Editor's note: This story has been updated to reflect new information; find details at the bottom of this page.
In 2015, Architecture for Humanity (AFH), a U.S.-based nonprofit organization with more than 60 chapters worldwide, abruptly closed and declared bankruptcy, leaving many to wonder what exactly went wrong. Now, RECORD has learned, AFH’s founders and board members are being sued for alleged mismanagement of funds.
On June 10, a court-appointed trustee filed a complaint against the group’s founders, Cameron Sinclair and Kate Stohr, who were paid employees, and 10 members of the board of directors, who served as volunteers. The board consists of entrepreneurs, tech experts, and architects, including Toshiko Mori, a prominent New York-based architect, and Clark Manus, the former president of the American Institute of Architects (AIA). The other board members named are Matthew Charney, Clifford Curry, Paul Gabie, Niama Jacobs, Scott Mattoon, Taylor Milsal, Narry Singh, and Margaret Stewart.
The lawsuit, filed in the San Francisco division of the U.S. Bankruptcy Court, alleges that the defendants acted with gross negligence and breached their fiduciary duties between July 21, 2012, and December 31, 2014. Specifically, the suit accuses the AFH founders and board members of improperly using “restricted funds”—charitable contributions with specific requirements—and violating agreements with donors.
The trustee, Janina M. Hoskins, is seeking $3 million in damages, the approximate amount of restricted funds believed to have been improperly spent. The money would be distributed to companies, organizations, and individuals who are creditors associated with the bankruptcy case. There are 170 such creditors, according to court documents.
Among the creditors are Amazon, Nike, American Red Cross, Make It Right Foundation, Dwell Media, Hachette Book Group, the AIA, and the U.S. Green Building Council. Several universities are listed, such as Carnegie Mellon, Delft University of Technology, and Purdue. Governmental agencies in Massachusetts, California, and New York are creditors, as are vendors and former employees.
The defendants are required to answer a summons by Thursday. A status conference is scheduled on August 26, at a San Francisco courthouse.
Whether this case will go to trial is unknown at this time, said the trustee's attorney, California-based John MacConaghy. "We won’t know for some time if this case settles, must be tried, or will be resolved by a pretrial motion," he told RECORD in an email.
Meanwhile, a number of the volunteer board members are retaining California-based attorney Robert H. Bunzel to represent them. "The [AFH] volunteer directors, from what I understand, gave very active and engaged attention to this nonprofit,” Bunzel said in a phone interview with RECORD. "They did not commit any breaches of duties, and at full record, we will establish that.” One reason for the lawsuit might be a $1 million insurance policy that AFH allegedly held that could be used to pay off debt. “We’re still looking into it,” Bunzel said, adding that certain language in the complaint would “allow for potential insurance coverage.”
The lawsuit is a dark spot in the history of AFH, an influential nonprofit that was founded in 1999 in New York by Sinclair, a UK-born architectural designer, and Stohr, an American journalist. The duo, who married, later relocated to San Francisco. Both left the organization in 2013, during the period when the alleged mismanagement of funds was taking place.
During its 15 years in operation, AFH evolved into a leading charitable organization that helped design and build projects in distressed communities worldwide. In its later years, the group became particularly well known for its work in regions devastated by natural disasters. Noted projects include rebuilding schools in Haiti that were destroyed by the 2010 earthquake; approximately a dozen projects in Japan following the 2011 earthquake and tsunami; and a long-term reconstruction plan for areas in New York and New Jersey that were ravaged by Hurricane Sandy in 2012.
Sinclair, the organization’s charismatic self-described “Chief Eternal Optimist,” received numerous accolades, including the Curry Stone Design Prize Vision Award and the 2006 TED Prize, which came with a $100,000 purse (TED Prize winners now receive $1 million). That award enabled AFH to launch the Open Architecture Network, a pioneering online platform for open-source design. In addition to high-profile companies and organizations, AFH drew support from celebrities such as actor Ben Stiller and singer Shakira, who helped fund its work in Haiti.
Clifford Curry, the founder of the Curry Stone Design Prize, was a member of the AFH board and is a defendant in the complaint. He has requested he be removed from the lawsuit, as he left the board before July 2012, according to his spokeswoman. RECORD attempted to contact all of the defendants in the case and awaits responses.
At the time of its closure, AFH had more than 60 chapters worldwide, with domestic ones run by volunteers and international ones operated as independent legal entities. AFH—a registered 501(c)(3) nonprofit—was organized under New York laws and was registered in California, making it subject to regulations in both states.
Starting in 2009, AFH experienced a sharp increase in its revenues, according to the lawsuit. Its gross revenue—reportedly generated from public and private donations—climbed from $1.7 million in 2009 to $5.5 million in 2010 to $12 million in 2013. Most of the gifts AFH received were restricted funds, the lawsuit claims. For instance, in January 2013, AFH received a $1 million grant from Nike USA to put toward rebuilding efforts after Hurricane Sandy. Only 15 percent of the grant was allowed to be used for overhead; the rest was to be applied directly to the project, according to public records.
As its revenue increased, AFH’s overhead and administrative expenses also grew, due to “payment for fundraising services, executive compensation, the purchase of a building, and staff expenses,” the complaint states. Overhead expenses typically needed to be paid with unrestricted funds, and by July 2012, the organization was running a deficit. By the end of the 2013 fiscal year, that shortfall in unrestricted funds had grown to $1.1 million, according to a 2014 auditor’s report.
AFH allegedly used restricted money to cover operational costs. According to the lawsuit, the organization “completely disregarded the ‘restricted’ and ‘unrestricted’ nature of the funds and began a wholesale looting of the ‘restricted’ funds and used them to pay executive and staff salaries, promotional expenses, and other overhead items.” Moreover, AFH continued to solicit donations and misappropriate funds, despite cautionary reports from its auditor and lawyer, the lawsuit alleges.
AFH’s board tried to remedy the problem by reducing payroll and selling the organization’s headquarters building in San Francisco in 2014. In January 2015, however, the board announced it had voted to close AFH and laid off approximately 30 employees. “It just became clear that we would be unable to completely reduce our operating deficit,” board chairman Matt Charney told the New York Times. “We ultimately lacked the funding to continue.” By the time AFH filed for Chapter 7 bankruptcy protection in April 2015, the organization was left with only $200,000 in cash, according to the complaint.
There are laws that protect paid and volunteer directors from being personally liable for an organization’s debt if decisions were made in “good faith,” among other requirements. The AFH lawsuit alleges, however, that the defendants “repeatedly approved donor grants and expenditures in violation of the grant agreements” and against the advice of the organization’s auditors and legal counsel. Rather than showing prudence, the defendants “acted with such a degree of carelessness and inattention to the performance of their duties so as to constitute gross negligence,” the lawsuit claims.
Sinclair left AFH in October 2013 and became the executive director of the Jolie-Pitt Foundation. He went on to found Small Works, a social impact design and development company. Stohr, who departed in the spring of 2013, is now a principal at 99 Antennas, a company that uses data to tell stories.
“We were saddened by the news,” Sinclair told RECORD in an email. “We are working with our attorneys to understand the decisions that were made during and after our transition. We hope the case will be dismissed and are glad the chapters are continuing the good work.”
While AFH’s legal issues remain unresolved, its mission to help challenged communities endures. In the wake of AFH’s closure, dozens of local chapters banded together and began working to establish a new group that would perform charitable design services. This past January, the group announced the establishment of The Chapter Network, which in March was formally named the Open Architecture Collaborative (OAC). Garrett Jacobs, who worked for AFH, is executive director of the new organization.
The group has chapters in 30 cities around the world, including New York, Los Angeles, Chicago, Cairo, Tokyo and Guadalajara, Mexico. On July 6, the group announced one of its first major initiatives: a partnership with the AIA’s Housing Knowledge Community to produce a series of monthly webinars focused on affordable housing and community development. Jacobs hopes OAC can build on AFH’s work, but “with a much more grassroots, locally based focus.”
Jacobs adds that he was astonished at how quickly AFH was dismantled. “I had an inside view, so I felt it coming for some time,” he said in an email. “But I was shocked at the way it unfolded, especially how none of the chapter leaders were informed, and the haste with which the decision was made.”
This story was updated on 7/12/16 at 6:50 p.m. EDT to reflect new information.
Update, 8/11/16: Clifford Curry, who was not on the board during the time period of the alleged mismanagement of funds, has been dismissed from the lawsuit.
Update, 6/24/20: The parties in the case reached an out-of-court settlement agreement in June 2017, and the case was subsequently dismissed. According to court documents accessed by Architectural Record via the government’s PACER website, the insurer for Cameron Sinclair and Architecture for Humanity’s volunteer directors paid out $550,000 to the trustee in AFH’s bankruptcy case. Several defendants originally named in the lawsuit were dismissed from the suit earlier.