Charity Fraud Charges: Four Down, Hundreds to Go

by Categorized: Consumer Affairs, Ethics, Government, Law Enforcement, Non-profits Date:

The fraud case brought against four spectacularly inefficient cancer charities is welcome news to watchdogs who have studied the fleecing of generous donors by Donateunscrupulous nonprofits. But it is only the tip of the iceberg.

Americans donate hundreds of billions of dollars each year to more than 1.5  million tax-exempt organizations. The great majority are legitimate operations. But some – hundreds for sure – are little more than conduits that funnel money to professional fundraising firms while devoting pennies on the dollar to charitable purposes.

And there is often little the government can do about it.

The Federal Trade Commission has accused four related charities of “bilking” consumers out of $187 million by soliciting donations that charity officials said would be spent on cancer patients, when in fact nearly all of the money went to fundraisers and to finance the officials’ lavish lifestyles. While patients received modest boxes of sample-size toiletries and Little Debbie Snacks, according to the FTC lawsuit, charity officials (including at least 14 family members) enjoyed “vehicles, personal consumer goods, college tuition, gym memberships, Jet Ski outings, dating website subscriptions, luxury cruises, and tickets to concerts and professional sporting events” – all paid for with charitable donations. Professional fundraisers, meanwhile, pocketed 85 percent of the millions donated every year.

It all may seem shocking, but it is fairly par for the course for a swath of disreputable charities, often focused on cancer, sick children, veterans, and injured police and firefighters. The Tampa Bay Times’ excellent project on America’s Worst Charities currently includes 48 low-performing nonprofits – more than half of which allowed their solicitors to keep at least 80 cents of every dollar raised. An analysis of veterans charities by the Courant a decade ago found numerous organizations accepting contracts that gave fundraisers as much of 90 percent of donated money.

Under U.S. law, however, regulators are powerless to take action against charities simply for giving most of their money to fundraisers. Nor can they require solicitors to tell prospective donors how much of their contribution will actually make it to the charity. That, the U.S. Supreme Court has ruled, amounts to “forced speech.”

But while charities don’t have to come clean about what becomes of a charitable donation, they’re never allowed to actively lie about it. So the current FTC action, joined by all 50 states, accuses the four cancer charities of deceptive practices: intentionally misleading donors with false claims about the scope of the organizations’ work.

“Defendants have deceived donors into believing that their contributions support bona fide charities that use contributions primarily to provide cash grants and material supplies directly to cancer patients, children with cancer, and individuals with breast cancer in the United States,” the suit claims. “In reality, the Corporate Defendants do not operate as bona fide charities. Instead of operating for the benefit of cancer patients or otherwise serving legitimate, mission-related purposes, Corporate Defendants primarily support private interests.”

The charities –  Cancer Fund of America, Cancer Support Services, Children’s Cancer Fund of America and The Breast Cancer Society; all the collective brainchild of James T. Reynolds Sr. – have faced repeated scrutiny over the last quarter-century by at least seven states, including Connecticut. But they typically paid a small fine, promised to clean up their act, and got back to business.

The hammer of the FTC’s 148-page lawsuit appears to have had more impact. Faced with the prospects of millions in damages, two of the charities, as well as Reynolds’ son, ex-wife and a longtime business associate, agreed to settlements. Those charities will be dissolved and the individuals will be banned from fundraising, charity management and oversight of charitable assets. Litigation will continue against Reynolds and two of the charities he controls.

“This is the first time the FTC, all 50 states, and the District of Columbia have filed a joint enforcement action alleging deceptive solicitations by charities and I hope it serves as a strong warning for anyone trying to exploit the kindness and generosity of others,” said Virginia Attorney General Mark Herring.

If it’s also the last time, that warning may well be lost.

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