Let the donor beware: A federal lawsuit alleges four cancer charities have scammed consumers out of more than $187 million.
The Federal Trade Commission and attorneys general in all 50 states and the District of Columbia announced Tuesday they have filed a lawsuit against the Cancer Fund of America, Children's Cancer Fund of America, Cancer Support Services and the Breast Cancer Society alleging they violated federal and state regulations. All four charities are run by members of the same family or their close business associates, as detailed in the 2013 "America's Worst Charities" joint report from the Tampa Bay Times and the Center for Investigative Reporting.
"The defendants' egregious scheme effectively deprived legitimate cancer charities and cancer patients of much-needed funds and support," Jessica Rich, director of the FTC's Bureau of Consumer Protection, said in a statement. "The defendants took in millions of dollars in donations meant to help cancer patients, but spent it on themselves and their fundraisers."
Children's Cancer Fund of America and the Breast Cancer Society have entered into a settlement agreement and will be dissolved. Three of the groups' executives—Rose Perkins, president and director of the Children's Cancer Fund of America, James Reynolds II, executive director and former president of the Breast Cancer Society and Kyle Effler, chief financial officer of Cancer Fund of America and Cancer Support Services and former president of Cancer Support Services—have also agreed to settle charges against them. They will be banned from fundraising, charity management and oversight of charitable assets. Judgments against the groups and their executives total $137 million—which will be redirected to cancer patients. A lawsuit will proceed against Cancer Fund of America Inc., Cancer Support Services Inc. and their president, James Reynolds Sr.
Calls to the Cancer Fund of America and Children's Cancer Fund of America were not immediately returned. Phone lines listed for Cancer Support Services and The Breast Cancer Society appear to have been disconnected. The Breast Cancer Society's website has been replaced with a letter from executive director James T. Reynolds II to supporters. "While the organization, its officers and directors have not been found guilty of any allegations of wrongdoing, and the government has not proven otherwise," he said in the letter, "our board of directors has decided that it does not help those who we seek to serve, and those who remain in need, for us to engage in a highly publicized, expensive, and distracting legal battle around our fundraising practices."
Over the course of 2008 to 2012, the lawsuit claims, 85 percent of the more than $187 million the four groups raised went to professional fundraisers. Operators used much of the remaining donations to cover their salaries and personal expenses, including trips to Disney World, concert tickets and dating site memberships.
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Just 3 percent of the collective funds raised allegedly went to charitable purposes. According to a statement from the office of New York Attorney General Eric Schneiderman: "Among other things, the charities or their telemarketers allegedly falsely told donors that their contributions would be used to provide pain medication to children suffering from cancer, to transport patients to chemotherapy appointments, and to pay for hospice care for dying patients. None of these services are believed to have actually been provided."
The groups also allegedly used deceptive accounting schemes, improperly reporting more than $223 million in revenue and program spending over 2008 to 2012. Doing so made them appear to be larger organizations and operating more efficiently than they were.
The lawsuit serves as a reminder to consumers to vet nonprofits carefully before donating. Americans gave $335.17 billion to charity in 2013, according to the Giving USA 2014 report, put out by the Giving USA Foundation and the Indiana University Lilly Family School of Philanthropy. Health charities received $31.86 billion of that, up 4.5 percent from 2012.
"It is heart-breaking news to learn that many Americans were deceived into contributing by charity bad actors," H. Art Taylor, president and CEO of the BBB Wise Giving Alliance, said in a statement. "People want to help when they hear about a good cause, but donors need to be aware of potential deceptions, so their hard-earned money can go to charities they can trust."
Looking at the larger nonprofit sector, problem organizations are rare, said Patrick Rooney, associate dean for research and academic affairs at the Indiana University Lilly Family School of Philanthropy. "It's a very small percentage of the total charities, but it is something we have to be aware of," he said.
Speaking broadly about cancer charities, Daniel Borochoff, president of evaluator site CharityWatch.org, said unfortunately, shady accounting practices aren't unheard of. Pick the wrong group, and very little of your donation may make it to patients in need or medical research, he warned.
"It's very easy for them to disguise a lot of their fundraising and solicitation costs as public services," he said. For example, if the fund-raising volunteer reminds you to do monthly breast self-exams or urges you to quit smoking, some of the expenses related to that solicitation could be fudged as a preventative services program.
Figuring out which health nonprofits are legitimately helping patients or funding laboratory research comes down to digging through the details of income and spending in annual reports and financial filings. "You've got to hone in on, are these bona fide, legitimate programs?" Borochoff said. "And that can be tricky." Research might mean marketing research, for example, rather than grants to laboratories and hospitals, so it's important to look closely at the descriptions.
The faster route: Check into a prospective charity before donating using an evaluator site, said Rooney. CharityWatch.org, the Better Business Bureau's Wise Giving Alliance or CharityNavigator.org assess groups' finances and transparency, among other factors. It's not a fool-proof strategy because not every nonprofit gets rated, but it can help consumers quickly sort their options.
Make sure you have the right name, too. "Some groups sound almost exactly the same, but one gets an A and one gets an F," said Borochoff. For example, CharityWatch.org rates the Breast Cancer Research Foundation an A+, but the Breast Cancer Relief Foundation an F. (All four of the groups named in the lawsuit got an F rating on CharityWatch.org.)
Another easy tip: If you get a charity telemarketing call, hang up the phone. It's better to research a charity and then give directly. Two of the groups targeted in the lawsuit, Children's Cancer Fund of America and Cancer Support Services, have one-star ratings out of a possible four on CharityNavigator.org. "Looking at these groups, at least the comments we have from the public, they seem to be pretty aggressive with telemarketing," said Sandra Miniutti, chief financial officer and vice president of marketing for CharityNavigator.org. (The Breast Cancer Society and the Cancer Fund of America are not rated on the site.)
Telemarketing is common among health nonprofits, and such aggressive phone campaigns are a red flag that the charity is operating inefficiently, said Miniutti. They're relying on an emotional, impulse donation. "We find many times the bulk of the money collected is staying in the telemarketers hand," she said—under some contracts, as little as 5 to 10 percent of your pledge goes to the charity. "I think if donors knew that, they'd be more willing to hang up the phone," she said, and do their own research.