'It's not really an endowment [just] because the board called it that.' [The O'Reilly Factor, interview with Daniel Borochoff, February 23, 2001.](See NPI/SPLC Report II, Pp17-18) 

Amusingly, the $PLC Annual Report has a new rationalization for this treasure trove this year (P14):

"The SPLC builds for the future by setting aside a certain amount of its income for an endowment… to plan for the day when nonprofits like the SPLC can no longer afford to solicit support through the mail because of rising postage and printing costs."

$216 million worth of extra stamps!

This does not wash with the American Institute of Philanthropy, which gauges the finances of charities. Downgrading the $PLC from a B- for operating efficiency to an F because of its hoard, AIP notes in its December 2010 issue:

"The Non-profit Finance Fund in March of 2010 released a survey of 1,300…non-profits and found that 80%...had no more than six months worth of cash…It is very rare for a charity to have over three years of available asset reserves…AIP believes that it is reasonable for most charities to hold about a year's worth of funds in reserve…"

On the basis of the 2010 figures, the $PLC now has liquid resources of seven years' expenses! The Center ranked ninth in the list of over-large asset pools that caused the AIP to downgrade charities.

What particularly struck me last year, and where the Fredman arrival might give some insight, is what the SPLC was doing with these liquid resources.

It was making them illiquid and non-transparent, by moving them into "alternative investments"—investment partnerships of various types. In 2009 75.4% of the investment portfolio was so deployed, up from 49% in 2008—by 2010 the proportion was up to 87% —i.e. substantially all of it.

The SPLC's accountants classified $69 million of these investments (31%—up from 15% last year) as requiring valuation using "Significant Unobservable Inputs" e.g. allowing management discretion. They gloomily noted

"…the fair values estimated by the individual investment manager…may not necessarily represent the amount that could be realized from sales…and the differences may be material."

The Southern Poverty Law Center has effectively turned itself into a "Fund of Funds"  These are entities, spawned by the hedge fund craze, that exist to divide resources between a selection of hedge funds, which they monitor.

Why the SPLC is going to this trouble is a puzzle. Last year I hypothesized that one objective was to mask the actual value of its assets—much as real estate is usually carried at an entirely different (and lower value) than what it can actually realize. I note that the endowment fund reported rising only 9.9% this year compared to 14.4% for net assets overall.

Andrew Fredman's presence suggests other possibilities. In April 2009 (before going on the $PLC board) Fredman contacted a former employee who had become Chief Investment Officer of the Florida State Board of Administration, which runs the State Pension funds. Following this, $100 Million was invested with a hedge fund run by Bayview Asset Management, the Principals of which were investors with Fir Tree, and who had previously been unable to get the attention of the SBA. (Ironically, the fund intended to get into the insalubrious business of buying and collecting distressed mortgages—i.e. it intended to profit from the Minority Mortgage Meltdown) This transaction was subsequently scathingly discussed in Florida pension agency head blurs line between state, personal business By Sydney P. Freedberg, St. Petersburg Times, July 4, 2010. But a complaint to the Florida Commission on Ethics predictably went nowhere (Florida Pension Chief Cleared of Ethics Violations, February 15 2011).

Established hedge fund managers seem to spend a remarkable amount of time making, soliciting, and discussing investments in one another's funds, for a variety of reasons not the least of which appears to be ego gratification.

Of course the hedge fund life style for those in that world is incomparably pleasanter than that of the average American. Could it be that the principals of the $PLC are simply enjoying themselves "researching" the alternatives, like Congresscritters on foreign trips?

Back at the $PLC's Poverty Palace, things are rolling on. Contributions last year rose 4.5% to $28.5 million and total revenue was reported as $35.9 million. Expenses were reported as $31.6 million for a surplus of $3.3 million. (This, of course, completely ignores the $27.3 Million gain made in the "Endowment Fund".) Legal services absorbed just $9.2 Million. 12.4% above last year, but "public education" (school indoctrination) was cut—by 2.1% to $11.8 million.

Top earners President Richard Cohen and founder Morris  Dees, now 74,  continued their virtual income equality, unusual in the Big Charity world, at $341,000 and $345,000 respectively. The combined total of would be 26th in the AIP list of Charity compensation packages. Mark Potok received a 2.9% increase to $147,276, making him the 8th best paid employee—but poor Heidi Beirich once again did not make the top ten earners. Being at the "Sharp End" of public controversy does not command financial reward at the $PLC.

The $PLC continues to report the "financial account" in the Cayman Islands which first appeared last year—a strange thing for a tax-exempt entity to need.

 With the Winter 2010 issue of its main propaganda vehicle, the Intelligence Report, the $PLC moved to open a whole new field of engagement—championing homosexual activism. The publication was largely devoted to currying favor with the "Gay" movement, and concluded by naming two large evangelical organizations—the American Family Association and the Family Research Council—"Hate Groups". 

This was rather a curious step for the $PLC, which has previously preferred to attack unpopular, smaller and more isolated groups. Furthermore the Gay community has shown every sign of being more than capable of looking after itself, as evidenced by its successful campaign for the legal privileges embodied in the Hate Crime legislation eventually smuggled through Congress in 2009 and by the abolition of the so-called "Don't ask, don't tell" policy in the military in 2010.

I believe the motive here is primarily fundraising. The upper economic echelons of the gay community, not being burdened with the responsibilities of raising children, have material disposable income. This, and free time, is a large part of the reason they have become such a formidable political force so quickly. It makes them extremely interesting for the direct fundraiser. (Three of the four largest "Independent Contractors" named as being paid by the $PLC in its latest 990 were providing direct mail services.)

Furthermore, this attack conforms to a pattern other critics have noted concerning the previously staple Black/White conflict: the $PLC is more interested in setting up dramatic opponents it can demonize to its contributor base, than what it can do for the supposed victims it is claiming to champion. As noted, the LGBT—"Lesbian Gay, Bisexual Transgender"—crowd do not really need the $PLC. However, given the prejudices and animosities of the traditional $PLC donor group, picking a fight with large Middle American Christian groups is just the ticket for fund raising.

Last year in my headline I suggested that the $PLC should be renamed "The Southern Poverty Law (and Investing) Center". Particularly following its now virtually complete, and objectively quite unnecessary, transformation into a "Fund of Funds", this operation is really a financial institution with a comparatively small public interest litigation annex attached.

The litigation function, increasingly far-fetched and trivial though its targets are, is necessary to advertise to its donor base. Even more, it lends an aura of legitimacy and credibility to what has long been the $PLC's most important function: serving as commissar to the MSM, facilitating the repression of any sign of resistance to destruction on the part of the historic American nation. In the past year, both Mark Potok and Heidi Beirich have demonstrated this purpose very clearly.

Just possibly, the vicious sectarian intolerance demonstrated by attacking major Christian entities may cause this status to be questioned.

But the lesson of the past few years is that financial oddities, like Long-Term Capital Management or Freddie Mac and Fannie Mae, or Bernie Madoff eventually blow up. Probably what will ultimately relieve America of the $PLC Vampire Squid is scandal over its handling of these gargantuan reserves—to which it is in my opinion inexorably headed.

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