Frontiers Article

From Frontiers, May 24, 2002, Vol 21, Issue 2

Back to Court
Former AIDS Ride Participant Files Class Action Suit Against Pallotta TeamWorks
by Vince Catrone

A San Francisco AIDS activist has filed a class action lawsuit against longtime AIDS Ride organizer Pallotta TeamWorks (PTW). Besides citing over spending by PTW, plaintiff Mark Cloutier filed suit on April 24 alleging the privately owned, for-profit company misrepresented the amount of funds raised and distributed to designated beneficiaries for its series of fund-raising cycling events. Cloutier, who rode in the 2001 Alaska AIDS Vaccine Ride, also alleges in his suit that PTW has engaged in unfair business practices and breached its fiduciary duties by mismanaging the funds raised.

"The promise of the AIDS Vaccine Ride was that it would help raise much-needed funds for research and development of a vaccine for HIV/AIDS," said Cloutier. "It is incredibly sad that PTW's fund-raising efforts were so poorly managed and so unsuccessful in financially assisting key agencies working on an AIDS vaccine. I was greatly disappointed—and so were many other well-intentioned riders who were misled by PTW."

The suit comes just over a month after an announcement from the Aaron Diamond AIDS Research Center in New York City, which said it was ending its relationship with PTW. The Diamond Center had been one of three beneficiaries of the 2001 AIDS Vaccine Rides, but said in a March 11 statement: "In light of recent disappointing fund-raising results, the Center has determined that it is no longer appropriate for it to continue to be a beneficiary of these events."

Unlike PTW's regional AIDS Rides events (including the California AIDS Ride), the AIDS Vaccine Rides were not produced in conjunction with the beneficiaries, and came with far more significant financial risk for PTW, and far less oversight from the recipients of the Vaccine Ride's proceeds. Two of the three AIDS Vaccine Rides that were held last year (including the event in Alaska) were canceled for 2002, with PTW citing poor returns.

PTWs own financial statements show that just over $4 million in net proceeds from the 2001 Vaccine Rides went to the beneficiaries from the more than $19.4 million in total income. The remaining $15 million went to cover Ride costs, including a $1 million production fee to PTW.

Cloutier, who is the sole plaintiff currently listed in the suit, was recently earned executive director at San Francisco's Continuum, an organization that provides services to people triply diagnosed with HIV, mental illness and substance abuse. Cloutier is also the president of the board at Project Inform, an HIV-treatment advocacy organization.

"The primary focus of the litigation is to get restitution of the monies we feel the Pallotta organization has inappropriately allocated to themselves rather than the beneficiary organizations," said Cloutier's lead attorney, Victor Schachter. "What we have asked for at this point is an accounting for... how the monies have come in and how they have been spent. There was no one to oversee what was going on." The goal, Schachter said, is not personal gain for his client but to establish a charitable trust and get restitution for the three 2001 beneficiaries, which include, in addition to the Diamond Center, the Emory Vaccine Center in Atlanta, and the UCLA AIDS Institute in Los Angeles. None of the three beneficiaries are currently part of Cloutier's class action suit.

"I think that the paltry amount actually going to the beneficiary organizations is less than the marketing [for the AIDS Vaccine Ride] says a lot about what the motivation is," Cloutier said. "I think the motivation is to build his [Pallotta's] brand in which his assistance to the AIDS vaccine organizations is subordinated."

Cloutier raises issues that many PTW critics have discussed before, arguing that the overhead for the events is too high, the return to the beneficiaries is too low, and the focus is on the company itself and not the charitable causes.

"Pallotta TeamWorks goes out of its way to not guarantee a percentage of donor dollars returned to the beneficiaries," said a PTW spokesman in response to the suit. "We cannot make a guarantee because we do not know how many riders will show up and we don't know how much money the ones that show up will raise."

In a press statement released the day after the Diamond Center announcement, PTW CEO Dan Pallotta argued that the disappointing returns for the 2001 AIDS Vaccine Rides were not related to mismanagement, but to a cause that failed to galvanize volunteers and donors. "Unfortunately, it has proven much more difficult and much more expensive than we thought to get people to ride for a vaccine," Pallotta said. "We did all the same things we do on other events that return 65 percent or more to charity, but people just didn't respond to the cause. Much less money was raised than we had hoped."

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