Law Enforcement Agencies Nab Deceptive Cancer Groups

May 19, 2015       Mark Hrywna      

A network of what the Federal Trade Commission (FTC) described as “sham charities” raised $187 million over four years but provided little of what they promised millions of donors.

In a joint action with 58 law enforcement partners, the FTC filed a complaint in U.S. District Court in Arizona on Monday against:

  • Cancer Fund of America (CFA);
  • Cancer Support Services (CSS);
  • Founder and CEO James Reynolds, Sr.;
  • Former Chief Financial Officer Kyle Effler;
  • Children’s Cancer Fund of America (CCFOA);
  • Former CCFOA President and Executive Director Rose Perkins;
  • Breast Cancer Society (BCS); and,
  • Former BCS President and Executive Director James Reynolds Jr.

Effler, Perkins and Reynolds, Jr. have agreed to settle the charges against them, FTC Bureau of Consumer Protection Director Jessica Rich said during a conference call with media this afternoon. The three will be banned from fundraising, charity management, and oversight of charitable assets and CCFOA and BCS will be dissolved. Litigation will continue against CFA, CSS and Reynolds, Sr., she said.

The defendants could not be reached for comment. Most every page on the Cancer Fund of America’s website turned up with the message this morning that read: “Maintenance mode. We are working on the site. It will be back up soon. Thank you.” A message was left for William Doyle of The Doyle Firm, P.C., in Phoenix, Ariz., which represents CFA, who has not responded.

The FTC and 36 states charged CFA, CCFOA and BCS with providing professional fundraisers with deceptive fundraising materials. The FTC and the attorneys general also charged the defendants with violating the FTC’s Telemarketing Sales Rule (TSR), CFA, CCFOA and BCS with assisting and facilitating in TSR violations, and CSS with making deceptive charitable solicitations.

Defendants allegedly used the organizations for lucrative employment for family members and friends, and spent consumer donations on cars, trips, luxury cruises, college tuition, gym memberships, jet ski outings, sporting event and concert tickets, and dating site memberships. They hired professional fundraisers that often received 85 percent or more of every donation.

Defendants have hired many of the same fundraisers, contracted with many of the same vendors and used similar fundraising materials, according to the complaint documents. It’s unclear whether any of the for-profit fundraisers who worked with the charities and are mentioned in the complaint – Charity Services International (CSI) and Associated Community Services (ACS) – will be examined. Rich said regulators are not in a position to comment about any nonpublic investigations they might have under way.

The complaint alleges that the organizations were falsely portrayed as legitimate charities with substantial programs throughout the United States and falsely provided pain medication, hospice care and transportation to cancer treatments while soliciting donations via direct mail, websites and phone calls.

Instead of supporting patients battling cancer, the overwhelming majority of benefits were spent on cars, cruises, tuition, ski outings and even dating site memberships, Rich said. Fundraisers who were hired typically received 85 percent or more of every donation, she said. The charities did send a small number of grants to families with children dealing with cancer; about $45,000 – less than 1 percent of what was raised. The organizations allegedly used an accounting ruse, claiming to have distributed more than $223 million in “in-kind” donations to international groups, giving the illusion that they were larger and more careful with donor dollars.

Most of the defendants, many of whom were related, took home annual salaries in the six figures, as much as $371,000. Proposed final orders against the defendants who settled are:

  • A judgment of $30,079,821 – the amount consumers donated between 2008 and 2012 – against CCFOA and Perkins. This will be partially satisfied by liquidating the assets but the judgment against Perkins will be suspended based on her inability to pay.
  • A judgment of $65,564,360 against BCS and Reynolds, Jr. The order provides an option, subjected to court approval, for spinning off its Hope Supply Warehouses program to a legitimate, qualified charity while the remaining assets will be liquidated and used to partially satisfy the judgment. The judgment against Reynolds, Jr., will be suspended when he pays $75,000.
  • A judgment of $41,152,231 against Effler, which will be suspended upon payment of $60,000.

There is little money remaining in defendants’ accounts to provide any remedy to donors but Rich said they would distribute any funds they’re able to obtain to legitimate charities. The settlement amounts obtained were about $1 million and as the two companies being dissolved are wound down, Richard said they will sell off assets and that money will go to states to distribute to legitimate charities.

CFA was founded in 1987 and Reynolds created BCS in 2008, CCFOA in 2004 and CSS in 2002 as “spin-offs,” according to the complaint. “With the formation of each different corporate entity, defendants created new opportunities to solicit charitable contributions and new sources of cash to fund their personal lifestyles,” the complaint alleges. They also “created new opportunities to employee or otherwise provide cash compensation to family members, friends and fellow church members.”

Perkins is the estranged wife of Reynolds, Sr. and many of the defendants served on many of the different organizations’ boards while getting paid.

H. Art Taylor, president and CEO of Better Business Bureau’s Wise Giving Alliance (WGA), described the complaint as “chock full of deception. In some cases you’ll find it amusing, in others, more likely the case, you’ll find it sad.”

Two years ago, the four charities and the relationships among the individuals was featured in “America’s Worst Charities,” a wide-ranging examination of public records by the Tampa Bay Times and the Center for Investigative Journalism. CFA previously had been slapped with $525,000 in fines by various state charity regulators between 2003 and 2012, according to that report.

Rich said she could not discuss when the investigation began but Virginia Attorney General Mark Herring said it was under way during his predecessor’s term, in 2010. South Carolina Secretary of State Mark Hammond confirmed his office became involved in 2012.

Regulators are “very grateful” to news media when it reports on events like this, Rich said, because it prompts them to further examine situations. “It does sometimes take some work to put together,” she said, but believes this will provide “effective relief.”

Herring reiterated that regulators are taking strong action and providing an “unmistakable signal” that people cannot exploit the generosity of others. He described it as a complex case involving a lot of work and cooperation among law enforcement entities.