MISSOULA, Montana (Reuters) - "Three Cups of Tea" author Greg Mortenson has agreed to pay $1 million to compensate his Montana-based charity for using the non-profit to promote and buy copies of his books, a report from the state attorney general said on Thursday.
The settlement between Mortenson, leaders of the Central Asia Institute charity he founded and Montana officials allows the organization to continue providing education to impoverished communities in Pakistan and Afghanistan.
But it marks a setback for an author and philanthropist once widely celebrated for his work.
The office of Montana Attorney General Steve Bullock said its investigation, launched in April 2011 in the wake of a "60 Minutes" report that suggested Mortenson fabricated parts of his book "Three Cups of Tea" and reaped benefits from the charity.
Bullock's office found the Central Asia Institute had spent nearly $4 million since 2006 to buy copies of his books "Three Cups of Tea" and "Stones Into Schools."
The purchases generated royalties for Mortenson, and although he had agreed to provide a contribution to the Central Asia Institute equal to the amount of royalty payments he received from book purchases, he had not done so as of April 2011, the attorney general report found.
He also collected money from CAI for travel expenses related to his lucrative speaking engagements, and the charity spent about $4.9 million to promote the two books, the report said.
CAI's mission is to advance literacy and education in Central Asia, especially for girls, and it has funded the construction and operation of schools in the region.
"The humanitarian efforts of Greg Mortenson and CAI are impressive, and even the greatest detractors would admit that together they've accomplished a tremendous amount to further education in Pakistan and Afghanistan," Bullock told reporters.
But Bullock, who has authority under Montana state law to oversee and regulate charities, said lapses in CAI oversight cannot be ignored. The investigation could have resulted in state officials dissolving the charity if a settlement had not been reached.
"When charities take money given for specific purposes, it's essential it's spent as intended, otherwise public trust is eroded and tough to restore," Bullock said.
The report from Bullock said his office did not probe allegations of fabrications or narratives in Mortenson's book that were raised by the "60 Minutes" piece.
The book describes Mortenson's unsuccessful attempt to climb the 28,251-foot (8,611-metre) K2 in South Asia and his encounter with impoverished Pakistani villagers who he said inspired him to build schools and other projects in the region.
The "60 Minutes" report disputed Mortenson's account in "Three Cups of Tea" of being kidnapped in the Waziristan region of Pakistan in 1996. The show interviewed people who knew Mortenson or met him in South Asia.
Mortenson's charity received $100,000 from President Barack Obama's $1.4 million Nobel Peace Prize award that Obama won in 2009. The author and philanthropist received other support from high profile backers and took numerous awards before the April 2011 "60 Minutes" report.
Mortenson defended his account in "Three Cups of Tea" in a statement to Montana newspaper the Bozeman Daily Chronicle around the time the "60 Minutes" piece aired. "I stand by the information conveyed in my book," he said.
Karin Ronnow, a spokeswoman for the Central Asia Institute, stressed that the attorney general was not investigating allegations about the book's narrative.
Mortenson in June 2011 underwent open heart surgery to repair a large hole in his heart, and he temporarily stepped down as executive director of the organization. In late 2011, he permanently gave up the position, Ronnow said.
"He'll always be our founder - he's the heart and soul and he's not going anywhere. And thank God," she said.
Under the settlement with the Montana attorney general, Mortenson will remain with CAI, based in Bozeman, Montana, and stay on the organization's board but as a non-voting member.
The agreement also calls for a new board to run the charity, based on a finding that it failed to fulfill some of its responsibilities in handling the relationship between the charity and Mortenson.
Writing by Alex Dobuzinskis; Editing by Jackie Frank