By Lena H. Sun
Washington Post Staff Writer
Sunday, March 21, 2010; A04
The liberal political organizing group ACORN is on the verge of bankruptcy following a string of disclosures about mismanagement that caused funding to dry up, according to a source familiar with the organization.
Leaders of the embattled grass-roots group and their advisers have been discussing options for weeks as donors, including foundations and government entities, have cut back on funding, according to another source, who took part in talks about ACORN's future.
Pablo Eisenberg, a senior fellow at the Georgetown Public and Policy Institute, said ACORN leaders have told him of plans to file for bankruptcy and form a new entity to serve as a public policy link to local and state chapters "without the name of ACORN."
Eisenberg said he was asked to be a board member of the new group but has not been in touch with ACORN's leaders for about six weeks.
The group's plans to possibly file for bankruptcy were first reported in the New York Times.
The community organizing group was embarrassed last fall after a video sting that showed ACORN housing counselors advising two young conservative activists -- posing as a pimp and prostitute -- how to conceal their criminal business.
The episode prompted Congress to vote to prohibit the federal government from funding ACORN. The U.S. Census Bureau ended its partnership with the group.
An ACORN spokesman on Saturday declined to comment on possible bankruptcy plans. Communications Director Kevin Whelan released a statement on behalf of ACORN's chief executive, Bertha Lewis:
"The ACORN Association Board is meeting (by phone) this weekend and will be making some very tough decisions about the future of their organization. . . . For ACORN as a national organization, our vindication on the facts doesn't necessarily pay the bills."
In an earlier statement, the group called the video that triggered the controversy "a manufactured, sensational story that led to a rush to judgment and an unconstitutional act by Congress."
In the last six months, several of the group's stronger state chapters -- including those in California and New York -- have broken off from the national group, cut ties to the ACORN name and incorporated separately, according to the source who said the organization is on the verge of bankruptcy. The source, who was previously affiliated with the organization, spoke on the condition of anonymity because of the sensitivity of the matter.
ACORN, which stands for Association of Community Organizations for Reform Now, was founded in 1970 and forged relationships with banks, federal and state agencies, and nonprofit groups that made it a major force in helping low-income families buy homes and in bringing marginalized voters to the polls. The ACORN political action committee endorsed presidential candidate Barack Obama in February 2008.
Republicans have long accused the group of fraud in registering voters and improperly mixing political and nonpolitical activities. ACORN has denied those allegations.
Even before the video sting, ACORN had faced internal chaos and allegations of financial misconduct and fraud. The board was in turmoil over how to handle allegations of embezzlement by the founder's brother and how funds had been managed, according to ACORN documents.
The group hired a former Massachusetts attorney general to investigate. In a 47-page report released in December, Scott Harshbarger concluded that there was no criminal conduct by the employees who appeared in the video sting offering advice on how to hide assets and falsify lending documents.
The report said ACORN leaders should focus on community organizing and hire an independent ethics officer. It also said ACORN's management had not moved fast enough to institute reforms after an alleged eight-year cover-up by ACORN founder Wade Rathke of an embezzlement by his brother.
Staff writer Darryl Fears, staff researcher Madonna Lebling and research editor Alice Crites contributed to this report.