HNA's NYC Charity Owner Told by A.G. to Register With State

(Bloomberg) -- New York State's top cop is joining an effort to solve a riddle -- who or what controls HNA Group Co., the Chinese conglomerate that's been collecting stakes in banks, hotels and is poised to buy Anthony Scaramucci's hedge fund firm.

Eric Schneiderman, the New York Attorney General, sent a letter Thursday asking for more information about a charity that owns part of HNA. This week, the conglomerate disclosed that Manhattan-based Hainan Cihang Charity Foundation Inc. and a second charity in China together control 52 percent of the company.

Schneiderman, whose office oversees nonprofits in the state, pointed out that the group hadn't registered in the state as a charity, as required by law -- and asked it to do so within 20 days or explain why it couldn't. His office is seeking detailed information, including names of officers and affiliates, that would shed light on HNA's structure. The charity registered separately with New York's Department of State on Dec. 7.

Founded in 1993 as a regional airline operator, with George Soros as an early investor, HNA says it's created 410,000 jobs worldwide and built up assets of about $150 billion. HNA has made more than $40 billion of foreign acquisitions since the beginning of 2016, buying a stake in Deutsche Bank AG and snapping up 25 percent of Hilton Worldwide Holdings Inc.

It's also trying to buy SkyBridge Capital, the hedge-fund firm owned by Scaramucci, whom President Donald Trump designated as the White House communications director. The deal has been delayed by the Committee on Foreign Investment in the U.S., which vets sales of American assets to foreign buyers to protect national security.

QuickTake Q&A on HNA -- a curious company

New York lawyer Allen Wu, who represents HNA and the charity, said the nonprofit hasn't yet received the letter from Schneiderman, but that nothing is amiss. He said the charity can't register until it receives its federal 501c3 status, a federal tax exemption of nonprofit organizations, which is pending.

"The purpose of forming the charity is really for following the spirit of Bill Gates, who's donating his personal wealth and equity interests," Wu said in a phone call. "HNA has a very healthy and very bright charitable purpose."

Amy Spitalnick, a spokeswoman for the attorney general's office, said charities aren't required to secure 501c3 status before registering.

"Charitable organizations are required to register regardless of their tax status," she said in an email.

Hainan Cihang Charity Foundation isn't accused of any wrongdoing, but failures to register have been known to trigger investigations of high-profile charities. Schneiderman last year ordered Trump's foundation to stop soliciting funds in New York amid revelations it hadn't registered. The attorney general is also looking into why Eric Trump's charity paid more than $1 million to use Trump properties for events, after boasting to donors that the family's assets were being used at no cost.

The New York-based charity owns 29.5 percent of HNA, with China-based Hainan Province Cihang Foundation holding 22.75 percent. The company's ownership structure has raised concerns among banks. Bank of America Merrill Lynch has told investment bankers to stop working on transactions with HNA for now amid growing concerns about the group's debt levels and ownership structure, people familiar with the matter told Bloomberg News this month.

Little is known about the philanthropic organizations. HNA said it plans to update its ownership status annually and that the executives plan to donate all their shares to the charities should they resign or die. Eventually, HNA expects the foundations to own 100 percent of the group.

--With assistance from Prudence Ho

To contact the reporter on this story: Erik Larson in New York at elarson4@bloomberg.net.

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Joe Schneider, Jeffrey D Grocott