Ellen Kay Hatch's downfall began on a note of irony: She was caught, not stealing money, but giving it away.
Hatch, the 43-year-old executive director of the Bethesda-based American Kidney Fund and a nationally known charity fund-raiser, awarded a $10,000 research grant to Brooklyn doctor Eli Friedman in May 1984. A warm note, signed by Hatch, told Friedman the organization was pleased to make the bequest, and conveyed Hatch's "best wishes."
Friedman, who held Hatch in high regard, saw nothing out of place. He knew her as an attractive, effervescent woman who would cry over appeals from the sick and the poor whom she was unable to help. "She would go out and get the money when it didn't exist," he said.
What Friedman didn't know was that the trustees of the Kidney Fund had not voted on his grant application. Two weeks later, they rejected it. A letter prepared in the fund's offices apparently was never mailed by Hatch. Friedman said he never got it.
When Kidney Fund staff members found a Xerox copy of the check to Dr. Friedman last spring, they began raising questions: Where had the $10,000 come from? Who had approved it? The bank account on which the check was drawn was unfamiliar to fund staffers; how had it been opened?
With that, the private world of Kay Hatch -- a high school dropout from California and teen-age mother who worked her way to a $77,000 salary and a prestigious career -- began to unravel.
In late June, fired by the fund for allegedly misappropriating close to $5 million, pressured by its lawyer for an accounting of her activities and humiliated by her loss of standing, she climbed into the Jacuzzi at her new $200,000 Victorian-style home in Herndon.
Using a small pearl-handled pistol, she fired a single shot into her heart.
In the inquiries that have followed the suicide, Kay Hatch has emerged as a mystery: a woman who turned devious in her zeal to help the needy, a thief perhaps motivated by altruism.
Fund officials, in a lawsuit stemming from the incident, are seeking $1.4 million from Hatch's estate. That sum, they charge, is part of the millions in proceeds from a nationwide charity sweepstakes Hatch conducted by direct mail for 2 1/2 years without the trustees' knowledge, using a secret postal box at Dulles International Airport and three Virginia bank accounts hidden from the fund's auditors.
"It was like a child being caught taking cookies from a cookie jar," said Elisabeth Enright, a New York social worker who is president of the Kidney Fund's 13-member board of trustees. "We were all disappointed, frustrated, furious."
Although thousands of dollars remain unaccounted for, financial documents filed in Fairfax County Circuit Court and recently unsealed indicate that in running the sweepstakes, Hatch paid:
*$160,000 to her daughter Donna Kent and the mail-opening firm she ran.
*$120,000 to a second daughter, Sheri Hatch, and the mailing firm she ran.
*$127,000 to two Fairfax County printing firms operated by her boyfriend, Marshall L. Painter.
*$243,000 to a secret bank account that she used primarily for personal expenses.
*$639,000 to the regular accounts of the Kidney Fund.
Hatch's daughters say the payments they received were proper compensation for work performed on the direct-mail campaigns. "I never kept what I did a secret," said Hatch's daughter, Kent.
The daughters and others close to the family dispute the fund's claim that its trustees were unaware of such a massive fund-raising event. They also contend that Hatch did not need the board's approval to undertake the sweepstakes.
The family maintains, too, that Kidney Fund board members, many of them living in distant cities, were interested in boosting the fund's income while keeping costs low and were not specific about how Hatch, their chief fund-raiser, would achieve those goals.
The result is a tale of Hatch's humble beginnings and personal hardships, of immense striving to achieve success, of a web of business and romantic relationships and, most spectacularly, her massive fund-raising machine that generated at least 10 million direct-mail appeals for donations.
Her story, pieced together from interviews with more than 50 associates, Kidney Fund employes and trustees and others involved in charity fund raising, as well as court records, raises questions about how well charities' own governing boards keep tabs on their groups' day-to-day operations.
It further underscores the potential for abuse in direct-mail fund raising, which in most states is not subject to close scrutiny, according to state officials.
Officials at the Kidney Fund, a 15-year-old organization that aids thousands of kidney patients directly with emergency cash grants, acknowledge they are trying to recover from the episode.
Since March the fund has spent more than $100,000 in legal and other fees. Donations to the fund are down from last year and trustees fear the fund has gained a notoriety that will handicap its fund raising.
"We may be out of business," said Wayne A. Gray, the fund's acting director who served as treasurer of the board of trustees before Hatch's death.
Despite the officials' charge that Hatch deceived them and illicitly raised millions of dollars, there is little to indicate that Hatch pocketed the largest chunk of it. Most of the money, in fact, appears to have been spent on supplies needed to keep the sweepstakes going -- printing, paper, envelopes and so forth. In addition, a large sum went directly to the Kidney Fund coffers, financial records show.
Records of the "secret" bank accounts, allegedly opened by Hatch without permission of the Kidney Fund, show that she deposited at least $579,000 in funds raised through the sweepstakes into the legitimate coffers of the Kidney Fund with no explanation.
Another $60,000, touted as an anonymous donation when Hatch presented it to the board in 1983, also was transferred from one of the "secret" accounts she controlled to the Kidney Fund's regular NS&T bank account, according to Hatch's daughter, Donna, who handled bookkeeping for the separate sweepstakes account with Sovran Bank of Virginia. Fund trustees remember that the "anonymous donor" enclosed a note praising Hatch for her good work.
"She didn't take it all, she really didn't," said one source close to the charity who asked not to be identified. "Some money went back to the Kidney Fund."
Fund officials acknowledge, too, that the charity benefited substantially from Hatch's death June 29, a day before the fund's $500,000 life insurance policy on Hatch was set to expire. That policy, which the Kidney Fund carried as a hedge against losing its most important employe, carried no exemption due to suicide. Fund officials said they expect to receive an additional $250,000 from a general "employe dishonesty" insurance policy.
In fact, according to Hatch's family, the fund stands to recover more than Hatch allegedly took.
Gray, the acting director of the fund, said in an interview that the fund does not expect its two lawsuits -- one against Hatch's estate and another against her daughters -- to recover substantial amounts.
He said the suits are designed primarily to satisfy insurance companies and state charity regulators, who demand an accounting of the fund's activities. Hatch's estate amounts to $2,251, according to William F. Wall, a Fairfax lawyer who is curator for Hatch's estate.
The day after Hatch was confronted by fund officials, she was hospitalized with a transient ischemic attack -- similar to a stroke. Court records show she had a lawyer transfer ownership of her Herndon home and a four-acre Loudoun County farm to her daughters, a move the fund alleges was an effort to hide assets.
Hatch's daughter, Donna Kent, said that doctors had warned her mother to put her affairs in order and that her mother could no longer afford the $2,750 monthly payments on the Herndon home.
Today, as lawyers, accountants, insurance agents and fund officials exchange salvos and try to knot loose ends, a number of questions remain unresolved:
*Did the Kidney Fund trustees fail to keep tabs on the sweepstakes after Hatch informed them that she intended to try one?
*How could the trustees be kept in the dark about such a massive fund-raising effort?
*Why didn't the fund's outside accountants, Arthur Andersen & Co., ever discover the "secret" bank accounts, which were the source of more than 10 percent of the kidney fund's revenues in 1983?
It is unclear whether the lawsuits will answer the questions that puzzle people on both sides. And it seems most unlikely that the lawsuits will piece together what may be the greatest puzzle of all -- the motives and actions of Ellen Kay Hatch. Modest Beginnings
The daughter of a career Army enlisted man, Ellen Kay White was born in Gaffney, S.C., in 1941. Her father died a few years later at an Army post near Petersburg, Va., and she moved to the Los Angeles area with her mother, Thelma (Chick) Bentley.
According to Bentley, Kay dropped out of high school and married a Marine from Camp Pendleton. At 16, she had her first child, her daughter Sheri. The next year, her daughter Donna was born.
By the age of 18, Kay was living in Lawton, Okla., with her Marine husband and two daughters. When Donna was 6 months old, Kay took her two girls and walked out. Her husband, an alcoholic, later died.
Hatch and her daughters traveled the NASCAR auto racing circuit briefly until a friend's pickup truck, carrying everything they owned, went off a cliff. After that, said Donna, "There were times when we ate flour pancakes for breakfast, lunch and dinner and lived in my mother's Buick."
They found their way back to Southern California and in the mid-1960s, she remarried. The new union, with an auto mechanic named Richard Hatch, lasted until he, by his own account, "went out with some gal and [Kay] caught me. It was my fault." The couple had two children.
In December 1969, Kay Hatch and her four girls moved to the Washington area to start anew. The family took a two-bedroom apartment in College Park. At first, Hatch slept on the living room couch and her daughters slept on the floor. "For Christmas one year, we got beds," said Donna.
In 1971, Hatch was hired as an assistant to Swen A. Larsen, director of the fledgling American Kidney Fund. She also began to work with a close friend and business associate of Larsen's, John Swain, who headed Response Development Corp., a Fairfax direct-mail company that assisted the fund.
According to friends and family members, Swain, who died last spring, became Hatch's lover and mentor and a key figure in the sweepstakes she would undertake a decade later.
The fund, which Larsen started in 1971, came under scrutiny by the Better Business Bureau and U.S. postal inspectors in 1973 after it spent 95 percent of its annual income from the previous year -- all raised by direct mail -- on administration and only 5 percent on charity. A year later, Larsen was out as director and his aide, Hatch, took over.
In the next decade, advised by Swain and empowered with far-reaching authority by the fund's trustees and a reserve of energy that dazzled most who met her, Hatch steered the fund to respectability, quadrupling its income from 1974 to 1985.
Virgil Smirnow, a charity fund-raiser who eulogized Hatch in a trade magazine article in August, wrote that she was "dedicated to the needs of kidney patients" and had "a heart as big as the great outdoors and a compassionate nature to go with it." Kidney Fund staffers remember that Hatch several times offered to take a pay cut when the charity was strapped for funds.
In 1981, Hatch was honored as fund-raiser of the year by the Washington chapter of the American Society of Fundraising Executives. In 1984, she was named to a special panel of the National Association of Attorneys General looking into charity fund raising abuses. To hundreds of people who dealt with her, Hatch was the American Kidney Fund.
"I viewed Kay and the Kidney Fund as the same -- synonomous," said Dr. Friedman, the Brooklyn doctor who received Hatch's $10,000 grant. "The visibility and grants of AKF were constantly rising under her directorship."
"People trusted Kay," said board president Enright. "She proved herself a good director. How the Sweepstakes Worked
In 1981, with the advent of federal cutbacks in social programs, Hatch decided to try a nationwide, direct-mail sweepstakes as a fund-raising tool. Another sweepstakes, conducted by Swain's Response Development for the National Foundation for Cancer Research of Bethesda, had been successful.
"It was Swain's idea to do the sweeps," said Kent, Hatch's daughter. According to several sources familiar with the episode, Hatch suggested the sweepstakes during a Kidney Fund board meeting as an experiment that would be ended if it proved too costly.
"She mentioned to the board she was going to try it," said one board member who asked not to be identified.
There are conflicting versions of the extent to which Hatch kept board members informed after that. What seems clear, however, is that the board gave her wide discretion in raising funds and, by the trustees' own account, thought it unnecessary to pursue the subject of a sweepstakes.
According to Kidney Fund general counsel William J. Lehrfeld, Hatch reported to the board on tax aspects of the sweepstakes in October 1983, nearly two years after she first told the board she planned to try it.
Board President Elisabeth Enright said, however, that Hatch told the trustees the sweepstakes had ended. "The costs were far too high," Enright said.
Another board member said he did not remember Hatch ever saying she had ended the sweepstakes. After she proposed it, he said, "That was the last we knew about it . . . . I don't remember that we got any follow-up report."
The Kidney Fund, which had no policy requiring formal authorization of fund-raising drives, has refused to disclose the minutes of its board meetings.
"We don't feel we have a position, really, that we need to defend," said Enright. "We're not guilty."
Wayne Gray, now the director of the Kidney Fund, said he knew about the sweepstakes that Response Development operated for the National Foundation for Cancer Research, where he had served as finance director. But he said he did not know the Kidney Fund also was conducting a large direct-mail sweepstakes.
"I definitely feel this was done as subterfuge," said Gray. "I assure you there was no knowledge of what was going on. Maybe there should have been."
Some Kidney Fund officials say privately they do not understand why their outside accountants, Arthur Andersen & Co., did not spot the income from the "secret accounts" and trace the source of those funds.
The partner at Arthur Andersen in charge of auditing the Kidney Fund, James Wallace, declined to comment. The Kidney Fund did not have an in-house accountant at the time.
To some others in the industry, however, there was no secret about the Kidney Fund sweepstakes. A top fund-raising official at the fund's chief competitor for donations -- the larger, more research-oriented National Kidney Foundation -- said he knew about the project.
Several fund employes also knew a sweepstakes was under way, but said they were unaware that it lacked the board's imprimatur. "A lot of people knew a lot of things," Gray said, "but it was never put together."
Even by charity industry standards, the Kidney Fund sweepstakes was a major project. According to Hatch's daughter, Donna Kent, the mailings went out, spring and fall, from mid-1982 until late in 1984. In all, more than 10 million pieces were dispatched.
On heavy days, thousands of envelopes, sorted into as many as 45 heavy trays of 750 envelopes each, poured into the Dulles post office, where they were collected by Kent.
"It got to be a big joke with airport police ," said Kent, 26. "Two girls picking up a truckload of mail every day."
Kent's business, Kentko Services Inc., with Swain, Hatch's lover, listed as corporate vice president, operated from an office nearby that had been leased by her mother in the Kidney Fund's name. Kent and a staff of up to 14 workers opened, sorted and processed the donations, and deposited the proceeds the next morning.
According to Kent, there was no secret about the sweepstakes, which she said was openly discussed at Kidney Fund parties and in the office. "I didn't know I had to hide it," she said.
The sweepstakes, which carried names such as Have-a-Heart and Save-a-Life, required no entry fee, but stressed that all donations would go to help emergency kidney patients.
Prizes included the usual booty: Polaroid cameras, Hamilton Beach food processors and General Electric radios and countertop ovens. The grand prize in the Have-a-Heart sweepstakes, mailed in late 1983, was $1,000 in Credit Suisse gold plaquettes or a Magnavox stereo television. Winners were selected and prizes awarded by Marden Kane, a New York concern that specializes in running such contests, according to officials at that firm. Where the Money Went
After the fund launched its internal investigation of Hatch's activities last spring, according to fund officials, it was discovered that Hatch had improperly opened bank accounts in the fund's name at Sovran and Central Fidelity banks in Virginia, where several million dollars in sweepstakes income was deposited. Fund trustees have charged that Hatch identified herself as board secretary, which she was not, and affixed the board's official seal.
After the Kidney Fund trustees confronted Hatch on the sweepstakes and the internal investigation was launched, the charity's auditors found the "secret" bank accounts, which were virtually depleted.
Hatch wrote checks on the Central Fidelity account, the officials discovered, primarily for personal expenses, including $107,254 in cash withdrawals during the last three years; several credit cards; a $9,833 payment to Citizens Contracting Co. of Herndon, a home remodeling firm, and $2,500 in 1984 for a tanning bed.
"What would be the purpose of doing this if it wasn't to defraud?" asked Gray.
For several dozen local suppliers, the Kidney Fund sweepstakes was a substantial, legitimate account that paid its bills on time.
One of the sweepstakes' principal suppliers was Marshall Painter, who operates two Fairfax County printing firms, Colorcraft Litho Inc. and Dominion Graphics of Virginia Inc.
Painter, 47, had pleaded guilty to grand larceny in Fairfax County in 1977 and received a suspended 10-year prison sentence. A decade earlier he had been convicted of breaking and entering and had served time in the Virginia state prison in Richmond from 1967 to 1969.
According to sources close to Hatch, she met Painter in the early 1980s when Hatch's lover at the time, Swain, hired him to do roof work at the Loudoun County farm house owned by Hatch as a weekend retreat. Soon after, Hatch severed her romance with Swain, who had refused to marry her, and began a romantic relationship with Painter.
During 1983 and 1984, Painter's companies received $127,000 in printing business paid for out of two of Hatch's "secret" sweepstakes bank accounts, according to financial records.
In recent years, Painter's firms also received the bulk of the Kidney Fund's ordinary, nonsweepstakes printing business. In 1984, for example, 86 percent of the charity's printing -- worth $372,500 -- was performed by Colorcraft and Dominion Graphics, according to Wayne Gray, the fund's acting director.
For the fund to award that much business to a single printing firm, said Gray, was "definitely abnormal."
In a deposition in a 1983 bankruptcy case involving Colorcraft, Painter said his Dominion Graphics firm, which used Colorcraft's facilities, got "primarily, basically 98 percent" of its business from the Kidney Fund. The fund, he added, was run by a "personal friend."
The deposition continued:
Q: "Is the close personal friend that you have known for 10 years who was the source of Dominion Graphics . . . successfully bidding on work with American Kidney Fund, what might be described as your girlfriend?"
A: "That's right."
Q: "Does she have substantial control over where that work goes?"
A: "Yeah, a number of people . . . buy in her organization but she makes primarily the bigger decisions."
Q: "So she exercised substantial control over where the work went?"
A: "That's right."
In 1982, when Colorcraft's financial woes had forced the firm to file for bankruptcy, the Kidney Fund's printing costs jumped by about $194,000, a 42 percent increase from the year before, according to fund figures. The next year, Colorcraft regained financial stability and its bankruptcy case neared an end. That same year, the fund's printing expenses fell by $116,000.
According to Gray, the bulk of the Kidney Fund's printing costs in those two years went to Painter's companies.
The $1.4 million suit against Hatch's estate, which was sealed by the court until The Washington Post intervened, also seeks to recover money she paid to Painter's companies.
Painter did not respond to repeated inquiries. Although he is scheduled to give a deposition to Kidney Fund lawyers in February, he is not a party to the suit. The Kidney Fund no longer does business with Painter's firms, Gray said. Hatch's Final Days
After Kidney Fund trustees were alerted to the $10,000 check to Friedman, they confronted Hatch March 20 at the downtown offices of the Arthur Andersen accounting firm. Hatch said she could explain any inconsistencies and promised to produce supporting documents.
Within 24 hours she suffered the transient ischemic attack. The illness left her hands shaking badly and her mouth twisted in a permanent grimace.
Emotionally frayed, she spent most of the spring in the George Washington University Hospital psychiatric ward, until her insurance and money ran out in late June, according to sources close to the family. She never produced the documents she had promised the Kidney Fund.
On the afternoon of June 29, her daughter Donna found her dead, a single gunshot wound in her chest. In a suicide note, Hatch told fund officials she was sorry and hoped the insurance money would make up for any damage she had done.
A week later, President Reagan sent his condolences to her family, praising Hatch as "truly a great lady." The letter was suggested by a White House staff member close to Hatch's family.
If Hatch intended her death to stop the damage, she failed. "I don't think my mom felt she had anywhere else to turn," said her daughter Donna. " The suicide didn't stop things. It catapulted things. And now it's destroying us."