December 13, 2023 546 PM
MARFA — Founders of the Marfa Invitational art fair — husband and wife duo Michael Phelan and Melissa Bent — are denying recent allegations from a former board advisor that Phelan misused donated funds for personal expenses.
“We are confident that our top-tier team of legal and financial attorneys, advisors, and consultants can prove that all legal and financial records for Marfa Invitational are in order, in compliance, and up-to-date,” Phelan and Bent wrote in a joint statement sent to The Big Bend Sentinel by their legal counsel, attorney Liz Rogers.
The push back comes after reporting by The Big Bend Sentinel revealed that previous board advisor Kathleen Irvin Loughlin filed a charitable trust complaint with the Texas attorney general’s office in October, claiming $150,000 she donated for a “foundation building” was improperly spent on Phelan’s “personal and non-profit travel, car payment and other personal expenses.”
Marfa Invitational lost its 501(c)(3) nonprofit status on May 15 of this year due to a failure to file tax returns with the Internal Revenue Service for three consecutive years. In her complaint, Loughlin states that she was not made aware of the “potential loss” of nonprofit status until after her donations were made.
Founded in 2019, Marfa Invitational is a boutique art fair that attracts international galleries, art world A-listers and other cultural phenomena to town the first weekend of May. In February 2021, Phelan told the New York Times he planned to establish “an interdisciplinary, year-round arts and cultural foundation,” on five acres in Marfa — land owned by Matthew Kruger that the Invitational has utilized in recent years as an informal sculpture park.
While the land currently sits devoid of any buildings, mock-ups on Marfa Invitational’s website envision a home for the foundation consisting of six separate buildings featuring metal roofs and glass garage doors as well as an outdoor pavilion.
According to public records obtained by The Big Bend Sentinel, an investigator with the Consumer Protection Division at the attorney general’s office requested additional documentation from Loughlin in early November following the filing of the charitable trust complaint.
The AG’s office did not respond to requests for comment on whether it was launching a full-on investigation into the matter, and Phelan and Bent did not respond to a request for comment on whether or not the AG’s office had contacted them regarding the complaint.
In response to the investigator’s request, Loughlin provided the AG’s office with copies of the nonprofit’s bank statements from March 2021 to May 2023, a spreadsheet detailing the business’ 2023 credit card transactions and a cease and desist letter dated October 31 ordering Phelan to remove social media photos and mentions of both Loughlin and former board member Alex Scull “in connection with the Marfa Invitational.”
The letter states that Phelan’s personal expenses as well as “certain other expenses” were not disclosed to the board and Loughlin and Scull “do not want their names and reputations used to raise money for an organization that they now believe is not a legitimate nonprofit, but instead a vehicle for [Phelan’s] personal use.”
Phelan has maintained that Scull was never formally voted onto, therefore never served on, the Marfa Invitational board. However, the cease and desist letter states that Scull was briefly on the board in an informal capacity and Scull is listed as a board director in an April 2023 promotional email sent by Phelan to The Big Bend Sentinel.
Loughlin told The Big Bend Sentinel that a formal gift acknowledgement of her $125,000 donation for the foundation building was never provided by Phelan.
In a May 2023 email obtained by The Big Bend Sentinel from Loughlin, Phelan wrote to her and Scull that he met with a builder and received price estimates bringing the total to $125,000 for a singular structure. In an email response later that day, Loughlin said she would make the donation from her donor-advised fund that afternoon.
According to Loughlin, she donated an initial $25,000 for the planning and development of the Marfa Invitational Foundation site in 2022 and gave an additional $125,000 in 2023 specifically for a foundation building. A portion of the funds earmarked for the building were given in May, the month Marfa Invitational lost its 501(c)(3) status, she said.
Phelan has since returned $25,000 to Loughlin. In a text exchange provided to The Big Bend Sentinel by Phelan’s legal counsel, Loughlin wrote to Phelan she will consider the rest a full write-off but does not want any future acknowledgement.
Rogers said Marfa Invitational plans to move forward with the building project.
The nonprofit’s 2023 credit card transactions and bank statements obtained from the AG’s office shed further light on allegations Loughlin outlined in her charitable trust complaint. There are routine charges to airlines, hotels, services like SiriusXM and Amazon Prime Video as well as monthly $585 payments to Mercedes-Benz Financial Services.
In May, the month Loughlin donated $100,000 to the Marfa Invitational, Phelan paid off around $81,000 of the nonprofit’s credit card debt, according to bank statements.
While Phelan and Bent did not respond to requests for comment on how car payments, travel, subscriptions and more were deemed as nonprofit — rather than personal — expenses, they did state that “any and all expenditures in question were in fact charged against Michael Phelan’s $50,000 loan to Marfa Invitational.”
According to the nonprofit’s bank statements, Phelan had transferred $50,000 from his personal bank account to the nonprofit bank account in March 2021. That same month, however, there was a $39,900 debit to the account. Phelan and Bent did not respond to requests for comment regarding what the $39,900 check was for — information about the check was not available on obtained bank statements.
Bank statements also reveal that Phelan was regularly paying himself around $600 out of the nonprofit account and occasionally writing checks to himself for various amounts. There is also a limited liability company under the same name as the Marfa Invitational that appears in the bank statements.
Marfa Invitational’s bylaws, which were adopted in 2020 and attached to Loughlin’s original charitable trust complaint, emphasize proper checks and balances like board approval of expenditures and reimbursements, documentation of decision-making processes regarding compensation for services, and more.
Phelan and Bent declined to comment on whether a current board approval process was in place for expenditures and to provide copies of board meeting minutes containing authorization of the expenses Loughlin is disputing.
In a statement to The Big Bend Sentinel, Loughlin wrote that between the months of January and August 2023 both her and Scull spent their own time and resources to support proper nonprofit rules of governance within the organization and help Phelan “build upon his vision.” In a May 2023 email from Phelan to the pair provided by Loughlin, Phelan wrote a new certified public accountant for Marfa Invitational was needed and requested their help with recruitment.
Per Loughlin’s statement, she and Scull requested financial records from Phelan but did not receive them until an in-person meeting with him in September where they learned of the nonprofit status loss. “At this point, we believe Michael shared the nonprofit bank and credit card statements with us because he needed our help to regain 501(c)(3) status,” Loughlin continued.
She and Scull worked on filing for nonprofit reinstatement, she wrote, which is when they discovered the alleged misappropriation of funds — specifically that 50% of $125,000 donated by Loughlin in 2023 for the construction of the first structure on the five-acre “campus” was “spent on a variety of unexplained expenses, none of which could be tied to the building or construction.”
They also determined at that time the remaining balance in the nonprofit’s account did not contain enough funds for the building to be completed, she said.
Loughlin and Scull confronted Phelan with their findings on October 11 at which point he “denied any challenges to construction of the building, or issues with the expenses, despite the references we pulled and pointed to from the charity’s bank statements,” she writes in her statement. They then let fellow board members know about the situation, and some chose to step down with them.
Loughlin said she is still in support of the concept of Marfa Invitational and believes the event economically benefits the town, but she was compelled to speak out about the misuse of funds out of concern for the art, artists and other patrons involved with the organization.
“I still support Michael’s vision for the Marfa Invitational Art Fair LLC, but I did not want supporters to naively donate money to the Invitational’s charitable arm without further scrutiny of questionable expenses,” Loughlin states.
An application for Marfa Invitational’s nonprofit status reinstatement, form 1023, was submitted to the IRS in late September, according to documents Loughlin turned over to the AG’s office. In her charitable trust complaint, Loughlin wrote that she wishes the Marfa Invitational does not regain nonprofit status out of concern that “financial mismanagement will happen again without supervision of the current director.”
According to the IRS, the process for reinstatement can take up to 180 days.
Marfa Invitational recently retroactively filed its 2022 tax returns, according to Phelan and Bent’s legal counsel. The IRS does not require organizations that made less than $50,000 to back-file 990N returns — Phelan claims that policy applies to Marfa Invitational for years 2020 and 2021.
In a joint statement, Phelan and Bent said they are continuing to “nurture and support artists from around the globe,” and remain committed to their vision of “uniting through the transformative power of art.”
“We are deeply grateful to the community of artists and visionaries who have helped to realize the singular vision and mission that is Marfa Invitational,” they wrote in a joint statement to The Big Bend Sentinel.
Phelan and Bent declined to provide comment on dates for the May 2024 edition of the Marfa Invitational, which have yet to be announced, or on the status of Sleeping Figure, a monumental sculpture by Matt Johnson gifted to the Invitational that awaits installation on the sculpture park’s grounds. Loughlin wrote in a statement that both she and Scull are concerned the sculptures on site “will not be properly maintained by the non-profit entity.”