By Ronald Grover

LOS ANGELES (Reuters) - California's attorney general sued a major veterans charity on Thursday, accusing the officers and directors of engaging in self-dealing and fraudulent fundraising, and paying excessive compensation.

The suit seeks to remove the officers and recover $4.3 million that it claims was improperly diverted from Help Hospitalized Veterans. The charity in Winchester, California, was founded in 1971 to provide therapeutic arts and craft activities for patients receiving care in Veterans Affairs hospitals, military hospitals and state veterans homes, according to its website.

"The officers of Help Hospitalized Veterans improperly diverted money that hard-working and patriotic Americans donated to support injured vets," Attorney General Kamala D. Harris said in a statement.

The charity raised more than $108 million in contributions over the last three years, it said in tax filings and on its web site, with 33.8 percent going toward its programs. The suit alleges that it filed "false and misleading" tax returns that inflated program expenses and reduced its actual fundraising costs to "less than 30 percent."

It was awarded one star out of five by Charity Navigator, which rated 59 veterans charities among those it reviewed.

The California lawsuit said the charity's president, Michael Lynch, received excessive compensation of $900,000 and former president Roger Chapin of $2.3 million. It said Chapin's compensation included a lump sum retirement payment of $1.96 million.

Chapin, who retired in 2009, is also accused of diverting the charity's funds through a separate charity called Conquer Cancer and Alzheimer's Now.

The former president was accused of paying himself more than $493,000 from the cancer charity. That charity received the money from American Target Advertising, a fund-raising firm run by conservative political fundraiser Richard Viguerie, who is not named in the suit.

Viguerie, who is identified in the suit as Chapin's long-time friend, is said to have deposited funds into the account of Conquer Cancer and Alzheimer's Now from $800,000 that Help Hospitalized Veterans had lent ATA and was not repaid.

Calls to Help Hospitalized Veterans and Lynch's office were not returned. Viguerie did not immediately respond to phone and email messages seeking comment. Reuters was unable to contact Chapin on Thursday evening.

(Additional reporting by Dan Whitcomb in Los Angeles and Mary Slosson in Sacramento; Editing by Cynthia Johnston and Lisa Shumaker)