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The Montana attorney general's inquiry into Greg Mortenson and the Bozeman-based Central Asia Institute could resolve whether they have done nothing wrong and spent all funds appropriately, or whether Mortenson benefited excessively and must repay potentially millions of dollars.

The Central Asia Institute issued a statement Wednesday that, "We intend to cooperate fully with the attorney general and look forward to demonstrating how our supporters' donations have been used to further our mission of education, especially for girls, in Pakistan and Afghanistan."

The statement, from Anne Beyersdorfer, temporary CAI director while Mortenson is in the hospital with a heart ailment, said CAI's goal is "full transparency." CAI has posted on its website ( its financial reports to the IRS for every year since 1996, she wrote.

CAI's statement came the day after Montana Attorney General Steve Bullock's office announced its inquiry. It said the attorney general has authority to oversee nonprofits on behalf of the public. Bullock said that CAI's attorneys had promised full cooperation, and that his office wouldn't jump to any conclusions, adding, "we have a responsibility to make sure charitable assets are used for their intended purposes."

Kevin O'Brien, spokesman for the attorney general, declined to speculate how long the inquiry would take.

Misuse of charitable funds is one of the major allegations raised in the past few days by a "60 Minutes" investigation and by Jon Krakauer, author of "Into Thin Air," who wrote a highly critical online article about Mortenson entitled "Three Cups of Deceit." The reports also alleged that Mortenson lied in his best-selling memoirs "Three Cups of Tea" and "Stones Into Schools" and that, while many of his schools worked well, some don't exist, have been abandoned or become empty "ghost schools."

Krakauer's article quoted from a confidential memo, written Jan. 3 by an attorney at Copilevitz & Canter, a law firm with offices in Kansas City and Washington, D.C., who - at CAI's request - looked at the organization's most recent federal tax return. The memo warned CAI that the charity's spending on Mortenson's travel for speaking tours and book advertising could violate IRS rules against officers taking excessive economic benefit from the charity they run.

The memo said if the IRS audited CAI's 2009 return, it might conclude that Mortenson had an excess benefit of $2.4 million, while the charity received none of the revenue from book sales or speaking events. If that continued over three years, the memo said, "Mortenson could owe CAI up to $7,263,458.13 for excessive benefits." If not corrected in a timely way, it added, he could face a total liability ranging from $7.8 million to $23.6 million.

Beyersdorfer responded by email that Krakauer's article reflected the attorney's speculations, not conclusions.

"Neither CAI's counsel or Greg's counsel believe that any excess benefit has been incurred or received by Greg," Beyersdorfer wrote. The attorney's memo was only outlining the issues in a speculative way, she said, "and did not conclude that Greg and/or CAI had been involved in an excess benefit transaction."

Beyersdorfer also disputed Krakauer's allegation that some of the millions raised by schoolchildren through the Pennies for Peace program has been used to help pay for Mortenson's book promotions and speaking tours, instead of spending every penny on schools, as he promised children.

CAI said that Pennies for Peace donations are "100 percent restricted" to education in Pakistan and Afghanistan. Pennies for Peace operates with its own department and staff, and all of its expenses are covered by the unrestricted funds raised by CAI, Beyersdorfer wrote.

The charity raised $23 million last year. Mortenson has maintained that CAI's money was spent appropriately on its two major missions - to provide education and health care projects in the mountains of central Asia, and to educate the American public about the plight of children in Pakistan and Afghanistan.

Some people have been skeptical about Mortenson's heart ailment, cropping up just as he came under fire from "60 Minutes" and Krakauer. In a weekend message to supporters, Mortenson wrote that he has been struggling with hypoxia, low oxygen in the blood, for 18 months, and last Friday was diagnosed with a hole in his heart, which is to be repaired surgically in the next week or two.

Mortenson first talked about his heart problems in November 2009, when he spent an entire day speaking to 5,000 Bozeman school children and in the evening to an adult audience of about 2,000 at the Montana State University Fieldhouse. The Chronicle quoted him then as saying that a Billings doctor had recently diagnosed pericarditis, a viral infection around his heart that causes inflammation and required him to use oxygen. Friends said at that time that shortly after his local appearances, he was hospitalized.

Gail Schontzler can be reached at or 582-2633.


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