According to the complaint filed by the attorney general's office in Riverside County Superior Court, Help Hospitalized Veterans' founder and former president Roger Chapin retired in 2009 with a nearly $2 million pension plan after the group's board retroactively spiked his earnings to justify the inflated amount. He stepped down a year after being questioned about his financial practices at a congressional hearing.
Meanwhile, the organization continued to raise millions. Its annual revenue for 2011, the most recent figure available, was $41 million, including $30 million in cash donations.
Chapin and others named in the complaint could not be reached Thursday. The law firm representing Help Hospitalized Veterans did not immediately respond to a request by The Associated Press for comment.
The organization is one of more than two dozen started by Chapin. Prosecutors said its board authorized loans and grants to Chapin's other groups.
The state began looking into the matter after the 2008 congressional hearing, but Attorney General Kamala D. Harris said she made going after those who exploit veterans a priority when she took office in 2011.
"What makes this case so egregious is our military servicemen and women are willing to sacrifice their lives for our country and for us as Americans, and when they are in need of help and support we should give it to them and not manipulate charitable people and then personally profit from them," Harris said Thursday.
Charity watchdog groups say the case shows the lack of oversight for such organizations, which have blossomed in recent years with the return of troops from war and the increased willingness of Americans to open their wallets to help them.
"It's about $2 billion that is raised on behalf of veterans charities, and unfortunately a lot of that's being wasted and not being used to help our veterans," said Daniel Borochoff of CharityWatch, which monitors the financial records of nonprofit groups. "It's really ludicrous what's going on."
According to Charity Navigator, one-third of the 50 military veterans charities it assesses rate poorly, and 20 percent get a zero for their financial management or a "donor advisory" tag, which indicates the organizations are being investigated by authorities. That compares with 2 percent for other kinds of charities, Charity Navigator president Ken Berger said.
According to its website, Help Hospitalized Veterans' mission is to support recreational and occupational therapies for homebound and hospitalized veterans, mostly by donating arts and crafts kits to help stimulate their minds and use their motor skills. It also employs "craft care specialists" who help veterans select and complete their craft kits.
The group once was endorsed by retired Gen. Tommy Franks, who later distanced himself from the charity.
State officials are seeking the ouster of the current president and several board members. They also want at least $4.3 million prosecutors say was squandered to be returned to a trust for the charity. Harris said the action will allow the organization to do the work it was intended to do and help more veterans.