Federal Trade Commission, All 50 States and D.C. Charge Four Sham Cancer Charities With Bilking More Than $187 Million from Consumers In Nationwide Scam
May 20, 2015
Agencies allege defendants falsely claimed donations would help pay for pain medication, hospice care and other services, but spent donations on cars, vacations, sports tickets and professional fundraisers instead.
COLUMBIA, SC – South Carolina Secretary of State Mark Hammond, together with state law enforcement partners in every other state in the nation, the District of Columbia, and the Federal Trade Commission, have charged four sham cancer charities and their operators with bilking more than $187 million from consumers as part of a nationwide scam. The multistate action represents one of the largest such cases in charity enforcement history. The case was announced today at the FTC Headquarters in Washington, D.C., where Secretary Hammond joined Jessica Rich, Director of the FTC’s Bureau of Consumer Protection, and Mark Herring, Attorney General for the Commonwealth of Virginia.
Named in the complaint are Cancer Fund of America, Inc. (CFA), Cancer Support Services Inc. (CSS), their president, James Reynolds, Sr., and their chief financial officer and CSS’s former president, Kyle Effler; Children’s Cancer Fund of America Inc. (CCFOA), and its president and executive director, Rose Perkins; and The Breast Cancer Society Inc. (BCS) and its executive director and former president, James Reynolds II. Settlements with defendants Children’s Cancer Fund of America, The Breast Cancer Society, Perkins, Effler, and Reynolds, II, were filed concurrently with the complaint. Litigation will proceed against Cancer Fund of America, Cancer Support Services, and Reynolds, Sr.
The complaint alleges that the defendants falsely portrayed themselves as legitimate charities with substantial programs that provided direct support to cancer patients in the United States, and falsely promised to provide patients with pain medication, transportation to chemotherapy, and hospice care, among other things. Instead, it is alleged that the overwhelming majority of consumers’ donations benefited only the perpetrators, their families and friends, and professional fundraisers who often received 85 percent or more of every donation. The sham charities allegedly made the fraudulent claims in telemarketing calls, direct mail, websites, financial documents and regulatory filings.
According to the complaint, however, the sham 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 defendants hired family members and friends, used the organizations for lucrative employment, and spent consumer donations on cars, vacations, luxury cruises, college tuition, gym memberships, Jet Ski outings, sporting event and concert tickets, and dating site memberships—actions made possible by corporate boards who rubber-stamped such expenditures. “Some charities use donations to send children with cancer to Disney World,” noted Secretary Hammond. “In this case, the Children’s Cancer Fund of America used donations to send themselves to Disney World.”
The further complaint alleges that, to hide their high administrative and fundraising costs from donors and regulators, in publicly filed financial documents the defendants falsely reported having received and distributed more than $223 million in donated gifts in kind (GIK) to international recipients. In fact, they were merely pass-through agents, did not own the GIK, and should not have reported it as donated revenue or program expenses – by doing so they created the illusion that they were larger and more efficient with donors’ dollars than they actually were.
“Cancer is a debilitating disease that impacts millions of Americans and their families every year. The defendants’ egregious scheme effectively deprived legitimate cancer charities and cancer patients of much-needed funds and support,” said Director Rich. “The defendants took in millions of dollars in donations meant to help cancer patients, but spent it on themselves and their fundraisers. I’m pleased that the FTC and our state partners are acting to end this appalling scheme.”
“The state of South Carolina has been and continues to be a leader in charities enforcement, said Secretary Hammond. “At the same time, the people of South Carolina rank among the highest in the percentage of income they give to charity. I firmly believe that this is because our citizens know and understand that charities will be held accountable to donors.” Secretary Hammond continued, “Although it is our duty to step in to protect donors when organizations misrepresent how they use contributions, this historic action should remind everyone to be vigilant when giving to charity. This case is an unfortunate example of why I always tell my constituents to “give from the heart, but give smart”.”
Secretary Hammond encourages all South Carolina citizens to contact the Secretary of State’s Office if they want additional information about a charity or professional fundraiser, or if they are concerned about a solicitation that they receive. “Donors may research charities registered in South Carolina by visiting our website at www.sos.sc.gov,” said Secretary Hammond. “Also, our citizens are our eyes and ears. If you receive a charitable solicitation by phone or in the mail, please don’t hesitate to contact the Division of Public Charities at (803) 734-1790 or [email protected].”
