Businessman and philanthropist Steve Moak has been on the defense this week after political rival Ben Quayle claimed in a flyer that Moak used his nonprofit charity to make millions for his former company.
The two are running in the crowded Republican primary in Arizona’s 3rd Congressional District, and rhetoric between the well-funded campaigns has been fierce.
In addition to claims that Moak used his Not My Kid charity to enrich his former company, which he sold for $25 million in 2007, Quayle alleges Moak broke the law by failing to report to the IRS that he had an interest in both organizations.
“From the attorneys we talked to, this relationship needed to be disclosed. So, yes, this is illegal,” said Megan Rose, a Quayle campaign spokeswoman. “And if he profited to the tune of $25 million from this relationship, then this is unethical too.”
Moak’s campaign said the allegation is unwarranted and based on a lack of understanding about IRS reporting. Moak’s for-profit company was successful because of sound business practices and that Quayle is simply trying to smear Moak because he sees him as the latest frontrunner, said Jerry Cobb, a Moak campaign spokesman.
“They finally woke up to the fact that we’re in first place,” Cobb said.
In 2000, Moak began Not My Kid to promote awareness of drug use in adolescents and to help parents prevent their kids from using drugs.
In 2004, Moak purchased First Check Diagnostics – a maker of drug-test kits and other medical test kits – while the company was going through Chapter 11 bankruptcy. In 2007, Moak sold the company for $25 million.
During the years that Moak owned First Check, his charity developed a separate program called the “7th Grade Program,” which included a presentation and a one-time free drug-test kit for any parents who wanted one.
The drug kits given out as part of the 7th Grade Program presentation were produced and donated by First Check. The Quayle campaign said this amounts to using the non-profit to push the drug kits into the hands of parents and creating a market demand for First Check’s product.
Moak’s campaign said this story doesn’t add up. Moak bought First Check because he saw a scarcity of affordable, easy-to-find home drug-test kits, which naturally fit into the Not My Kid curriculum, Cobb said, and because Moak felt he could turn the company around by instituting better business practices.
Cobb admitted that the First Check kits are the only drug-test kits Not My Kid has ever promoted by name on their website, but he said the Not My Kid website has never sold the kit, nor does it have the ability to do so, refuting claims made by the Quayle campaign.
It was practical to have First Check donate drug-test kits to Not My Kid, but Cobb said that in no way were the donations responsible for the success of First Check.
Cobb said the turnaround of First Check, which also produces a home-colon test and a home-cholesterol test, is largely the result of getting the company’s tests into stores.
“Steve is a businessman. He’s an entrepreneur,” Cobb said.
Cobb said the donation of First Check’s drug tests to Not My Kid is no different from any other company that donates some of its products to a nonprofit organization.
“No one would say Apple built its business on the back of a charity that puts computers in schools,” Cobb said. “Does that help the market for Apple? Well, probably it does.”
But Cobb said there was nothing illegal or unethical about the donations.
As for the claims about false IRS reporting, the Quayle campaign alleged that Not My Kid failed to disclose Moak’s involvement with First Check on its 2005 and 2006 IRS reports.
In nonprofit tax reports that were filed those years by Not My Kid, the organization answered “no” to the question of whether the organization is related to any other organization through common membership.
But in 2007, Not My Kid reported “yes” to this question, which the Quayle campaign said indicates a skirting of the issue all along.
Cobb said this was an error made by the organization’s accountant. Not My Kid’s accountant, Cherie Wright, wrote a letter Aug. 9, stating that the answer was an error and needed to be fixed, but only after this was brought to their attention.
According to IRS documents, the threshold for answering this question “yes” is required only when 50 percent of an organization’s governing body, officers, directors, trustees or members are part of any other organization.
Wright explained in her letter that because only two members, Moak and his wife Debbie, or 14 percent of Not My Kid’s board, were part of First Check, the answer should always have been “no,” and that the 2007 answer was incorrect.
Cobb said the Moak campaign stands by Wright’s assessment.
“Our accountants and Not My Kid’s independent board have reviewed it,” Cobb said.
Cobb also said that the fact that no scrutiny has come from the IRS on these points further indicates no wrongdoing.
Watch Managing Editor Matt Bunk discuss the Moak-Quayle rivalry on ABC15′s Daybreak below, or click here to watch the video on ABC15′s website.