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Case Study: A Social Entrepreneur’s Dilemma: Nonprofit or For-Profit?

July 10, 2013 by Leave a Comment

Over the last two years, Mr. Garlick and his team have produced some 50 such “microenterprises” — including one that finances water projects in Kenya, one that sells charcoal and stoves in Rwanda and a cocoa nursery in Ghana.

THE CHALLENGE By 2009, Mr. Garlick’s social enterprise, renamed ThinkImpact, was raising about $400,000 a year to support the cause. But along with running the enterprise, it had to raise funds, monitor and evaluate programs, and provide transparency. Its employees were paid below-market wages, the hours seemed endless and the organization would soon be missing payrolls. “Nothing about that scenario was sustainable,” Mr. Garlick said. “And scale depended solely on fund-raising ability.” He was convinced there had to be a better way.

THE BACKGROUND In 2007, Mr. Garlick started taking a salary. He was 23, out of school and working full time for his organization — mostly to find supporters for the cause. The workload grew and he hired another recent graduate to run daily operations.

“I thought that was going to make everything easier, but it didn’t,” said Mr. Garlick, expressing a common frustration for nonprofits: the endless pressure to raise funds takes away from time spent doing the organization’s work. “Many of the aspirational young nonprofit employees become beggars. They are seeking a way out of a tortuous financial reality where they are building the plane while flying it.”

Adding to the pressure was the way Mr. Garlick and his team were encouraged to raise funds. They were advised not to “place all their eggs in one basket,” by relying on a sole funder or a single government agency. Instead, ThinkImpact diversified its reach and sought donations in smaller denominations. Eventually, Mr. Garlick realized that trying to please hundreds of stakeholders was a rather chaotic way to raise money and run a business. “In actual fact, unless you’re running for president, or have a team that exists to raise small dollars, you can’t meet payroll that way,” he said. “People give $20 and think they own your decision-making.”

On the ground, ThinkImpact broadened its reach. More than 100 young people worked with the organization in Africa, primarily in South Africa and Kenya, where they established a strong presence. In addition to developing a curriculum for social enterprise educational experiences, they were adapting to local needs, providing health workshops that reached hundreds of villages in Kenya, and building more than 50 homegrown development projects with the participation of the local community.

But in 2010, after attending a weeklong workshop where he met fellow social entrepreneurs and investors, Mr. Garlick started asking serious questions about his own business model. The questions included: What is our specialty? What value do we produce in people’s lives? How big can we get? How do we arrange for sufficient financing to let us focus on our real work?

THE OPTIONS After missing a couple of payrolls in 2010, Mr. Garlick concluded he had three options.

Option 1: Remain a nonprofit. With contracts from two universities for about $50,000 and funds from donations, grants and foundations expected to bring in $25,000 to $100,000, Mr. Garlick felt constricted. To really grow, he estimated that he would need $200,000 to $250,000 more. But raising that money would be exceedingly difficult using traditional methods and would keep the company almost endlessly locked into fund-raising mode.

Article source: http://www.nytimes.com/2013/07/11/business/smallbusiness/a-social-entrepreneurs-dilemma-nonprofit-or-for-profit.html?partner=rss&emc=rss

Filed Under: Small Business Tagged With: , ,

Officials in Germany Support Closing 7 Nuclear Plants

May 27, 2011 by Leave a Comment

FRANKFURT — Seven nuclear power plants in Germany that were shut down after the Fukushima disaster in Japan are likely to be closed permanently after a decision Friday by state environment ministers.

A government agency warned, however, that without the seven plants Germany could have trouble coping with a failure in some part of the national power grid.

The shutdown “brings networks to the limit of capacity,” the Federal Network Agency, which regulates utilities, said in a report published Friday.

Meeting in Wernigerode, in eastern Germany, the state environment ministers recommended that the seven plants be closed. The decision rests with Chancellor Angela Merkel and her cabinet, which will consider the issue on June 6.

Mrs. Merkel is under heavy political pressure to speed Germany’s exit from nuclear power after public alarm about the nuclear disaster in Japan cost her party votes in recent elections. In late March, a few weeks after the tsunami and earthquake hit Japan and led to the crisis at Fukushima, the Green Party, representing environmentalists, drove Mrs. Merkel’s Christian Democrats from power in Baden-Württemberg, a state the conservatives had dominated for decades.

The Green Party is pushing for Germany to close all of its plants by 2020 if not sooner. “An exit during this decade is very doable,” Franz Untersteller, the environment minister in Baden-Württemberg, said in a statement Friday.

But businesses have expressed concern that the price of electricity could rise because Germany does not yet have enough other sources of energy to compensate.

The Federal Network Agency, in its report Friday, said Germany had transformed from energy exporter to energy importer since the nuclear plants were shut down.

When weather is ideal, Germany can generate almost as much power from wind and solar energy as 28 nuclear reactors, the agency said. The renewable energy fluctuates significantly, however, often requiring German utilities to buy power from other countries and creating problems for neighbors that had depended on German power.

The Federal Network Agency acknowledged that so far there had been no serious power failures since the seven plants were closed.

Article source: http://www.nytimes.com/2011/05/28/business/global/28nuclear.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

High & Low Finance: After Years of Red Flags, a Conviction

April 22, 2011 by Leave a Comment

Fannie Mae stopped doing business with the firm, called the Taylor Bean Whittaker Mortgage Corporation.

For Taylor Bean, it was a crisis. Its checks bounced.

But Mr. Farkas scrambled, and Taylor Bean survived to commit more frauds.

This week, Mr. Farkas, 58, was convicted of 14 counts of fraud and conspiracy in what had become a $2.9 billion scandal.

Testifying in his own defense in federal court in Alexandria, Va., Mr. Farkas explained that in 2002 Taylor Bean had sold eight real loans to a lender who resold them to Ginnie Mae, the government agency that buys loans guaranteed by the Federal Housing Administration. When the loans were found to be ineligible for F.H.A. guarantees, Ginnie Mae demanded its money back.

Taylor Bean did not have the cash. So it created fictitious loans and used them as collateral to get the money from a bank. The loans were not supposed to be sold, he said, but a subordinate mistakenly put them in a group of loans to be sold to Fannie Mae.

“I had no intention of paying payments on those loans,” he testified. “It wasn’t my obligation. It was simply a way to keep track of it, and it was, it was an idea I had that probably wasn’t a great idea, but it was an idea that I had how to do it.”

It was also an idea that indicated something very strange was happening at Taylor Bean. It should have been the end for the company.

But it was not. Fannie Mae would no longer do business with Taylor Bean, but there was still Ginnie Mae as well as the other government-sponsored enterprise, Freddie Mac.

“Ginnie Mae did not do anything,” Mr. Farkas testified. “Freddie Mac came down and sent the head of, head of the division that dealt with us and all these other people, and they decided that they would let us, let us live.”

The fraud would last for seven more years, ending in 2009 because Taylor Bean’s principal bank, Colonial Bank of Montgomery, Ala., was itself in danger of failing. Mr. Farkas came up with a scheme to appear to recapitalize the bank, and thus get federal bailout money, but it did not work.

Fannie escaped unscathed. Freddie and Ginnie did not. Two major European banks, Deutsche Bank and BNP Paribas, thought their $1.68 billion in loans was fully secured by collateral. But only a tenth of that collateral was real. Colonial had lent hundreds of millions on the security of mortgage loans that were either nonexistent or had already been sold to someone else.

Mr. Farkas was the seventh person convicted in the case. The witnesses against Mr. Farkas included the other six — four executives from Taylor Bean and two from Colonial Bank, all of whom pleaded guilty. Mr. Farkas was sent to jail and is awaiting a sentence that is almost certain to leave him imprisoned for life.

The Justice Department, which has been criticized for the paucity of criminal charges stemming from the financial crisis, celebrated the verdict. “His shockingly brazen scheme poured fuel on the fire of the financial crisis,” an assistant attorney general, Lanny A. Breuer, said. The United States attorney in Alexandria, Neil H. MacBride, said Mr. Farkas had orchestrated “one of the longest and largest bank fraud schemes” ever seen.

Mr. Farkas did not prove to be a very good witness on his behalf. He insisted no crime had been committed, but his understanding of the law seemed to be a little unusual.

Patrick F. Stokes, a deputy chief of the Justice Department’s criminal fraud section, asked Mr. Farkas if he thought Taylor Bean’s agreement with Colonial Bank allowed the mortgage firm “to sell fraudulent, counterfeit, fictitious loans” to the bank.

“Yeah, I believe it does,” he replied.

“It’s very common in our business to, to sell — because it’s all data, there’s really nothing but data — to sell loans that don’t exist,” he explained. “It happens all the time.”

The second-most important player in the fraud, after Mr. Farkas, was Catherine Kissick, the head of Colonial Bank’s Mortgage Warehouse Lending Division. Her division was in Ocala, Fla., which was also Taylor Bean’s headquarters, and she appears to have been hired by Colonial to enable it to get Taylor Bean’s business, which she had handled for her former employer, SunTrust.

Article source: http://feeds.nytimes.com/click.phdo?i=81b5927bc8dfa97370c4c6960049ed6d

Filed Under: Business News Tagged With: , ,

High & Low Finance: After Seven Years of Red Flags, a Conviction

April 21, 2011 by Leave a Comment

Fannie Mae stopped doing business with the firm, called the Taylor Bean Whittaker Mortgage Corporation.

For Taylor Bean, it was a crisis. Its checks bounced.

But Mr. Farkas scrambled, and Taylor Bean survived to commit more frauds.

This week, Mr. Farkas, 58, was convicted of 14 counts of fraud and conspiracy in what had become a $2.9 billion scandal.

Testifying in his own defense in federal court in Alexandria, Va., Mr. Farkas explained that in 2002 Taylor Bean had sold eight real loans to a lender who resold them to Ginnie Mae, the government agency that buys loans guaranteed by the Federal Housing Administration. When the loans were found to be ineligible for F.H.A. guarantees, Ginnie Mae demanded its money back.

Taylor Bean did not have the cash. So it created fictitious loans and used them as collateral to get the money from a bank. The loans were not supposed to be sold, he said, but a subordinate mistakenly put them in a group of loans to be sold to Fannie Mae.

“I had no intention of paying payments on those loans,” he testified. “It wasn’t my obligation. It was simply a way to keep track of it, and it was, it was an idea I had that probably wasn’t a great idea, but it was an idea that I had how to do it.”

It was also an idea that indicated something very strange was happening at Taylor Bean. It should have been the end for the company.

But it was not. Fannie Mae would no longer do business with Taylor Bean, but there was still Ginnie Mae as well as the other government-sponsored enterprise, Freddie Mac.

“Ginnie Mae did not do anything,” Mr. Farkas testified. “Freddie Mac came down and sent the head of, head of the division that dealt with us and all these other people, and they decided that they would let us, let us live.”

The fraud would last for seven more years, ending in 2009 because Taylor Bean’s principal bank, Colonial Bank of Montgomery, Ala., was itself in danger of failing. Mr. Farkas came up with a scheme to appear to recapitalize the bank, and thus get federal bailout money, but it did not work.

Fannie escaped unscathed. Freddie and Ginnie did not. Two major European banks, Deutsche Bank and BNP Paribas, thought their $1.68 billion in loans was fully secured by collateral. But only a tenth of that collateral was real. Colonial had lent hundreds of millions on the security of mortgage loans that were either nonexistent or had already been sold to someone else.

Mr. Farkas was the seventh person convicted in the case. The witnesses against Mr. Farkas included the other six — four executives from Taylor Bean and two from Colonial Bank, all of whom pleaded guilty. Mr. Farkas was sent to jail and is awaiting a sentence that is almost certain to leave him imprisoned for life.

The Justice Department, which has been criticized for the paucity of criminal charges stemming from the financial crisis, celebrated the verdict. “His shockingly brazen scheme poured fuel on the fire of the financial crisis,” an assistant attorney general, Lanny A. Breuer, said. The United States attorney in Alexandria, Neil H. MacBride, said Mr. Farkas had orchestrated “one of the longest and largest bank fraud schemes” ever seen.

Mr. Farkas did not prove to be a very good witness on his behalf. He insisted no crime had been committed, but his understanding of the law seemed to be a little unusual.

Patrick F. Stokes, a deputy chief of the Justice Department’s criminal fraud section, asked Mr. Farkas if he thought Taylor Bean’s agreement with Colonial Bank allowed the mortgage firm “to sell fraudulent, counterfeit, fictitious loans” to the bank.

“Yeah, I believe it does,” he replied.

“It’s very common in our business to, to sell — because it’s all data, there’s really nothing but data — to sell loans that don’t exist,” he explained. “It happens all the time.”

The second-most important player in the fraud, after Mr. Farkas, was Catherine Kissick, the head of Colonial Bank’s Mortgage Warehouse Lending Division. Her division was in Ocala, Fla., which was also Taylor Bean’s headquarters, and she appears to have been hired by Colonial to enable it to get Taylor Bean’s business, which she had handled for her former employer, SunTrust.

Article source: http://feeds.nytimes.com/click.phdo?i=81b5927bc8dfa97370c4c6960049ed6d

Filed Under: Business News Tagged With: , ,