The North County Charity Executives Cutting Deals that Enrich Them Personally

Matthew Parks – with help from two business partners named Tom Sutton and Scott Kirby – set up two nonprofit companies in North County in recent years. Each nonprofit owns and operates a senior center, one in Escondido and another in Vista.

The two nonprofit senior centers have the capacity to serve roughly 150 residents – but Parks, Sutton and Kirby also make large amounts of cash through them.

Financial agreements, tax returns, deeds and other documents obtained by Voice of San Diego reveal a series of deals that trace from the nonprofits back to Parks, Kirby and Sutton.

Take, for instance, a home sale connected to Shadowridge Senior Living, the nonprofit senior center in Vista, in December 2018.

Sellers were trying to unload the senior center and an adjacent house in a package deal. Parks used a nonprofit to purchase the senior center, but as part of the deal he and Kirby bought the house in their own names. Buying the senior center and the adjacent house in a package got them an amazing deal. They paid just $200,000 for the house. Parks flipped it for $435,000 in 2020.

That’s not the only deal in which Parks acquired a senior center and a single-family home as a package. In 2017, Parks used a nonprofit to buy Oak Hill Residential Center in Escondido. As part of the deal, the nonprofit also bought an adjacent house. In that case, Parks and his partner Sutton, acting on behalf of the nonprofit, then sold the house to one of Sutton’s friends for just $150,000. That friend quickly flipped it for $350,000 to some of Parks’ other friends. They easily flipped the house again; this time for $624,000.

The lucrative deals aren’t just limited to real estate.

Both of the senior living nonprofits use a company called Bayshire Senior Communities to provide back-office services. Bayshire was founded by Kirby, and Parks and Sutton have both owned a stake in the business while it was serving the two nonprofits. Parks declined to say how much the contracts are worth.

Then there was an acquisition fee associated with the sale of Oak Hill. In that case, Parks and Sutton pulled in $540,000. The money was paid to their company Torrey Pines Development Group as part of the sale.

Parks alone made an additional $150,000 in commission, according to documents obtained by Voice.

The nonprofit that controls Oak Hill is called Affordable Senior Housing Foundation. In 2020, Affordable Senior Housing paid its only three board members $50,000 each, according to tax returns. The board members were Parks, Sutton and Brock Andrus, whose family loaned some of the money to purchase Oak Hill. Sutton and Andrus worked just one hour per week, according to Affordable Senior Housing’s tax returns.

Andrus’s family helped provide the financing to close the deal on Oak Hill, and they received interest payments on the loan.

Andrus was appointed to the board as a condition for the nonprofit to receive the financing, Parks said.

And then there’s the guarantor fees. Parks, Sutton and Kirby guarantee the loans on the Oak Hill property. Exactly how much they’ve made for guaranteeing these loans is unclear. In 2020, Parks and Sutton received $142,000 each for acting as guarantors.

Parks also guarantees the loan for the Shadowridge senior center. In 2020, he made $123,648 for guaranteeing the mortgage on that property.

Parks said that just goes to show that his heart is really in the mission. If the nonprofit senior centers fail, it’s his finances on the line.

“I don’t participate in the success of the nonprofits, personally. If the nonprofit is extremely successful, I don’t get any reward. I only get the downside, the risk. That’s not good business,” said Parks. “That demonstrates my love and passion for the work we’re doing. I’m willing to put my life savings at jeopardy because I believe in the mission.”

Parks said that his finances were on the line if any of the nonprofits went under. In fact, emails subsequently reviewed by Voice show lenders granted Parks and his partners “bad boy carve outs” for the Oak Hill property. That is, believe it or not, official financial jargon, which means guarantors on a loan are only financially liable if they’ve been bad boys – or in other words broken the terms of a loan agreement.

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It’s not illegal for a person to make money through their nonprofit activities. Nonprofit executives, however, have a fiduciary duty to make sure the charities they serve are getting the best possible deals on all transactions they enter.

And the nonprofits are primarily supposed to serve a charitable mission, not exist for the business purposes of a small group of insiders, said Ellen Aprill, a professor at Loyola University, who specializes in nonprofit law.

One thing regulators look for in the nonprofit world, said Aprill, is a “pattern and practice of breaching fiduciary duty.”

Parks provided long, detailed reasoning on why each of the deals were not a breach of his fiduciary duty, and were each in the best interest of the nonprofits he founded. The deals that enriched himself personally were not carved out for his benefit, he said, but rather as creative necessities, designed to help his nonprofits thrive.

“Sometimes you just have to get creative, right? There needs to be more people that are finding creative ways to make these types of things happen,” Parks said. “I think that’s what we’re good at – finding creative solutions to make it work.”

Take the deal related to the house in Vista.

A woman put a senior center and an adjacent house up for sale in a package deal. Parks’ nonprofit – Sequoia Affordable Housing Foundation – bought the senior center, while Parks and Kirby bought the house. Sequoia paid $3.9 million for the facility; Parks and Kirby paid $200,000 for the house. (Tax assessors valued the house at $550,000 soon after.)

In that situation, one might expect the nonprofit, rather than one of its executives, to scoop up the house at a great price.

Deals like this can sometimes be characterized as “usurping a corporate opportunity,” said Miranda Fleischer, a law professor at University of San Diego. A corporate opportunity is usurped, she said, when an executive takes a deal for themself that should have gone to the nonprofit they work for.

Parks said he could see how it might seem as if he took an opportunity away from the nonprofit, but nothing could be further from the truth.

The nonprofit Sequoia would have actually lost money, if it had purchased the house, Parks said.

For one, adding the house to the purchase would have increased the mortgage costs. Secondly, the nonprofit would have to pay property taxes on the house every year. And third, any profit the nonprofit made on a flip would have been taxable as “unrelated business income,” since flipping the house didn’t have anything to do with the nonprofit’s mission.

Those three things together meant the nonprofit could never make money on the house, Parks said.

(Kirby eventually transferred his half of the house to Parks. At the time, Parks and Kirby were unwinding their related business interests. Kirby transferred his portion to Parks, in exchange for buying Parks out of some of their related business ventures, Parks said. He declined to give the value he and Kirby placed on the house at that time.)

When Parks flipped the house, profit wasn’t a problem. He sold it for $435,000 in 2020.

Parks ran down a list of several other reasons the nonprofit couldn’t have bought the house. Renting it would have been a loss, he said. And it would have been impossible to secure the necessary financing.

Parks and Sutton gave reasons the other deals were legit too.

When it came to the $540,000 they made in acquisition fees related to the purchase of their first nonprofit senior center, that was just a market rate fee.

“It was a market rate fee,” Sutton previously said. “When you put the work in, it’s OK to get paid for it.”

On top of that, Parks made another $150,000 in commissions, but declined to say what that commission was for.

And the contracts with Bayshire to provide back-office services to both of the senior centers? Parks declined to say how much the nonprofits pay to Bayshire each year. Also, he no longer profits from those contracts, he said.

At some point along the way, Parks sold his interest in Bayshire to Kirby. He declined to say exactly when or provide details of the buyout. Parks, however, did profit from Bayshire’s contracts with the two nonprofits in some of the first years after the nonprofits acquired the senior centers.

Sutton declined to say whether he was also bought out of Bayshire and when.

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Nonprofits are meant to have independence in ways that for-profit companies aren’t.

The owner of a for-profit company gets more latitude to do what they want. The whole point is to make money.

To ensure they stick to their charitable mission, nonprofits must be led by a board of directors. The board is the final authority in decision-making at any given nonprofit. They’re usually volunteers and are sometimes paid a small stipend. They don’t usually run the organization on a day-to-day basis, but they vote on major decisions.

Parks himself serves as president of both nonprofit boards. Both boards have only two other board members. Sutton, at times, has served as a second board member on one of the boards.

Many nonprofit boards have anywhere from five to 12 board members.

It’s best practice to have more than three, Fleischer, the USD legal scholar, said previously. Having more board members helps ensure that the decisions being made favor the nonprofit itself and not individual board members, she said.

It’s unclear who appointed the two other board members of the two nonprofits. When a nonprofit is set up that duty frequently falls to the founder. In both cases, Parks himself was the nonprofit founder. He declined, however, to say who appointed the initial board members to the two charities.

California self-dealing laws prohibit a nonprofit board member’s vote from being counted if they have a financial stake in a contract – such as Parks has had with Torrey Pines and Bayshire.

Parks declined to say whether he has ever voted on a contract in which he had a financial interest.

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The deals paint a picture of multiple related business entities. And yet when Parks applied for nonprofit status for Affordable Senior Housing no related business interests appeared on the application.

“One of the common reasons that organizations get denied [tax-exempt status] is they’re doing all these deals with entities that are closely related and the IRS decides it’s not really for public purposes. It’s really to benefit insiders,” said Ellen Aprill, a professor of nonprofit law at Loyola University.

Whether Parks’ related for-profit ventures met the conditions for disclosure is unclear.

One question on the IRS application to become a registered 501(c)(3) charity asks whether the potential nonprofit has a “business relationship with any of [its] officers, directors, or trustees?”

Parks’ application for Affordable Senior Housing marked “no” – despite Parks being a part-owner in two businesses, Torrey Pines and Bayshire, that did business with the charity he founded.

To a layman, these might sound like business relationships. But when it comes to IRS paperwork, fine print matters.

A “business relationship,” for IRS purposes, is when a nonprofit officer or director possesses 35 percent ownership or more of the business in question.

Parks declined to say how much of Bayshire he owned at the time he founded Affordable Senior Housing Foundation.

Parks is the only one among him and his two business partners whose name appeared on the charity application, but Sutton and Kirby, Bayshire’s other owners, were also involved from the beginning. Both acted as guarantors on a large loan to Affordable Senior Housing. And both have received fees for guaranteeing the loan.

Another question asked if Affordable Senior Housing had “a close connection with another organization?”

A closely connected nonprofit and for-profit, according to the IRS definition, might both be controlled by the same people. The same people might approve budgets or expenses. The businesses might conduct activities in common or have a financial relationship. They might operate in a coordinated manner with respect to facilities.

Affordable Senior Housing marked “no.”

Physically at least, Parks’, Sutton’s and Kirby’s business ventures do have a central hub: 1817 Avenida del Diablo in Escondido. The address is home to a memory care facility once owned by Torrey Pines Development and serviced by Bayshire. It’s also an address that each of the various business ventures have at one time or another shared.

“Torrey Pines Development Group and Bayshire Senior Communities have worked together to develop and operate many assisted living projects,” wrote Parks in a previous proposal to build a new senior center.

Catherine Allen contributed reporting to this story.