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DOJ demands documents from Portland Marathon amid investigation

<p>The organizers of the storied race are being investigated for potential conflicts of interest and nonprofit impropriety </p>

Sara Roth

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Published: 6/26/2017 11:36:44 AM
Updated: 11:36 AM PDT June 26, 2017

PORTLAND, Ore. – The Portland Marathon sent runners an extra half-mile last year and awarded the winner’s trophy to the wrong person, but those blips are insignificant compared to potential legal issues with the Portland institution.

KGW learned that the Department of Justice opened a probe into the Portland Marathon for possible conflicts of interest at the 501(c)(3) nonprofit.

KGW broke the news on June 16. On June 22, the Willamette Week reported the DOJ ordered the Portland Marathon to turn over 13 types of documents related to its finances, board of directors, and charitable contributions related to the investigation.

The DOJ confirmed the report to KGW.

On June 20, the state agency sent a legal notice to the marathon demanding documents between Jan. 1, 2014 and now, including all communication between the two board directors about or related to the marathon, and all documents related to compensation and reimbursements paid to any officer or director of the marathon.

The DOJ also asked for documents related to the marathon's insurance policies and its Going the Distance Foundation.

The DOJ said the Portland Marathon documents may be physical evidence and destroying them is a crime.

The documents are due by July 26.

The long-running city marathon and half-marathon, which draws thousands of runners every year from around the world, almost faced cancellation this year. The city of Portland denied the race’s permit for 2017 because the race director, Les Smith, initially refused to change the race route to accommodate limited police availability. On June 16, the city and the marathon agreed to work on course changes.

In 2016, the race sent runners farther than the 26.2 miles, possibly excluding some racers from qualifying for the Boston Marathon. It also gave the first-place trophy to the wrong person at the finish line after the real winner completed the race before the finish line was set up.

But the nonprofit's tax filings are what raised red flags for the DOJ.

Form 990s, which nonprofits must file to let the IRS know how they are operating, indicate that since 2011 the Portland Marathon has operated with only two board members, instead of three as required by Oregon law.

The Portland Marathon hasn’t yet filed a Form 990 for 2015 and 2016. The IRS says if an organization fails to timely file three years in a row, it automatically loses its tax-exempt status. That would trigger Oregon to revoke the organization’s nonprofit status as well. The company is still in good standing with the IRS, according to federal records.

Credit: KGW
Les Smith speaks to a KGW reporter about the Portland Marathon in 2017.

In an email to KGW, Smith said those records are with an accountant, on extension to file. Smith declined multiple interview requests to discuss this story.

Form 990s show that for years, both Portland Marathon board members, president Smith and vice-president Mamie Wheeler, received six-figure salaries. Smith’s salary fluctuated significantly over the past ten years, from $0 in 2006 with a $16,583 expense account, to $98,000 in 2009, to $250,350 in 2010, to $127,296 in 2011. The most recent 990 the marathon filed, in 2014, showed Smith made $154,150.

Since 2011, the only other board member for the marathon, Mamie Wheeler, has been paid between $122,000 and $144,000 a year. Wheeler has also not responded to requests for comment.

It’s not unlawful for a nonprofit board member to receive a large salary, but the DOJ says it could present a conflict of interest.

“It is not illegal for board directors to be paid or for a charity to do business with a business owned by directors, but additional procedures and considerations may apply in such situations because of conflicts of interest,” said DOJ spokeswoman Kristina Edmunson.

It’s also shocking to some runners who have participated and volunteered in the Portland Marathon for years.

“It does seem excessive if you’re calling yourself a nonprofit,” said Larry Merrifield, who ran the race more than a dozen times. “He [Les] really pushes the whole volunteer marathon, it’s the ‘people’s marathon,’ then he gets this large compensation? It seems excessive.”

Steve Trautwein served on the Portland Marathon race committee for nine years as a volunteer. His last year was in 2016. He left after he learned of Smith and Wheeler’s salaries.

“I felt very disillusioned when I found out for years he and Mamie have been taking a generous salary and claiming a full-time employment when people on the committee are doing the majority of the work,” he said. “I feel like most of the marathon runners are not thinking they’re doing this – that’s a fair chunk of their entry fee that is going to pay the race director.”

The Oregon Sports Authority, which fosters sports economic development in the state, cut ties with the marathon two years ago. The organization called the new information "concerning."

"While we have had no involvement in the marathon for the past two years, we want to see every annual sporting event in our community reach its full potential in terms of high quality, participation, and economic impacts. We have total confidence in Mayor Wheeler and his staff to determine the best course of action moving forward and we will be ready to provide support in any way that we can to be helpful to their efforts,” said Oregon Sports authority CEO Drew Mahalic.

The marathon registration fee for the 2017 race for an individual is $145 and the half-marathon fee is $250.

The tax forms also state that both Wheeler and Smith did not receive additional income in any form from the Portland Marathon. That’s where the DOJ says there could be another issue.

Wheeler and Smith, who report working 40 hours a week for the Portland Marathon, also run a for-profit events company called Next Events. The Bethany-based company boasts on its website that it works on the Portland Marathon. Wheeler and Smith are listed as CEOs, and have two Portland Marathon staff listed as members of an “event advisory team.”

The Form 990s don’t show if or how much Portland Marathon paid Next Events, as expenses and revenues are grouped into large chunks of money. In 2014, “production and logistics” cost the marathon $413,842, according to the Form 990, but that figure isn’t broken down further.

Wheeler and Smith reported $0 in other compensation from the marathon or related organizations, and claimed their only marathon-related income was their salaries.

“In multiple places on the 990s they have filed, [the Portland Marathon indicates] there is not a financial relationship with any related entity. However, if they are actually paying the contractor but not properly reporting, in general, yes, they would need to report the payments received – but there are always exceptions to tax rules,” Edmunson said.

Next Events says it also runs an Event Directors college and has worked on eight marathons or half-marathons. Smith has not said which races the company currently produces, but Rose Festival spokesman Rich Jarvis confirmed Smith helped produce the successful Rose Festival Half Marathon this year.

Jarvis said the Rose Festival paid Portland Marathon for the production, not Next Events.

Next Events is a Limited Liability Company, meaning any income would be reported on personal tax returns.

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