A self-serving fundraiser bilked the nation's foremost Puerto Rican heritage celebration of $1 million amid lax oversight from the city Puerto Rican Day parade's organizers, state Attorney General Eric Schneiderman said Thursday.

Fundraiser Carlos Velasquez underreported how much he collected from sponsors, put money that was supposed to go to scholarships toward parade floats and other purposes, and used donated airline vouchers for personal trips, Schneiderman said. He announced a settlement that will cost Velasquez more than $1 million and entailed the resignations of half of the parade board's members, including its president, for what Schneiderman called "extreme negligence" in minding the nonprofit's finances.

"The findings of this investigation are very disturbing for all of us who care about and value" the parade, he said at a news conference.

Velasquez didn't immediately return a cellphone message. Ousted board President Madelyn Lugo acknowledged that members should have exercised tighter supervision but called her forced resignation unfair.

"We never thought that people we knew, or that provided services for us, would be involved in not providing us with all the funds they were receiving. ... We have not committed any fraud. There are no criminal charges. So why can*t we continue on the organization and continue the work?" she said at a news conference with the Rev. Ruben Diaz, a state senator who also decried her ouster.

The upheaval comes four months before the next edition of the popular parade, which regularly draws big crowds and celebrities but has also endured prior controversies. Schneiderman, newly appointed board members and some Hispanic officials vowed that the June event would only be strengthened by the shake-up.

"Puerto Ricans and all New Yorkers have a right to expect that the parade will be a joyous celebration but also will be governed responsively and responsibly," said former Bronx Borough President Fernando Ferrer, who has been the parade's grand marshal.

Velasquez has been the parade's marketing agent and money-raiser for decades, authorized to keep 27 to 35 percent of the money he collected on the event's behalf and to charge for certain expenses, Schneiderman said. Organizers gave Velasquez wide latitude, failing to adopt annual budgets or conduct audits, requiring only skeletal revenue reports with no detailed backup, giving him a 10-year contract renewal in 2010 without soliciting bids from anyone else, and eventually racking up a $1 million debt to him because of expenses he incurred on the parade's behalf, the attorney general said.

In reports to the board, Velasquez repeatedly downplayed major donations he collected — once logging a $75,000 contribution as just $20,000 — and kept the difference, Schneiderman said.

Under the settlement, Velazquez will forgive the $1 million debt and repay an additional $100,000, and he's barred from ever doing business with the parade again. Lugo; her husband, who's the board's general coordinator; the treasurer; and two honorary directors have stepped down, and 10 new directors are being added. The parade organization also is required to strengthen financial controls.

Schneiderman's office brought criminal fraud charges this summer accusing a former CEO of a prominent Jewish charity of stealing $1 million through a decades-long scheme that involved overcharging the organization for insurance. In that case, board members had conducted their own investigation and fired the CEO; Schneiderman hasn't asked them to resign.

He said he hadn't pursue criminal charges against Velasquez in the Puerto Rican parade case partly "given what was going on with the board," and partly to get the matter resolved quickly for the event's sake.

Held annually since 1958, it's one of the city's largest parades and a major point of pride for New York city's robust population of people of Puerto Rican descent — about 761,000, nearly twice as many people as live in the island's capital, San Juan. Grand marshals have included actress Chita Rivera, pop star Ricky Martin got the special title of parade king in 2007, and then-pop-power-couple Jennifer Lopez and Marc Anthony led marchers in 2006.

But the event has sometimes been marred by missteps and misdeeds, most notoriously when more than 50 women were doused with water, groped and stripped by male spectators at the 2000 parade, in attacks caught on amateur videotape. Some 30 men were charged with sex abuse and other offenses; 18 pleaded guilty or were convicted, one was acquitted, and charges against 11 were dismissed.

The parade's management came under scrutiny in the late 1970s, when a court order barred a former president from the event's leadership. Later, a former state attorney general investigated allegations of irregularities in the parade's financing; a 1988 agreement imposed some new rules for fundraisers and scholarships.

Last year, some Puerto Ricans were appalled to see a parade-related logo that invoked the island's flag on a Coors Light beer can. Beer maker MillerCoors said the image demonstrated its support of the parade, though organizers denied it was meant to represent the event's logo or the Puerto Rican flag.


Associated Press writer Claudia Torrens contributed to this report. Reach Jennifer Peltz on Twitter @ jennpeltz.