Protecting the Public from Charity Scams

July 11, 2017 Posted by Laura Antonelli in Conflict of Interest, Donations, News, Non-profits, Nonprofits, Scams

Beware of charity scams. Do your homework before donating. Those are the warnings issued to the public by CNBC in a recent report about fraudulent nonprofits.

The CNBC report focused on an unprecedented enforcement action in 2015. The Federal Trade Commission, along with all 50 states and other law enforcement authorities, filed a complaint against four cancer support nonprofits (Breast Cancer Society, Cancer Fund of America, Cancer Support Services, and Children’s Cancer Fund of America) and their executives. According to the complaint, the organizations raised $187 million from donors on the premise that the money would support cancer patients. In reality, the organizations spent the money on their employees, employees’ families and friends, and fundraisers. The organizations falsified information on public financial statements. The scheme went on for years.

Since the case was filed, the charities have been dissolved. The executives have been banned from fundraising and charity management. Judgments ranging from $30 million to $75 million have been imposed against the executives and the charities. It is clear from the CNBC report that members of the public are being told to research charities and look at organizations’ financial statements before donating. If organizations report false financial data, like the four cancer charities, then members of the public can’t really do their research.

Should the onus be on the public to ensure charities are legitimate? How come it took regulators so long to go after the cancer charities?

Some were disappointed in the Internal Revenue Service for not prosecuting the fraudulent cancer charities. Others predicted that state regulators may begin looking at fraudulent charities more closely. Nonprofit leaders used the case as a wake-up call, reminding charities to follow ethics principles.

Not all nonprofits heard the call. Politico recently published an extensive portrait of a cancer research charity that has raised legal questions over intimate ties with its founder’s for-profit entities.

Also in the news are Trump lawyer Jay Sekulow’s organizations, Christian Advocates Serving Evangelism and the American Center for Legal Justice. According to The Guardian, the nonprofits made many unusual seven-figure payments to Sekulow’s company, law firm, and family members for various services and compensation. One of the organizations reportedly used aggressive tactics to get donations from retirees on fixed incomes. Then, the organization paid Sekulow and his family members tens of millions of the donated dollars. “That kind of money is practically unheard of in the nonprofit world, and these kinds of transactions I could never justify,” said Arthur Rieman, managing attorney at The Law Firm for Nonprofits, quoted in The Guardian article. “I can’t imagine this situation being acceptable.”

As regulators do not announce their investigations, it is not known if any have gone after these organizations.

Perhaps new California Attorney General Xavier Becerra will look at the organizations in the Politico and The Guardian articles. Becerra has made it clear he will be cracking down on law-breaking charities. Whether both national and state regulators will band together again, as they did in the cancer charities case, to go after fraudulent nonprofits is unknown. Without sufficient regulatory oversight, however, the public will not be protected from charity scams.

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

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