CA Attorney General Announces Stipulated Judgment Against Nonprofit that Violated Charitable Trust Laws

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California Attorney General Rob Bonta recently announced that the state had entered into a Stipulated Judgment against ZeroDivide and its directors and officers. The settlement arose from a suit involving allegations that the San Francisco-based nonprofit had violated state charitable trust laws. The terms of the settlement provide:

  • ZeroDivide will be dissolved
  • Two officers of ZeroDivide may not lead charitable organizations in the state, working or volunteering for a for-profit entity engaging in charitable fundraising, or holding, soliciting, or managing funds or assets for a charitable purpose for three years in California or from Californians
  • ZeroDivide and its directors and officers must pay over $460,000, which includes $326,008 in damages and $138,525 in penalties, late filing fees, and attorney’s fees
  • The damages and any remaining assets will go to Community Initiatives, the fiscal sponsor for the Renaissance Journalism Center

History of ZeroDivide and Its Alleged Misconduct

ZeroDivide originated from a nonprofit founded in 1998 whose goal was to bring technology in the form of phone and internet service to low-income communities. Originally known as the Community Technology Foundation of California, it functioned as a conventional grant maker until it rebranded itself as ZeroDivide in 2008. Its purpose became more than just bringing technology to poor communities, as it delved into social activism by advising other nonprofits on technological issues and solutions.

ZeroDivide primarily operated two programs: Digital Bridge and the Renaissance Journalism Center. Digital Bridge offered technical assistance to other nonprofits and public entities to adopt new technologies and upgrade their technology infrastructure. The goal of the Renaissance Journalism Center was to advance equity in journalists reporting news stories.

Initially, ZeroDivide was extremely successful. During its short lifespan, it brought in more than $50 million in donations and grants from telecommunications companies, the federal government, and philanthropies right up until its sudden implosion.

The organization abruptly ceased operations in 2016 when it became financially insolvent. Attorney General Bonta alleged that between 2014 and 2016, various organizations restricted donations to ZeroDivide to operate these two programs. Meanwhile, ZeroDivide’s unrestricted revenue steadily decreased, and it began having difficulty paying operational costs. As a result, ZeroDivide began using restricted funds to pay operational costs such as staff salaries and costs related to other programs. These actions occurred unbeknownst to ZeroDivide donors but with the full knowledge of its Board of Directors, who failed to take any action to halt the misappropriation of funds.

Overall, ZeroDivide misappropriated about $606,000 in restricted donations. The organization also kept inaccurate financial records concerning the receipt and spending of funds, failed to file annual reports with the Attorney General’s office, and failed to meet various other accounting requirements.

The Role of the California Attorney General

Under California law, the Attorney General is responsible for supervising charities, charitable trustees, professional fundraisers, and solicitors or holders of charitable donations. The Attorney General may file civil lawsuits to recoup damages in cases of misappropriated donations or other misconduct. In cases of alleged misappropriation of charitable funds, improper solicitation practices, inappropriate reporting practices, and other breaches of fiduciary duty, the California Department of Justice may investigate. 

Call Church Law Center Today

Do not hesitate to contact your California nonprofit lawyers when you need assistance with legal issues related to your church, charitable trust, religious organization, or nonprofit organization. You can reach our offices by calling (949) 245-3177 or contacting us using our convenient online form to learn more about how we can help. We offer a wealth of experience handling the unique legal issues that nonprofit and religious organizations routinely face. We look forward to hearing from you and assisting you with your legal questions.

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