The FTC and 58 law enforcement agencies from every state and the District of Columbia have filed a complaint in federal court against four cancer charities alleging the charities mislead consumers into donating more than $187 million to the charities. The named defendants include Cancer Fund of America, Inc., Cancer Support Services Inc., their president, James Reynolds, Sr., and their chief financial officer and former president, Kyle Effler; Children’s Cancer Fund of America Inc. and its president and executive director, Rose Perkins; and The Breast Cancer Society Inc. and its executive director and former president, James Reynolds II. Of those named defendants, Children’s Cancer Fund of America, The Breast Cancer Society, James Reynolds II, and Kyle Effler have agreed to settle the charges against them.
In its complaint, the FTC alleges that the four cancer charities told donors their money would go to help cancer patients, but the defendants instead spent the donations on cars, trips, sporting events, and professional fundraisers. To carry out their scheme, the FTC alleges that the cancer charities used telemarketing calls, direct mail, websites, and other materials distributed by the Combined Federal Campaign to hold themselves out as legitimate charities that provided significant financial assistance to cancer patients in the U.S. But all of this was untrue, the FTC alleges. In fact, the complaint alleges that these claims were deceptive and that 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.”
In order to hide their high administrative and fundraising costs from their donors and regulators, the charities falsely inflated their revenues by claiming more than $223 million in donated “gifts in kind,” which the charities claimed were distributed to international recipients. In doing so, the charities created the illusion that they were larger and more efficient with donors’ dollars than they actually were. All the while the charities were spending the donations on cars, trips, luxury cruises, college tuition, gym memberships, jet-ski outings, sporting event and concert tickets, and dating site memberships. The charities also hired professional fundraisers who often received 85% or more of every donation.
In addition to the bans imposed on charity work and the dissolution of two corporations, the FTC also imposed monetary fines against the settling charities and individual defendants. Under the settlement agreement with Children’s Cancer Fund of America and Rose Perkins, the FTC imposed a judgment of $30,079,821. The settlement agreement with The Breast Cancer Society and James Reynolds II imposed a $65,564,360 judgment. The settlement with Kyle Effler imposed a $41,152,231 judgment. All of the judgments are subject to suspension upon partial payment ($75,000 by Reynolds II and $60,000 by Effler) or by showing an inability to pay in the case of Rose Perkins.
While the FTC’s case against some of the charities continues on, The Breast Cancer Society gave the following response before their website was shut down, stating, “Charities — including some of the world’s best-known and reputable organizations — are increasingly facing the scrutiny of government regulators in the U.S. The Breast Cancer Society is no exception. While the organization, its officers and directors have not been found guilty of any allegations of wrongdoing, and the government has not proven otherwise, 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.”
FTC officials have said that they have little hope for recovering any of the donated funds. Which begs the question, do the inconsequential monetary fines go far enough in these types of charity cases? One could argue that the small fines imposed, which pale in comparison to the donations bilked from unwary consumers, only amount to a slap on the wrist, and might even encourage such behavior in the future. It remains to be seen what will come of the FTC’s civil case against the remaining defendants. Regardless of that outcome, the question will remain whether the individual defendants should face possible criminal charges for their conduct.