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EcommerceBytes-NewsFlash, Number 1409 - November 13, 2006 - ISSN 1539-5065    1 of 5

Who Owns eBay Group PESA, Members Ask, as Tax Status Changes, Part 1

By Ina Steiner
EcommerceBytes.com
November 13, 2006




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When coin-dealer and eBay PowerSeller Joe Cortese spoke in May 2004 at the first summit of eBay sellers now known as PESA, he humorously told attendees that he had a hidden agenda in founding the trade association. That agenda was "to ensure that I sell my merchandise on eBay for a profit. My goal is to stay successful and grow my business. That is the common denominator that we share." That agenda seems to be expanding with the announcement of a sister organization that will focus on ecommerce beyond the eBay marketplace.

Some members are now asking questions after the organization's Board of Directors announced it was no longer pursuing non-profit status for PESA, will begin charging dues to members, and is extending its reach through the creation of ECMTA, a for-profit sister organization that will focus on ecommerce opportunities. Some are also questioning the propriety of how the two entities are operated and how ECMTA is promoted to the PESA membership.

As controversy spills over onto industry discussion boards, outsiders are left wondering if the brouhaha is a case of internal politics, or whether there are accountability and communication issues in an all-volunteer organization of entrepreneurs that has seen tremendous growth in membership and revenue since its inception.

PESA stands for Professional eBay Sellers Alliance. On its website, it outlines its mission statement as follows: "The Professional eBay Sellers Alliance (PeSA) is a trade association comprised of the largest and most highly-regarded merchants, quantitatively and qualitatively, across all categories on eBay. PeSA provides a forum for members to exchange innovative and creative ideas and business solutions for the purposes of devising and implementing auction marketplace best-practices" (http://www.gopesa.org).

PESA has advertised itself as a non-profit organization since 2004, and it came as a surprise to many when the board recently made public that it had decide not to pursue non-profit status. Executive Director Jonathan Garriss told AuctionBytes that the Board of Directors chose not to make PESA and ECMTA non-profit organizations because of IRS-imposed limitations on non-profits. He said non-profit organizations "have to give assurances that you won't engage in forbidden activities. You have to ensure the organization will not deliver direct benefit to one business over another - there can be no favoritism." He said PESA had always envisioned providing a mechanism for members to cross-promote each other, and legal advisors suggested that that would be a problem for PESA if it operated as a non-profit.

PESA member Tom Winn (Bidabit.com) said the dues are perfectly fine and acceptable except that the Board decided to take PESA private after having represented to members that it was a non-profit. "PESA is now charging money, but there are no bylaws in place to outline the fiduciary responsibility, and that's what has many members upset," he said. "This is not an oversight - they've had three years to do it."

Garriss said a few members have seen the decision not to become a non-profit organization as a way for some to grab some profits and make money. "As the latest financial report shows - and another one is due soon - me and Joe have advanced $30,000 to PESA. Unfortunately some people have speculated that people are getting rich off of PESA." And indeed, members have reported that a thread on the private PESA discussion board about the matter garnered 750 posts in a lively debate about recent Board member decisions.

Garriss said PESA filed as a non-profit corporation in New Hampshire under the name E-Commerce Merchants Alliance Inc. (EMA) last year. "We hired a company to file those at the beginning of 05, but they screwed it up and we refiled those manually in NH as a non-profit corporation," Garriss said in an email. The Corporate Division of the New Hampshire Department of State confirmed that the organization had attempted to file on May 12, 2005, but the application was returned to them with instructions to complete Article 4. The application was successfully filed with the state on October 11, 2005, and show the "persons associating together to form the corporation" who signed the application are Jonathan Garriss; David Topkins and Belinda Horton; and Joseph and Pauline Cortese (https://www.sos.nh.gov/corporate/soskb/Corp.asp?743048).

Garriss said taxes for EMA were filed for the 12-month period ending May 31, 2005, not on Form 990 for non-profits, but as a corporation. "We have not filed anything else since we are in the process of completing our financials." When asked about financial accountability, Garriss said that at the end of 2005, PESA made available to members its income statements and balance sheets for year ended 2004 and six-months ended June 30, 2005, and has not made available any financials since. Garriss said they are due to be published soon.

Why not provide members with the organization's tax returns, which non-profits are required to do? Garriss said that he would prefer not to publish tax returns because it would give too much granular information, and he does not want the organization's tax ID floated around there.

However, the fact that the Board has not accounted for its operating revenue and expenses since June 30, 2005, particularly with the recent initiation of annual membership dues ranging from $99 - $240, has opened them up to criticism from some members. In addition, some said they feel the fact that PESA Founder and Chairman Cortese's wife, Polly (Pauline) Cortese, is the financial controller of PESA is a conflict, including eBay PowerSeller and former PESA member Steve Grossberg.

When asked to address concerns about a possible conflict, Joe Cortese replied in an email:

"As the permanent seat of the organization, in my capacity as Founder and Chairman, it has been my fiduciary responsibility to the group to maintain continuity. Committee members come and go. Financial diligence is not a job for transient or inexperienced volunteers.

"Polly does not act as Financial Controller alone. She fulfills that duty in parallel with Jonathan, under his direction and with PESA's accountants. Jonathan's oversight of Polly's role includes extensive previous experience in Wall Street finance.

"We receive checks from sponsors for our events. Polly deposits them. Polly follows up on those payments. She pays the bills associated with those events within the Events Committee budgets. She negotiates overcharges and to date has successfully reclaimed a huge cumulative sum on PESA's behalf. This is not a role that one could expect a volunteer to execute with the same sense of responsibility. She works hand in hand with the Events Committee. PESA's accountants receive all our bank statements and invoices. Accordingly, they do all the recording, reporting and all the filing with Federal and State agencies.

"So do I think there is a conflict of interest? In answer to your question, absolutely not, in fact, quite the reverse."

Also asked to address concerns about a possible conflict, Garriss stated, "Polly is Joe's wife and she does the books for NobleSpirit and she works with the accountant for PESA. The Board gets periodic reports on PESA's cash position, sponsorship receipts and outstanding expenses which has been sufficient for the Board to manage its operations. I am currently working with Polly on assembling PESA financial reports. As such, I review the bank account statements and expenses. We eventually would like to work with an independent accountant to review the books, but PESA doesn't have the money to do that right now, so we're just working on prepared financial statements."

AuctionBytes contacted two long-term sponsors of PESA summits. After checking with their accounting departments, they both reported that they received invoices with instructions to remit payment to Joe Cortese's company NobleSpirit in 2004, 2005, and 2006.

Garriss said that in 2004 and 2005, payments went to a bank account set up in the name of NobleSpirit but kept exclusively for PESA business. In 2006, a bank account was set up in PESA's name, and all sponsor instructions and invoices specified that payment should be made to PESA.

Garriss explained PESA's banking history. "When the Group got its first money, Joe set up a bank account under the name of Joe Cortese, DBA The Ebay Elite. PESA operated with that bank account until we incorporated and setup a new account under the PESA name and TIN. Our sponsorship payments came in many forms, they have been payable to The eBay Elite, Joe Cortese, NobleSpirit, and PESA. In an effort to collect those funds, there were times where a check payable to NobleSpirit was deposited and then the funds were transferred to the PESA or eBay Elite account." He went on to say that a couple of sponsors issued checks payable to NobleSpirit, and said those funds did make it into the PESA bank account via NobleSpirit.

See Part 2 (http://www.auctionbytes.com/cab/abn/y06/m11/i13/s02).

About the author:

Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com.

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