Did Congressional Candidate Steve Moak Use his Not-for-Profit Charity to Pimp His For-Profit Business? Sure Looks Like it
The line between profit and charity appears to have been blurred for Moak, who, according to tax records obtained by New Times, apparently used his not-for-profit charity as a marketing arm for his for-profit business.
In 1999, Moak, and his wife, Debbie, started a not-for-profit charity called notMYkid. The Moaks started it to educate kids and families about the dangers of drug use after two of their own children fell victim to the drug epidemic.
Nobody would argue the charity's not a noble cause. What may be considered a bit less than noble, though, is what happened next.
In 2004, Moak bought First Check Diagnostics, a California company that makes home drug tests. That same year, he and his wife began a program through notMykid called Project 7th Grade.
Project 7th Grade provided at-home drug tests for parents of children in the program. The idea, as Moak told New Times last week, is to give parents the tools to see if their kids are using drugs, as well as to provide a deterrent for kids who may be tempted to get high.
Moak says if a kid goes to a party and is offered drugs, being able to say "no, my parents drug-test me" would provide the kid with an easy way to decline the pusher's offer without lookin' nerdy.
Guess what brand of drug tests Project 7th Grade provided those in the program: the same ones produced by Moak's for-profit company, First Check Diagnostics.
Simultaneous with the creation of Project 7th Grade, the operating budget for notMYkid shifted from funding education programs to fueling the use of the drug tests produced by Moak's for-profit company under the guise of the new program.
In 2004, 100 percent of notMykid's $96,031 budget went to programs designed to educate kids about the consequences of drug use. In 2005, nearly 80 percent of the charity's then $206,385 budget went to funding Project 7th Grade, to "provide guidance about how to use a drug test kit as a prevention tool," as stated in tax records.
Moak says the tests were donated to the charity and that participants in the program were provided as many as they needed. However, according to an article on the Web site RefillPill.com, those kits were only provided "while supplies last." When supplies don't last, parents are on the hook for buying the kits, which cost $27.99.
In the article, Debbie Moak advised parents that a test should be administered "every six weeks," so if supplies don't happen hold out, parents would end up coughin' up the cash "every six weeks" if they wanted to continue drug testing their kids.
The tests were even sold on the notMYkid Web site.
The Project 7th Grade program became so popular that schools all over the country began using it -- not a bad marketing tool for the company providing the tests, which happened to be owned by the Moaks.
The entire time Moak was pimping his for-profit drug tests with his not-for-profit charity, he never disclosed a conflict of interest on his tax forms -- that is, until he sold the company in 2007 for $25 million to Inverness Medical Innovations.
The year the company was sold, and would be more likely to face an audit, Moak disclosed the conflict on his tax forms.
When we asked Moak about why he didn't disclose a conflict, he said he didn't know where he would be required to do so. He apparently figured it out in 2007, though, because as you can see below, he disclosed it on his tax filings.
|Moak's tax filing the year he sold the company.|
Below is his 2006 filing. No such disclosure of a conflict is mentioned.
|Moak's tax filing in 2006.|
These documents are public record and are often analyzed by potential investors of the charity. The fact that the founder of the charity is also the owner of the for-profit company providing it with drug tests might be something a potential investor would want to know.
In our conversation with Moak, he insisted that the charity was never used as a marketing tool for his business. His wife, however, apparently didn't get the memo.
In the RefillPill.com article, Debbie Moak says drug prevention is the "sole motivation" of the charity, but goes on to say "the program could eventually be a way for First Check to make money."
Moak sold First Check for $25 million. He says the reason the company became so successful was not because its product was pimped in schools all over the country, but because stores like Wal-Mart and various pharmacies contracted with First Check to sell the tests in their stores.
Could the fact that Moak's drug tests were made popular by getting hawked in schools all over the country have played a role in pharmacies' decisions to carry them? Probably.
It seems Moak -- even if it wasn't intentional -- profited from his non-profit charity, which isn't the worst thing in the world. But if that's the game you wanna play, at least disclose the conflict to the IRS when trying to qualify for not-for-profit status -- especially if you think you might run for Congress a few years later.