Pa. Attorney General files suit against Fumo's nonprofit

Pennsylvania Attorney General Tom Corbett took the first step yesterday toward dissolving Citizens' Alliance for Better Neighborhoods, the nonprofit at the center of the fraud case against former State Sen. Vincent J. Fumo.

Corbett filed a lawsuit in Commonwealth Court seeking the revocation of Citizens' Alliance's corporate franchise, and calling for a full accounting of the nonprofit's assets and spending. The suit also asks for repayment of any wasted or mismanaged money.

If the court were to decide against the revocation of the corporate franchise, Corbett asked then for the removal of all current board members and officers, and the appointment of a new slate of officials.

"This just starts the process," Corbett said at a news conference at his Philadelphia office.

Fumo, 65, a once-powerful Democrat in Harrisburg and in Philadelphia, and Ruth Arnao, the former head of Citizens' Alliance, were found guilty in U.S. District Court last month of defrauding the charity out of about $1.4 million.

Named as defendants in the lawsuit were Fumo, Arnao, current and former board members of the nonprofit, and its most recent executive director, Christian A. DiCicco. DiCicco, a son of City Councilman Frank DiCicco, did not return a phone call yesterday.

All of the defendants "have breached their fiduciary duties of care and loyalty owed to Citizens', and they are liable in their individual capacities for the waste and diversion of Citizens' assets," the lawsuit said.

The suit provided fresh information about the financial difficulties confronting Citizens' Alliance, which was once flush with money raised by Fumo but now appears to have burned through millions, spending heavily on real estate, defense lawyers, bad investments and - as the jury found - illegal gifts for Fumo.

The lawsuit stated that in 2002 the nonprofit invested $9 million in a brokerage whose president was a close Fumo friend, the late Stephen Marcus. At his trial, Fumo disclosed that he was the recipient of largesse from Marcus. He said that Marcus had given him a $1 million in cash gift in 2000, and a $500,000 power boat. Marcus died in 2005.

The Attorney General's Office has yet to figure out precisely what happened to the entire $9 million investment.

Two of the firm's brokers, William B. Fretz Jr. and John Freeman, then put much of the money into numerous ventures in which they held a financial interest, according to the lawsuit.

In one case, the pair invested $2.5 million of the nonprofit's money into a hedge fund they founded. At last reckoning, that investment was worth only $1.1 million, the lawsuit stated.

Last year, Citizens' Alliance filed a complaint with industry regulators against Fretz and Freeman. It said they had kept the nonprofit in the dark about their investment choices and what was happening to its money. In rebuttal, the pair said that the nonprofit's leaders had approved the investments.

In the civil suit, Corbett notes that Marcus was also a major campaign backer of Fumo, giving him almost $300,000 in donations.

Fretz gave $9,500 to Fumo's political funds in 2003. Fretz did not respond to a request for comment. Freeman was not available yesterday.

The nonprofit was founded by Fumo and his aides in 1991 to revitalize neighborhoods in South Philadelphia and to sweep streets, shovel snow, and get rid of graffiti. During his testimony, Fumo called the nonprofit "my baby."

It was funded with public and private contributions, including $17 million that Fumo persuaded Peco Energy to give the nonprofit in return for Fumo's decision to drop a legal challenge against the utility in a regulatory matter.

After last month's convictions, Citizens' Alliance said it would stop providing services as of April 30 - in part because the group has had to use resources to cover expenses from continuing government investigations.

The lawsuit contends that the convictions established that the nonprofit used its money to buy power tools and household items, to provide cars and equipments for Fumo and his staff, to pay for political polls, and to fund a legal challenge to one of Fumo's political enemies.