By Nick Charles
June 04, 2001 12:00 PM

Not long ago Rosie O’Donnell was one of the celebrities who enthusiastically supported the Harlem-based charity Hale House. The nation’s first independent child-care agency to specialize in children of drug-or alcohol-addicted mothers has over the past three decades housed more than 3,000 and been a magnet for high-profile donors, including Bill Cosby, Donald Trump and Spike Lee. O’Donnell gave $50,000 three years ago and still admires the late Clara “Mother” Hale, who founded the organization in 1969. “She was really a hero,” she says. “She provided a home for children of addicts when other people were not stepping up.”

But eventually the TV host began to suspect that Hale’s daughter Lorraine, 68, who took over the charity after Clara’s death in 1992, might not be living up to its mission. A review by O’Donnell’s own charity two years ago found that Hale House was unwilling to disclose key financial information to her—such as the amount spent on children’s programs. Soured, O’Donnell cut her ties. “They received a very, very low rating,” she says, “as close to an F as you can come.”

Yet it was only within the last seven months, after suspect filings to the state’s charities bureau by Hale House, that an investigation was launched by New York State Attorney General Eliot Spitzer. The probe was stepped up after a withering series of tabloid frontpage stories in the New York Daily News. Among the more embarrassing revelations: About $500,000 was siphoned from the budget in 1994 to fund an Off-Broadway production that flopped; money was raised for programs that didn’t exist; and the board of directors hadn’t convened in years (one member may in fact be dead). Finally, on May 17, amid adverse publicity and the investigation, an interim board of directors ousted Lorraine Hale from the presidency of Hale House. Her husband of 22 years, Jesse DeVore, 68, had earlier resigned his $110,000-a-year position as public relations director. “We have not ruled out criminal charges,” says Juanita Scarlett of the attorney general’s office. “The investigation is ongoing.”

Relieved of her own $200,000-a-year post, Lorraine Hale has admitted she violated a state charity law by borrowing $115,800 from Hale House—allegedly to renovate the Scarsdale, N.Y., home she shares with her husband—but she has since repaid the loan. She blames any improprieties on bad legal and financial advice. “We all serve for an appointed time and then move on,” Hale, who holds a Ph.D. in early child development, said in a statement. “The time for establishment of a succession is long overdue.”

Ironically, it was Lorraine who sparked the birth of Hale House 32 years ago, when she came to the aid of a drug-addicted mother and her baby by sending them to Clara’s home for care. One of three children of Clara and her husband, Thomas Hale—who owned a floor-waxing business and died in 1942—Lorraine stayed in the background while the charity blossomed, leaving the spotlight to Clara as she focused on day-to-day administrative chores like hiring staff and seeking donors. After her mother died, Lorraine “reshaped the agency in her own image,” DeVore told PEOPLE last year. Apparently not disposed to Clara’s nurturing, hands-on style, she concentrated on hard-sell fund-raising. “We can talk of loving babies and compelling missions,” her husband said. “But in the final analysis, it’s a business.”

On that level, at least, Lorraine’s approach proved effective, as Hale House accumulated an $11 million cash reserve. But though the charity spent $3 million on direct-mail campaigning in 2000, only about $54,000 went toward clothing and food for the children. Still, says former U.S. Attorney Zachary Carter, head of the agency’s temporary six-member board, “it appears that the health, welfare and safety of these kids are being taken care of.”

That may be of limited comfort to disillusioned donors, who have faithfully supported the charity. “I’m very disappointed,” says Trump. O’Donnell too admits to feeling duped. “It’s really a tragedy,” she says, “that instead of remembering the legacy of the mother, people will remember the corruption of the daughter.”

Nick Charles

Sharon Cotliar in New York City