Top Officials Resign From Troubled Texas Charity for Migrants

The two top officials at Southwest Key Programs, the largest provider of shelters for migrant children, have stepped down under intensifying pressure from within the organization and a federal investigation into alleged financial improprieties there.

Juan Sanchez, the founder and chief executive, said in an email to staff members Monday that he would leave the Texas-based charity after 32 years at the helm. Melody Chung, the chief financial officer who had been there for about 20 years, left last month after a New York Times article outlined allegations of mismanagement and possible malfeasance at the charity.

Southwest Key began an internal investigation after the article was published in December. The Justice Department also started investigating.

“This was a very difficult decision,” Mr. Sanchez wrote in the email, which was obtained by The Times. “Recent events have convinced me and our Board of Directors that Southwest Key would benefit from a fresh perspective and new leadership. Widespread misunderstanding of our business and unfair criticism of our people have become a distraction our employees do not deserve, and I can no longer bear.”

The Southwest Key board, in consultation with Mr. Sanchez, decided it was time to begin a new chapter at the charity, Orlando Martinez, the Southwest Key board chairman, said in a statement. “Our mission has never been more critical than it is today, and we must look carefully at what is required to evolve and grow as an organization,” he said.

Mr. Sanchez’s wife, Jennifer Nelson, remains as a top executive.

Mr. Sanchez’s resignation came amid questions from The Times about Southwest Key’s handling of charter schools spun off from the organization. Mr. Sanchez serves on the school board. It is unclear whether his resignation will change that.

The Trump administration’s policy of separating families at the border last year brought scrutiny to Southwest Key, which housed many of the children taken from their parents in its shelters. As of February, there were more than 11,000 minors in the system, housed in about 100 sites.

As the number of unaccompanied migrant children continued to pose a crisis, Mr. Sanchez had been central to the administration’s plans. In the last decade, Southwest Key was awarded almost $1.8 billion in federal money to care for unaccompanied minors. The nonprofit can house up to 5,000 children in its 24 shelters, in Texas, Arizona and California, including a converted Walmart Supercenter that has been criticized as a warehouse for youths.

A spokesman for the Department of Health and Human Services, which oversees migrant shelter grants, said late last year that the government had hired forensic accountants to review the finances of shelter operators, including Southwest Key.

Mr. Sanchez earned $1.5 million in 2017, the most recent tax return available. His wife earned $500,000. His daughter from a previous marriage also held a senior position, but her salary was not available. Ms. Chung earned $1 million.

The organization, which was sitting on $61 million in cash in the fall of 2017, also lent millions of dollars to real estate developers, acting more like a bank than a traditional charity. It has rented shelters rather than buying them, an unusual practice that has proved lucrative for shelter owners, including Mr. Sanchez and Ms. Chung, The Times reported in December.

Mr. Sanchez, Ms. Chung and a friend owned the shelter, in Conroe, Tex., through a shell company. They announced that they would divest their ownership stakes.

Joella L. Brooks, a longtime Southwest Key employee and the current chief operating officer, was named interim chief executive. Mr. Sanchez said that a “nationwide search” would begin for a permanent replacement, rather than drawing from within the nonprofit’s longstanding and tight-knit leadership circle.

“I’m grateful for the opportunity to continue serving our dedicated employees and youth in need,” Ms. Brooks, who joined the organization almost 30 years ago, said in a statement.

The Austin-based nonprofit had humble beginnings. Mr. Sanchez, who grew up poor near the Mexican border, used his mother’s address in Brownsville on founding documents. The charity took out loans of $6,700 to buy a photocopier and a computer. Mr. Sanchez’s salary at the time was a modest $35,000.

While its initial business was in juvenile justice, it was in the housing of unaccompanied migrant children that its revenues exploded. Ms. Chung noted in her resignation letter to staff that when she started working at Southwest Key 20 years ago, the nonprofit had roughly 500 employees and gross revenue of $16 million. By the time she resigned, those numbers had grown to 8,000 employees and gross revenue of more than $400 million.

In her resignation letter last month, Ms. Chung signed off, “May the Lord continue to bless the company abundantly forever!”

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