Nonprofit legal experts say there are a number of avenues for the authorities to pursue in their investigation. One is false solicitation, if the foundation convinced donors like Billings that the money would go to help the city's libraries.
"To the extent that they are using money for their own personal interests that is … a kind of theft," said James Fishman, a professor at Pace University Law School in White Plains, N.Y., and author of "The Faithless Fiduciary," a book about legal abuses by charities.
LSU Law Professor Phil Hackney, a former IRS lawyer specializing in tax-exempt organizations, likened the library foundation case to that of the New Orleans Opera Association, which had an endowment that was redirected after Hurricane Katrina to a Southern Regional Opera Endowment Fund without the permission of the association's founders.
"They changed their articles and diverted money to" the regional fund, Hackney said. "The court looked at it here in Louisiana and said, 'No, you can't do that. You collected that money for a very specific purpose.'"
It appears a similar issue is at play with the library foundation. A board resolution from June 2012 appeared to show a minor expansion of the purposes of the foundation in its articles of incorporation.
Since 1991, the foundation's purpose had been explicitly "for the benefit of the New Orleans Public Library," allowing expenditures for "purchasing books and other informational materials and sponsoring library-related programs" for the city library system. The 2012 resolution added "expenditures that … increase literacy and access to information in the New Orleans community."
But it turns out that change in the articles was never filed with the Secretary of State, meaning that the library-only purpose from 1991 may have still been in effect legally when the foundation started paying money to NOJO, Hackney said.
The mission statement reported on the foundation's tax forms starting in 2012 could have been a false statement made under penalty of perjury, Hackney said, but federal authorities would have to prove that it was intended and not just a clerical error.
The articles of incorporation were not properly changed with the Secretary of State until 2014, when the foundation board passed a new resolution to change the articles. It contained language about the foundation's purpose that was similar to the 2012 resolution, and it was signed on Jan. 10, 2014, by Dan Forman, whose father, Ron, is NOJO's board chairman.
Dan Forman said Markham and Mayfield told him the resolution was intended to increase the number of board members and set term limits. It also granted Markham, as board president, "sole discretion to give full effect to the intentions expressed in this resolution."
But that's not what was ultimately filed as the new articles of incorporation. The new articles went much further in expanding the purposes of the foundation, to "support projects for the benefit of the local community, which may involve investment in social programs in support of that objective."
Hackney said the Office of the Louisiana Attorney General could take up a civil case on behalf of donors who believed their money was going to public libraries only. But he said attorneys general in most states do not have the resources to enforce state nonprofit laws.
The attorney general's office declined to comment or to confirm or deny any state investigation.
But Fishman said donors could also take matters into their own hands.
"People who gave funds for the use of the New Orleans library ought to have a right to get their money back," he said.
Issues surrounding nonprofit status
Finally, Hackney said there could be issues raised about the nonprofit status of both the library foundation and NOJO. It's unclear if the foundation properly notified the IRS of the change in its purpose. And Hackney said some of the orchestra's activities, including running a bar in the new Jazz Market, could "raise a red flag" for nonprofit attorneys.
More than a quarter of the $10 million Jazz Market project cost came from library donors and taxpayer money, records show. In addition to nearly $1 million from the library foundation, the project received $1.1 million in capital outlay funds from the state Legislature and $800,000 in the form of a loan from the New Orleans Redevelopment Authority, a quasi-public agency that counted Mayfield as a board member until September 2011, a little more than a year before the Jazz Orchestra sought the money.
The state ethics code forbids a former member of a government board from "assisting" in a transaction with that board for two years after leaving the board. But NORA's in-house counsel, Chris Gobert, issued an opinion in January 2013 saying the loan was fine as long as "Mayfield does not personally assist or appear on behalf of the New Orleans Jazz Orchestra in securing NORA's participation in the project."
The Jazz Orchestra also received more than $1.6 million from then-Mayor Ray Nagin through the city's Wisner Grant program. Most of it went to have the Jazz Orchestra administer the construction of a sculpture garden in Armstrong Park featuring jazz legends Buddy Bolden, Louis Armstrong and others.
The project was mired in controversy as Nagin left office, and Mayor Mitch Landrieu's administration cut off any further payments to the orchestra for the project.
NOJO's public financial reports, filed with the Louisiana legislative auditor, reflect only about $6,600 spent related to that project. Gerard Schreiber, a local certified public accountant, reviewed the financial reports and said they were too shoddy to decipher.
"Considering it's public money, there should have been more care and diligence in how the transactions were recorded," Schreiber said.
City Spokesman Brad Howard said NOJO should have filed annual reports with the city on how it spent the Wisner Grant money, and city officials are trying to locate those records. WWL-TV asked NOJO for further documentation of those expenditures but didn't receive any.
Meanwhile, Mayfield's name was removed from the Library Foundation's website Thursday as an honorary "emeritus" board member, a status he assumed after he left his board position last month. But new board chairman Bob Brown said Friday that no decision had been made regarding Mayfield's emeritus status.
Another board member, Sayde Finkel, resigned recently, Brown confirmed. With Markham's May 8 resignation, the board is down to just three members: Brown, Susan Krantz and Dr. Corey Hebert, who is also on the NOJO board. Mayor Mitch Landrieu had called for a complete separation of the Library Foundation and NOJO boards last week.
NOJO sent a statement late Thursday night saying:
"$1.21 million was received by NOJO from the Wisner Trust for the purpose of constructing a sculpture garden. All $1.21 million was distributed to the artists. NOJO acted solely in a custodial capacity and took no fees for managing the project.
Between 2008 and 2010, NOJO received four additional grants totaling $425,000 from Wisner for concerts, educational activities and general operating support."