NY Attorney General Announces $25 Million Settlement

SettlementEarlier this month, Attorney General Eric T. Schneiderman announced the $24.6 million settlement his office secured after an investigation into direct mail fundraising abuses at one of the country’s largest veterans’ charities, the Disabled Veterans National Foundation (DVNF). The AG’s Charities Bureau, which conducted the investigation, determined that the abuses were perpetrated by DVNF’s two outside for-profit direct mail vendors, Quadriga Art and Convergence Direct Marketing.

The investigation found that Quadriga produced and sent out misleading mailings and played the dominant role in running DVNF’s fraudulent fundraising efforts. Convergence provided fundraising advice to DVNF on the design and execution of its direct mail campaigns. Based on these roles, the AG found that the companies were fiduciaries to DVNF and owed duties and responsibilities as such, including making the interests of DVNF their primary concern.

The settlement requires Quadriga and Convergence to pay $9.7 million and $300,000 in damages, respectively. This $10 million will be distributed by the AG to support federally-managed research and development programs to improve the care, treatment, and rehabilitation services available to disabled veterans. Quadriga is also required to forgive $13.8 million in debt owed to it by DVNF and to pay $800,000 to defray the AG’s costs and fees.

And that’s not all. Quadriga and Convergence must also make significant changes to the way they fundraise including only entering into an agreement with a start-up charity if that charity has its own separate legal counsel; disclosing in writing any potential conflicts of interests to all clients; and providing clients with complete written descriptions of the elements of a proposed campaign, the cost and rate structure thereof, and the projected total costs and donation revenues associated therewith.

Under the settlement, DVNF is also required to make changes. It must reorganize its board of directors, including replacing all original directors, terminate Quadriga and Convergence as fundraising advisers for at least three years, and discontinue all fundraising tactics the AG found to be false and misleading, such as the use of fictional stories of wounded veterans supposedly helped by DVNF.

While many Attorneys General vigorously pursue claims against fraud and misrepresentation in charitable fundraising, this is the broadest and most sweeping settlement we have ever seen. AG Schneiderman seems to have expanded the Charity Bureau’s reach by an order of magnitude with this settlement.

Schneiderman was understandably pleased with the settlement, commenting: “Charities and their fundraisers that rely on direct mail campaigns can and must do better – and this settlement is an important milestone on the path forward.” Do you think the AG did enough? Did he do too much? Should Quadriga and Convergence be allowed to continue fundraising at all? Let us know what you think below.

NOTE: The information contained herein is not intended to be legal advice and the reader should know that no Attorney-Client relationship or privilege is formed by the posting or reading of this article which is also not intended to solicit business.

Casey Summar, Partner, The Law Firm for Non-Profits,1812 W Burbank Blvd, #7445, Burbank, CA 91506

Comments are closed.