See more of the story

A Bloomington nonprofit that leads Christian mission trips violated state charity laws, the Minnesota Attorney General’s Office says, and used nearly $1 million of the nonprofit’s money to fund the CEO’s two for-profit companies — a Hermantown coffee shop and a travel agency.

After a three-year investigation, the Attorney General’s Office filed a petition this week in Ramsey County to order the nonprofit, Praying Pelican Missions, to overhaul its polices and leadership.

The organization, which started in Duluth in 2003, leads international Christian mission trips. No criminal charges have been filed. The nonprofit now has new leaders who have resolved the issues in the court order, Derrick Joyce, the board chairman, said in a statement.

“The chain of events that [led] to the outcome of this case were unfortunate,” Joyce wrote. “We do not believe that there was ill-intent by the previous board, yet we believe that the settlement actions were appropriate. We are satisfied with this resolution and believe that the lessons learned will result in a stronger organization moving forward.”

The Attorney General’s charities division, which regulates more than 15,000 charities that solicit donations in Minnesota, generally issues five or fewer of these “assurance of discontinuance” orders a year. It can also request a court order for a charity to dissolve or ban it from operating in Minnesota if it misuses funds or doesn’t follow governance rules.

“Minnesotans donate to charity because they want to help people,” Attorney General Keith Ellison said in a statement. “Any nonprofit that receives their donations should use them to further its charitable mission — not subsidize its president’s for-profit businesses, to the tune of almost $1 million.”

Ellison added that the former board was “asleep at the switch and doing nothing to stop it,” but he said he’s hopeful about the nonprofit’s new leadership.

At Praying Pelican Missions, which raised $8 million in 2017 — $37,000 of which came from donations from Minnesotans — the then-CEO and founder Matthew Pfingsten and four former directors voted in 2013 to open Pelican Coffee in Hermantown, near Duluth, intending to use its profits to benefit the nonprofit. According to court documents, the coffee shop was meant to be owned by the nonprofit and Pfingsten, but he was the sole shareholder, so the nonprofit had no legal control over the coffee shop.

When the coffee shop wasn’t profitable, nearly $800,000 of the nonprofit’s money was used to fund the coffee shop’s operations and pay off creditors, according to the Attorney General’s Office.

The former directors also approved an additional unsecured “line of credit” in 2016, allowing the coffee shop to obtain tens of thousands of dollars a month from Praying Pelican Missions directly without board approval. The nonprofit also subsidized wages for its employees who worked for the coffee shop.

The Attorney General’s Office also found that Praying Pelican Missions referred all of its mission trip participants to Mango Creek Travel, a travel agency Pfingsten owns. Those nonprofit referrals helped generate 93% of Mango Creek’s revenue from 2012 to 2017, court documents say. The nonprofit also paid nearly $140,000 to Pfingsten’s travel agency to reimburse it for credit card expenses incurred on the nonprofit’s behalf — but an audit later showed it was money the travel agency owed the nonprofit, not the reverse, according to court documents.

After the Attorney General’s Office started investigating Praying Pelican Missions in 2016, Pfingsten and the former board directors sold Pelican Coffee for $16,000, which Pfingsten used to pay the coffee shop’s creditors, according to the court documents. Pfingsten and the four board directors resigned last March.

Pfingsten couldn’t be reached for comment.

Sarah Duniway, an attorney at Gray Plant Mooty who specializes in nonprofit issues and isn’t representing Praying Pelican Missions, said it’s not uncommon for nonprofits to open a for-profit venture, such as a hospital leasing out space in a medical building. But she said it requires an experienced adviser to help navigate tax and nonprofit governance laws. “It sounds like there were some lessons learned here,” she said.

Joyce declined to comment on whether the nonprofit will be able to get its money back.

“We walked through a challenging season,” he said in a written statement, “but we are excited about what God is doing through our organization.”

Kelly Smith • 612-673-4141