Consider this a personal victory lap.
More than three years ago in this space, I wrote about Cancer Fund of America, of Knoxville, Tenn., and its affiliate, Cancer Support Services, of Dearborn, Mich. I told of how only 40 cents of every $100 raised in cash–not 40%, 40 cents–benefited the afflicted, with the rest going for fundraising, management and overhead. I described a variety of questionable tactics to hide bad stuff and falsely make Cancer Fund and Cancer Support seem reputable and efficient as they trolled Seattle–and everywhere else in the country–begging for money.
I later nominated Cancer Support for my list of “American’s Stupidest Charities” for calling the New To Seattle world headquarters asking for donations even though I had described the organization in rather withering terms. Brilliant, Cancer Support was not.
Today, the Federal Trade Commission and the charity regulator of all 50 states announced in the Other Washington they had filed in Arizona federal court a civil lawsuit alleging fraud against Cancer Fund, Cancer Support, and two other nonprofits, Breast Cancer Society and Children’s Cancer Fund of America, plus several of their officials. All defendants are part of an empire created by James Reynolds Sr. of Knoxville, one of the named defendants.
Two of the charities, Breast Cancer Society and Children’s Cancer Fund of America, agreed to shut down. Three individuals–James Reynolds II, son of Reynolds Sr.; Rose Perkins, ex-wife of Reynolds Sr., and Kyle Effler, the ex-chief financial officer of several of the entities–accepted court orders barring them from significant future involvement in charitable management or fundraising. None admitted to wrongdoing.
Reynolds Sr., Cancer Fund of America and Cancer Support Services declined to settle and will fight the lawsuit. How long may be another question. The nonprofits are in federal court in Michigan and Tennessee fighting efforts by insurance companies that underwrote directors and corporate liability coverage to avoid paying out on those policies, saying they were lied to by the insureds.
In the complaint unveiled today, the government called the four entities “sham” charities.
But for me, the better issue is why it took regulators five years–yep, that’s apparently how long the investigation ran–to bring the case. What these nonprofits were doing was so obvious for so long from both their own publicly available financial filings and the work of fine journalists at places like CNN, the Tampa Bay Times (which in 2013 ranked Cancer Fund of America No. 2 on its justly celebrated list of “America’s Worst Charities“) and the Chronicle of Philanthropy, as well as the scribblings of yours truly. I should add that unlike regulators, none of us in the Fourth Estate had subpena power or the authority to make charity executives sit for examinations under oath, yet were able to figure out what was going on.
From 2008 to 2012, the complaint says, the four charities raised $187 million from millions of Mom and Pop donors at maybe $20 a pop and spent less than 3% of that on true charity involving cancer. An awful lot of that money could have been saved had governmental charity regulators–with only a few exceptions a notoriously timid bunch–done their job sooner with even a fraction of the enthusiasm they now purport to show.
I say government charity regulators because in my opinion just one private-sector charity watchdog–the Better Business Bureau Wise Giving Alliance–has done a decent job flagging the bad actors, even if that often only was by declaring publicly the charity refused to provide information. I suppose that’s one reason why the government charity regulators made sure to have a BBB official speak at today’s press conference.
Indeed, upwards of 40% of the 148 pages in the complaint consists not of facts, allegations or prayers for relief, but simply the names, addresses and signatures of all the regulators, many of whom had dropped the ball for so long. I imagine getting everyone to sign off also delayed the litigation and thus cost the honest public more money.
Their glory at your expense.
Another effect of waiting so long was the admission today by officials that there would be no refunds to swindled donors because their contributions already had been spent. But it was promised that whatever funds could be generated–such as from selling off GIK–would go to similar but presumably legitimate charities.
The rest of the complaint? Some fresh facts atop long-described practices. In one entertaining passage, the complaint said some of the funds raised went to pay personal expenses of charity officials, including “vehicles, personal consumer goods, college tuition, gym memberships, Jet Ski outings, dating website subscriptions, luxury cruises, and tickets to concerts and professional sporting events.”
But readers of my work will find a lot of the rest of the complaint sadly familiar.
For instance, to mask the financial inefficiencies, the lawsuit charged, the charities arranged to acquire from brokers goods called gift-in-kind (GIK) not particularly connected to fighting charity and value them at unrealistic levels–$223 million for the four-year period. In many cases, the complaint says, the charities didn’t get ownership or control of the goods and didn’t know where they would be distributed–often in obscure foreign venues.
I have been writing about the abusive use of GIK as far back as 2007. A 2011 story for Forbes, summarized here, detailed how some charities acquired deworming pills costing maybe three cents each and then claimed their true value was as much as $16.25. The FTC complaint today said that Breast Cancer Society in 2010 claimed a $6 million gift and distribution of mebendazole, a deworming medicine. Although the lawsuit didn’t say it, the true value of that mebendadole probably was closer to just $20,000.
You can read all my recent musings on this topic by going to the search box toward the upper right of this page and entering the word “charity.” Meanwhile, here’s another Seattle angle: The first four lawyers listed as bringing today’s complaint are all from the FTC office in Seattle. For the record, they are Tracy S. Thorleifson, Sophie H. Cakderin, Krista K. Bush and Connor Shively.
There are dozens of other charities around the country that operate like the Reynolds empire. That is to say, with false statements, bad accounting and other deceptions. Not a few are fraudulent cancer charities. Whether this joint lawsuit–said to be the first ever in the charitable sector involving a federal agency and all states and the District of Columbia–is a harbinger of regulatory action to come remains to be seen. Virginia Attorney General Mark Herring, who spoke at the press conference, declared, “We can hope that it will be the last time that an effort of this level is required.”
Sure sounded like a no.
But I’m still willing to run some more.
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