Caribbean cruises, jet ski outings, trips to Disneyworld, tickets to sporting events and concerts, and even dating service subscriptions. You’d expect to see that on reruns of “Lifestyles of the Rich and Famous.” What you wouldn’t expect is that they were paid for by donations people made to cancer charities. That’s what the FTC and 58 law enforcement partners from every state and the District of Columbia allege in a lawsuit filed against four bogus charities that bilked people out of more than $187 million.
Through telemarketing, direct mail, online solicitations, and other means, the defendants – Cancer Fund of America, Inc., Cancer Support Services Inc., Children’s Cancer Fund of America, Inc., the Breast Cancer Society, and an interconnected web of corporate officers – told consumers their donations would pay for pain medication, transportation to chemotherapy, hospice care, and services for critically ill children, women battling breast cancer, and other patients in need.
But according to the lawsuit, the defendants used charitable contributions as a personal piggybank to finance their lifestyles and provide cushy jobs for family members. What about shopping trips to Victoria’s Secret and meals at Hooters? They went on the charities’ credit cards, too.
If your umbrage meter hasn’t blown a gasket yet, consider this. According to the complaint, the defendants collectively spent less than 3% of donors’ contributions on goods or services for cancer patients in the U.S. Contrast that to some of the defendants’ contracts, which allowed for-profit fundraisers to pocket 85% or more of each dollar raised.
As the FTC and the states describe it, 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."
The complaint reveals the smoke and mirrors the defendants used to hide what they were really up to. As a result, 35 states say the defendants filed finagled financial statements with state charity regulators. The defendants are charged with a host of other illegal practices, including violations of the Telemarketing Sales Rule.
The Children’s Cancer Fund of America and president Rose Perkins, the Breast Cancer Society and executive director James Reynolds II, and Kyle Effler, CFO of Cancer Fund of America and former president of Cancer Support Services, have settled the charges against them. In addition to financial remedies, the orders against Perkins, Reynolds II, and Effler ban them from paid fundraising, charity management, and oversight of charitable assets. The Children’s Cancer Fund of America and the Breast Cancer Society will be dissolved and their assets liquidated to pay part of the judgments.
Litigation is pending in federal court in Arizona against Cancer Fund of America, Cancer Support Services, and James Reynolds, Sr., president of both groups.
The case conveys three important points for business. First, this historic action by the FTC, all 50 states, and the District of Columbia illustrates how seriously law enforcers take charity fraud. We’ve seen some effrontery in our day, but not much can compare with exploiting cancer patients to pilfer the pocketbooks of generous Americans.
Second, charities often look to business leaders in the community to serve on boards and offer guidance on administration and fundraising. Wise executives understand the importance of carrying out those duties with both a soft heart and a hard nose. A brochure from the FTC, Raising Funds? What You Should Know About Hiring a Professional, offers no-nonsense tips on contracts, campaigns, and telemarketing compliance.
Third, it’s great to have charitable impulses, but the one thing charitable donations shouldn’t be is impulsive. Before contributing on your own behalf or in your company’s name, read Charity Scams for resources on researching an organization’s financial track record.