Mitchell Gold, Patricia Gold, Herbert Gold, and Celia Gold, individuals who operated a for-profit fundraising business, are barred from further fundraising and telemarketing activities as part of a settlement with the Federal Trade Commission. The Santa Ana, California-based defendants orchestrated a massive fraudulent fundraising operation involving deceptive solicitations for police, fire and veterans' groups. The defendants and their more than 70 fundraising subcontractors allegedly engaged in deceptive telephone solicitations for nonprofit organizations purporting to support police, fire fighters, veterans, and sick children. According to the FTC, the defendants raised more than $24 million between 1995 and early 1999, but contrary to their representations, they provided only a small amount to the nonprofits. Steven Chinarian, another defendant, has agreed to refrain from fundraising and must post a bond before engaging in telemarketing activities, as part of this settlement
In November 1998, the FTC filed a complaint against the above-named defendants, J.P. Cohen (a defendant not part of the settlement package), and the corporate entities through which they did business, U.S. Marketing and North American Charitable Services, Inc. The FTC alleged that in telephone scripts, "thank you" letters, and brochures sent to donors, the defendants and their subcontractors misrepresented that consumers' donations would benefit local purposes - such as holiday parties for sick children in local hospitals - and misrepresented that consumers' donations would support particular programs - such as buying wheelchairs for veterans. According to the FTC, most donations did not support a charitable purpose but instead funded the nationwide telemarketing operation and lined the defendants' pockets. In some instances, the defendants never paid the nonprofits, but simply kept all the money raised in their names.
Following a criminal referral by the FTC in September 2001, a federal grand jury indicted defendants Mitchell Gold and J.P. Cohen for wire fraud and mail fraud in connection with their fundraising business. (Gold also was indicted for money laundering.) They pled guilty and are now in prison. Gold was sentenced to 96 months in prison, and Cohen was sentenced to 37 months. (The FTC case against Cohen still is pending.)
The stipulated orders for permanent injunction resolve the litigation as to all of the individual defendants, except J.P. Cohen, as well as the outstanding bankruptcy action against Mitchell Gold. The orders ban all of the defendants from further fundraising activities. The orders also ban all of the defendants except Steven Chinarian from engaging in future telemarketing. Chinarian is required to post a $100,000 bond before engaging in telemarketing activities. The settlements also prohibit the defendants from making misrepresentations in connection with the sale of goods or services.
The order against Mitchell Gold includes a $10 million judgment, and requires him to stipulate to nondischargeability to settle the FTC's bankruptcy claim against him. The settlements with defendants Patricia Gold, Herb Gold, and Celia Gold include a suspended $10 million judgment, with an avalanche clause that would make the entire amount due if it is found that they lied on their financial statements. The order against Chinarian includes an avalanche clause that would impose a $1 million judgment if it is found that he lied on his financial statements.
The settlements also contain various recordkeeping requirements to assist the FTC in monitoring the defendants' compliance.
The Commission vote to authorize the staff to file proposed stipulated permanent injunctions against defendants Mitchell Gold, Patricia Gold, Herbert Gold, Celia Gold, and Steven Chinarian was 5-0, with Commissioner Orson Swindle concurring in part and dissenting in part.
In his statement, Commissioner Swindle expressed support for the permanent ban on charitable solicitation as to the Golds, but dissented from the ban as to defendant Steven Chinarian. Commissioner Swindle explained that the case against the Golds is the rare and exceptional case in which a permanent ban on all charitable solicitation -- which is fully-protected speech under the First Amendment -- is warranted. He stated that the defendants' repeated law violations and subsequent efforts to evade the law "provide compelling evidence that less restrictive forms of relief (i.e., prohibitions on deception in the solicitation of charitable donations) will not prevent future harm -- and in fact have already failed repeatedly." With respect to Steven Chinarian, Commissioner Swindle did not believe there was sufficient evidence to justify a permanent ban on all charitable solicitation. He stated that even though a defendant may waive the right to engage in fully-protected speech by entering into a consent agreement, he believed that the Commission should not seek the extraordinary relief of a ban on all charitable solicitation absent evidence that the harm cannot be mitigated by less intrusive means.
Judge David O. Carter of the U.S. District Court, Central District of California, Southern Division signed the stipulated orders on March 6, 2003. The FTC's Northwest Region - Seattle handled this matter.
(FTC Matter No. X990005)
(Civil Action No. SACV-98-968-DOC (RZX))