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The Pa. Attorney General has tried to fix Hershey Trust for years. Will this probe be different?

Mark Pacella, the state's watchdog over nonprofits, has spent about half his 29-year career at the Attorney General's Office seeking reforms at the Hershey Trust for impoverished children.

Mark Pacella has spent a good chunk of his career overseeing efforts to reform the Hershey Trust.
Mark Pacella has spent a good chunk of his career overseeing efforts to reform the Hershey Trust.Read moreIndependent Sector

Mark Pacella, the state’s watchdog over nonprofits, has spent about half his 29-year career at the Attorney General’s Office seeking reforms at the Hershey Trust for impoverished children.

In 2003, Pacella and his bosses struck a deal with the trust, requiring them to limit board members' self dealing. It didn't work.

In 2013, he was at it again, striking an agreement to curb board pay, which also failed.

Today he finds himself in a familiar position: investigating the giant charity.

Critics wonder: The trust is so rich and so connected; will this effort be any different?

Leaks from the Hershey Trust this year have revealed just how bad things are.

Members of Hershey's boards have spent millions of dollars investigating themselves over possible conflicts of interest as they have also indulged in limo rides and costly travel and reaped millions in board compensation.

Pacella's approach - and one backed by five elected or appointed attorneys general over him since 2000 - has been to correct wrongdoing on the Hershey boards through negotiated settlements as opposed to court actions seeking more drastic consequences.

But those deals in 2013 and 2003, critics say, lacked hard-and-fast penalties on the politically powerful charity, leading to more scandals.

"Fifteen years later, where are we at? We're right back where we started. That's my big disappointment," said Joseph Berning, a Milton Hershey School alumnus who began seeking governance changes at the charity in the mid-1990s.

"[Pacella] was always the one saying that half-measures weren't good enough, and then the Attorney General's Office turned around and settled for half-measures," Berning said of the 2003 settlement that was to permanently fix the charity.

"They never did it right in the first place," Berning said. "They settled and compromised and weakened it. They allowed the trust to come in and bully their way out of the situation."

Based on internal memos, Pacella is again seeking a voluntary settlement for the latest wrongdoing at the trust, which finances and runs the troubled Hershey School for at-risk children, one of the nation's richest charities. The school, with $12.3 billion in assets, enrolls 2,000 mostly Pennsylvania students.

Pacella also has requested the removal of three board members, including the chairwoman, Velma Redmond, and demanded that board members repay the charity hundreds of thousands of dollars in legal fees for bogus internal investigations.

Pacella has said he could pursue litigation against the trust by July 31 if some of his terms are not met.

Trust spokesman Kent Jarrell on Tuesday repeated a month-old statement that the Hershey boards have "a long history of voluntarily and constructively working" with the agency and "expect to appropriately resolve outstanding concerns."

Pacella, a chief deputy attorney general, did not respond to interview requests. Agency spokesman Jeffrey A. Johnson said, "We can't comment at this time due to the fact that this is an ongoing investigation."

Solicitor General Bruce Castor, the office's No. 2 executive with final say in legal matters, met with trust officials in mid-June, saying that he backed Pacella and considers litigation an option, say two sources with knowledge of Castor's position.

Litigation would expose the charity's finances and board behavior to the public through court filings and could lead to court-ordered changes. A case would be litigated through the Dauphin County Orphan's Court.

But sources say the trust has been stonewalling Pacella and could be waiting for the November election to reach a more favorable deal with a new attorney general.

Incumbent Kathleen G. Kane, who faces a criminal trial over allegedly leaking confidential information to a reporter, is not running again.

State Sen. John Rafferty, the Republican candidate, said Wednesday that "people in the state government are getting tired of the Hershey Trust story and they want it to end."

He said he would have "the guts to initiate changes" and override political interests.

"We have to get rid of the perks," he said. "It's not about expensive bottles of wine. It's about the kids."

Josh Shapiro, the Democratic candidate, said Monday that the Hershey Trust "needs real reform" and that its leaders must be held accountable.

Pacella's probe "raises the question as to whether we need a broader settlement than what is on the table now and whether it has real teeth for enforcement," Shapiro said.

Fans and critics alike call Pacella an exemplary public servant. He heads the attorney general's Charitable Trusts and Organizations Section and has served as the past president of the National Association of State Charity Officials.

His defenders say that he has a firm grasp on what needs to be done in Hershey but that agency politics have prevented him from doing it.

"My experience with Mark and other people in that office is that they try to make sure charity operators fulfill their purpose without being vindictive against the boards and directors who may have not done what they should," said Don Kramer, a lawyer with Montgomery McCracken Walker & Rhoads L.L.P.

As for Hershey, Kramer said: "It's politics."

Politically connected board members such as LeRoy Zimmerman, a former two-term attorney general, and Philadelphia-area money manager James Nevels have each earned more than $1 million in Hershey-related board pay over the last decade. (Zimmerman is no longer on any Hershey-related boards.)

The trust also owns a controlling stake in the Hershey Co. candy giant and Hersheypark, for-profit firms that employ thousands in central Pennsylvania. The same people on two separate boards manage the charity's assets and oversee the school.

Joseph E. Lundy, a lawyer with the Schnader Harrison Segal & Lewis L.L.P. firm in Center City, said: "I'm a fan of Mark Pacella. He is what I call a good guy. He seems to have an even temperament and a good head on his shoulders and good instincts. And I would suggest he has been an extraordinary public servant."

Lundy called the Hershey Trust "a hornet's nest" of politics and the Attorney General's Office "not as powerful as you think."

But the agency and Pacella are also the regulators of last resort for charities, with broad oversight powers for change.

Insiders who have come forward have not fared well. Robert Reese, a former trust board member and the president of the Hershey Trust Co., which manages its finances, filed a petition in the Dauphin County Orphan's Court in early 2011 describing fiscal concerns that included soaring board pay and use of school funds to buy a luxury golf course at an inflated price of $12 million.

The trust ousted Reese from its boards around the time of the petition. Reese withdrew the petition after a few months for health reasons. Pacella investigated the claims and did not take action on some of them, court records show.

Mary Louise Porter, a former general counsel for the Hershey Trust Co., lost her job in 2011 while Pacella was investigating the charity over the golf course purchase.

The Hershey Trust Co. recently put Marc Woolley, deputy general counsel, on indefinite leave after his September memo that disclosed board infighting and the resulting legal fees.

The Woolley memo and other documents were leaked to Pacella in late 2015, triggering Pacella's current investigation.

Ric Fouad, an alumnus who runs Protect the Hershey's Children Inc., which has sought reforms, said that "it's difficult to expect much from the [attorney general] when all their past acts made Hershey worse for needy kids but better for connected insiders. The same pattern will hold now without a fully reconstituted and volunteer board that puts children first. This is not Mark Pacella's fault. It's the fault of his politicized bosses."

Berning, also an alum, likes Pacella, but said "the Attorney General's Office has always been intimidated by wealth and [the trust's] ability to marshal legal resources to fight them. Let's face it. The Attorney General's Office has a budget and limited resources, and they would be up against a charity with seemingly unlimited resources and their biggest fear was a protracted legal battle that they would lose by attrition."

Only the attorney general can see it through, Berning said. And based on the past, he doubts the agency "has the will to call their bluff.

bfernandez@phillynews.com

215-854-5897 @bobfernandez1