The Diver’s Alert Network Saga

In our January issue, we provided details from DAN's internal lawsuits that gave a glimpse of the costly legal struggle between the Board of Directors and Peter Bennett for financial and management control of the Diver's Alert Network. For more than a decade, Bennett prevailed in the struggle, causing many directors, who were volunteers, to resign, disappointed in his leadership and concerned about the legality of his moves. Now, under the leadership of five brave and persistent board members -- Michael Lang, Executive Officer for Scientific Programs, Smithsonian Institution; Wolcott Henry, Executive Director, the Curtis and Edith Munson Foundation; Karen Van Hoesen, M.D., Professor, University of California, San Diego; Dick Long, a NAUI founder and past DUI president; and Bill Ziefle, Attorney and Executive Director/CEO, Futures for Kids, Raleigh, N.C. -- the board of directors has finally wrested control of DAN from Bennett.

The charges against Bennett are serious, and, on January 15, the Durham Independent Weekly released a 9,000-word, carefully researched article about the battle. Charges by board members are clear, as is Bennett's defense of his tenure. It's must reading, and you can find it in the archives at www.indyweek.com/durham.

Meanwhile, here is the synopsis of reporter Jennifer Strom's article.

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In 1994, the DAN board created Accident & General Insurance (AGI), a wholly-owned for-profit subsidiary based in the Cayman Islands to provide insurance for DAN members. Bennett became the president of AGI, and DAN lawyer Wes Covington took a seat on the board of directors.

Subsequently, Bennett and Covington secretly created a Delaware for-profit corporation named Insurance Management Resources International (IMRI), with Bennett owning a 51 percent interest and Covington, 49 percent.

Covington and Bennett told DAN board members that DAN's nonprofit tax-exempt status may be jeopardized by owning its offshore for-profit subsidiary, AGI, and proposed that the board sell AGI to "a Delaware group of investors." The Board then received a formal proposal from IMRI to buy AGI. After complicated negotiations, the board didn't buy the deal but still didn't know Bennett's and Covington's involvement in the Delaware corporation.

Covington then suggested turning AGI over to a private charitable trust in the Cayman Islands that could run the insurance business and make donations to DAN with more favorable tax implications. DAN board member Bill Lovin urged his colleagues to scrutinize the idea, which then evaporated. Lovin questioned Covington's motives, telling Bennett that he had independently discovered that IMRI was created just a few months before it offered to buy AGI and, contrary to Covington's and Bennett's glowing description of the experience of the anonymous "Delaware investors," IMRI had no record in the insurance business. Today, Lovin says, "I can't in good conscience ever again say to a dive shop or to an individual, 'You should go out and hold a fundraiser for the Divers Alert Network.' DAN is now big business. It may be a nonprofit, but it's big, big business."

In 1997, board member Glen Egstrom raised concerns about AGI's finances, questioning the appropriateness of Bennett, Covington, and DAN chief operating officer Dan Orr receiving salaries to sit on AGI's board, which also paid Covington for legal advice. The three AGI board members split 10 percent of AGI's profits -- a total of nearly $100,000 that year. As Egstrom says today, "DAN is Peter's empire, his personal fiefdom. It shouldn't be that way."

In 1997, PADI conducted an investigation of DAN, then alleged that Bennett and Covington were personally profiting from the nonprofit and its subsidiary and that Bennett was abusing his position at DAN to generate income from other private companies he and Covington owned. PADI leaders confronted DAN leaders, and the two groups negotiated a private settlement. PADI then went into its own insurance business.

In 2000, The North Carolina State Bar suspended Covington's law license for six months for inappropriate conduct in a Durham DUI case in which Covington was accused of negotiating a back-hallway deal. Covington's partner, Bob Idol, took over as DAN's corporate counsel. That year, DAN and AGI reported combined revenues of $13.2 million.

Late that year, DAN board members began discussing Bennett's retirement. Bennett wanted to stay until 2005, but the board members wanted an earlier date. On November 2, the board reduced Bennett's power by separating the board chairmanship from the president/CEO role. Later, after a meeting with Bennett about his retirement and succession plan, board Chairman Michael Emmerman, a financier who worked to bring DAN and AGI under closer board scrutiny and control, resigned. He told Bennett he no longer trusted him to act in DAN's best interest.

In April 2001, Bennett presented a succession plan for himself, proposing to remain as CEO until 2005 and to retain a major role at DAN, including continuing compensation for consulting. A May meeting erupted in chaos when five remaining voting board members suspended Bennett for 10 days until a special meeting on his contract, succession plan, and exit strategy could be held. The board also discharged Covington's firm as corporate counsel.

Bennett and his supporters sued in Durham County, asking a judge to remove the five board members, and the Court granted a temporary injunction preserving Bennett's power and control while they argued the case. The defendants filed counterclaims accusing Bennett of spending DAN's and AGI's funds for benefit of himself, his friends, and family. They also alleged he engaged in "self-dealing" by trying to take control of AGI through IMRI, the company he owned with Covington, and of engaging in favoritism and nepotism, while blocking the board's requests for key financial data.

In mediation in January 2002, Bennett proposed retiring in December 2003 in exchange for $417,833 in severance pay, a five-year consulting contract at $85,000/year, and a long list of honoraria. In September, a judge dismissed the lawsuit, following the successful orchestration of a private settlement. The details are sealed, but the agreement calls for restructuring the board, a new corporate counsel, and a new auditor. DAN announced Bennett will retire on June 30, 2003.

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Throughout the ordeal Bennett claimed that he had done no wrong and always had DAN's best interest at heart. If so, then he can prove his love for DAN by immediately resigning so that he is no longer the focus. Then DAN can get back to its important work. If DAN is to regain donor confidence, Peter Bennett can no longer be involved.