Last May, an investigation involving federal regulators and prosecutors from all 50 states led to four national cancer charities being charged with swindling consumers out of $187 million in charitable donations. Today, two of those bogus charities — responsible for $75 million in bilked donations — have agreed to close up shop and provide refunds to donors.
The Federal Trade Commission, along with all 50 states and the District of Columbia, announced today that Cancer Fund of America (CFA), Cancer Support Services Inc. (CSS), and James Reynolds, Sr. — the man behind both groups — will settle will settle charges that the organizations claimed to help cancer patients, but instead, spent the overwhelming majority of donations on their operators, families and friends, and fundraisers.
According to the original complaint [PDF], the two charities, along with the Children’s Cancer Fund of America Inc. (CCFOA) and The Breast Cancer Society Inc. (BCS), used telemarketing calls, websites, direct mail and materials distributed by the Combined Federal Campaign – which raises money from federal employees for non-profit organizations – to solicit donations from consumers in all 50 states and the District of Columbia.
The complaint purports that the deceptive scheme was set in motion by James Reynolds Sr. in 1987 and since then has regularly duped consumers into believing they supported a genuine charity.
From 2008 to 2012, the organizations deceptively raised $187 million in donations by portraying themselves as legitimate charities and told prospective donors that funds would be used for help cancer patients by providing direct support and needed medical assistance.
“These were lies,” the complaint states. “Not one of the Defendants has operated a program that provides cancer patients with pain medication to alleviate their suffering, transports cancer patients to chemotherapy appointments, or pays for hospice care. Moreover, the vast majority of donors’ contributions have not directly assisted cancer patients in the United States or otherwise benefitted any charitable purpose.”
In reality, the FTC and state officials, claim the four charities spent just 3% of the donations on actual cancer patients.
The rest of the money was spent on inflated salaries, cars, trips, luxury cruises, college tuition, gym memberships, jet ski outings, sporting event and concert tickets, and dating site memberships for the company operators, their family members, and friends.
The charities “operated as personal fiefdoms characterized by rampant nepotism, flagrant conflicts of interest, and excessive insider compensation, with none of the financial and governance controls that any bona fide charity would have adopted,” according to the complaint.
The organizations were more generous with friends and family members, providing salaries nearly five times what they actually provided in aid to patients.
In addition to lining their own pockets, the charity operators allegedly padded the wallets of professional fundraisers who were hired and often received 85% or more of every donation.
To hide the high administrative and fundraising costs from donors and regulators, the complaint alleges the organizations falsely inflated their revenues by reporting in publicly filed financial documents more than $223 million donated “gifts in kind” distributed to international recipients.
Children’s Cancer Fund of America Inc. and The Breast Cancer Society Inc. agreed to settle with the FTC and states in May 2015.
According to the settlement order [PDF] with CFA and CSS, the charities will be dissolved and their assets will be liquidated. Any funds from the liquidation will go toward satisfying a $75 million judgement. Those funds will then be returned to the consumers who donated to the organizations between 2008 and 2012.
Reynolds’ portion of the judgement is suspended following the surrender of certain personal assets, including art, statues, a boat, and guns. In addition to contributing to consumer refunds, the order bans Reynolds from working for, managing, or receiving payments from non-profits in the future.
“The FTC and our state enforcement partners have ended a pernicious charity fraud that syphoned hundreds of millions of dollars away from well-meaning consumers, legitimate charities, and people with cancer who needed the services the defendants falsely promised,” Jessica Rich, Director of the FTC’s Bureau of Consumer Protection, said in a statement Wednesday. “Today’s settlement, along with those announced earlier, shut down the sham charities once and for all and banned the individual perpetrators for life.”
by Ashlee Kieler via Consumerist