By Pat Anson, PNN Editor
Over $2 million in funds were misappropriated by former U.S. Pain Foundation CEO Paul Gileno or used in questionable transactions with his family, according to a statement and tax returns released Thursday by the Connecticut based non-profit. Some of the money was paid to Gileno’s wife, sister and brothers.
The misuse of donor funds by Gileno was discovered in April 2018, which led to his resignation the following month. Until now, the extent of the fraud has not been disclosed to U.S. Pain’s staff, volunteers and donors.
“The former CEO was widely respected and beloved in the pain community, and took advantage of that trust in him. He was able to do this by both withholding key information and providing dishonest information that deceived staff and volunteers in leadership positions,” interim CEO and board chair Nicole Hemmenway said in a statement that curiously avoided using Gileno’s name.
“He controlled the organization’s operations, finances, records and bank accounts, as well as the Board process. His mismanagement and dishonesty left the records in disarray.”
According to Hemmenway, Gileno misappropriated nearly $1.9 million from U.S. Pain from 2015 to 2017. The non-profit raised over $7 million in donations during that period, meaning almost a third of it was misused by its founder and CEO.
The misuse of funds was characterized as an “excess benefit transaction” on U.S. Pain’s delinquent tax returns for 2016 and 2017, which were filed late last month with the IRS. An excess benefit transaction is when a payment made by a tax-exempt organization exceeds the actual value of that benefit.
The tax returns indicate the misappropriated funds were spent on “related party vendors” and “personal expenses,” but disclosed no other details. Hemmenway said additional excess benefits would be reported on U.S. Pain’s 2018 tax return.
Gileno did not immediately respond to a request for comment, but has previously admitted misusing donor funds. “I made some big mistakes over the past few years and took money from US Pain for my personal use,” Gileno wrote in an email sent to U.S. Pain’s leadership last year.
Payments to Family Members
In addition to the nearly $1.9 million in misappropriated funds, U.S. Pain’s 2017 tax return indicates that about $160,000 was spent in transactions involving Gileno’s family.
Nearly $48,000 was paid to Gileno’s wife and nearly $12,000 to his sister. The tax return does not explain what those payments were for. Another $100,000 was spent on an investment in SMJ Homes Inc., a real estate investment company controlled by Gileno’s brothers. The tax return indicates the investment has already lost over half its value.
There was apparently very little oversight or financial controls at U.S. Pain and Gileno was permitted by the board — which has legal and fiduciary responsibilities — to spend money as he wished.
“The former President/CEO controlled the board process. The records maintained under his leadership list the officers and directors… but contain no evidence that election of officers and directors occurred,” the tax returns said.
Gileno was paid a salary of $94,000 in 2017 and no salary in 2016. A $403,000 salary paid to Gileno in 2015 is now being characterized as an excess benefit.
Hemmenway was paid a salary of $49,900 in 2017 for her work as vice-president. She has been a key member of U.S. Pain since its founding in 2011. So have board members Wendy Foster and Ellen Lenox Smith.
Smith’s daughter-in-law, Shaina Smith, was paid a salary of $76,700 in 2017 as director of state advocacy for the non-profit.
‘I Never Mislead Them’
Multiple sources familiar with U.S. Pain have questioned how Gileno was able to misappropriate funds for so long without Hemmenway or the board being aware. Gileno himself has said they were kept informed.
“I never mislead them. They were part of US Pain for over 10 years and I talked with them daily,” Gileno wrote in an email to PNN last month. “Nicole and I were close like a brother and sister and I never hid one thing. I feel bad they are trying to use me as an excuse.”
Some insight into how U.S. Pain and its board operate is provided in a blog post by former board member Suzanne Stewart, who resigned last September after serving on the board for only a few months.
“I don’t feel safe being involved with voting on big decisions yet being left in the dark much of the time. I don’t really know where money is going or where it comes from in all honesty,” she wrote.
In Thursday’s statement, Hemmenway acknowledged that “the organization should have had stronger financial controls” and said a “robust system of checks and balances” now requires U.S. Pain’s chair and chief financial officer to approve all expenditures.
“With these checks and balances in place, the organization is stronger than ever before,” Hemmenway said. “U.S. Pain fills a vital gap in support for the pain community and refuses to let the actions of one individual impede its efforts to educate, connect, empower, and advocate for those living with chronic pain.”
The statement gave no indication if others were implicated in the misuse of funds or if Hemmenway and the remaining board members will resign or be replaced.