Cancer Charities Accused of Fraud
The Complaint
The 148-page FTC Complaint was brought against the Cancer Fund of America, Inc. (“CFA”) d/b/a Breast Cancer Financial Assistance Fund; Cancer Support Services, Inc. (“CSS”); Children’s Cancer Fund of America, Inc. (“CCFA”) and The Breast Cancer Society, Inc. (“BCS”) d/b/a The Breast Cancer Society of America. In addition, the following individuals were named as defendants in the Complaint: James Reynolds, Sr. (President of CFA and CSS); Kyle Effler (Chief Financial Officer of CFA and CSS and the former President of CSS.); Rose Perkins (President and Executive Director of CCFA); and James Reynolds, II (Executive Director and former President of BCS).
CFA was created in 1987 by James T. Reynolds. Over the decades, James T. Reynolds created three additional charities, CCS, CCFA and BCS; all whose mission and charitable purpose was to spend 100 percent of proceeds on services to patients with cancer including, but not limited to, hospice care, transporting patients to and from chemotherapy sessions and buying paid medication for children.
In the “Summary of the Case” included in the Complaint, the FTC stated “four sham charities and the individuals who run them, have engaged in a massive, nationwide fraud, telling generous Americans that their contributions will help people suffering from cancer, but instead, spending the overwhelming majority of donated funds supporting the Individual Defendants, their families and friends, and their fundraisers. Collectively, between 2008 and 2012, Defendants raised more than $187 million from donors in the United States. This case is about those sham charities, the individuals who ran them, and the false and deceptive claims they made while raising these enormous sums from an unsuspecting public.” Some examples of the personal expenses for which the donated funds were used include car washes, cruise vacations, college tuition for family members, movie tickets and more.
In the Complaint, the FTC said that the defendants, including the four charities and the individuals outlined above, used telemarketing calls, direct mail solicitations, websites, regulatory filings, financial documents and materials distributed by the Combined Federal Campaign, which raises money from federal employees for non-profit organizations, to solicit donations from consumers in all 50 states and the District of Columbia.
The FTC alleged in the complaint that the defendants falsely inflated their revenues and overvalued gift donations in order to hide the high administrative and fundraising costs from donors and regulators. The FTC said that they were able to do this by using an accounting scheme that involves the shipment of pharmaceuticals and other goods (“Gifts-In-Kind”) to developing countries. By doing so, the organizations were able to report more than $223 million in revenue and program expenditures.
The Settlement
CCFA, BCS, James Reynolds, II, Rose Perkins and Kyle Effler all agreed to settle the charges brought against them. As part of the settlement James Reynolds, II, Rose Perkins and Kyle Effler are banned from fundraising, charity management and oversight of charitable assets. CCFA and BCS are to be dissolved. In addition, according to a press release issued by the FTC, CCFA and Rose Perkins will have a judgment in the amount of $30,179,821 imposed against them. This is the amount that consumers donated to the charity from 2008 through 2012. Part of the judgment against CCFA will be satisfied through a liquidation of assets while the judgment against Rose Perkins will be suspended due to her inability to pay.
Similarly, a judgment in the amount of $65,564,360 will be imposed against BCS and James Reynolds, II. BCS has the option to spin off some of its assets to a legitimate charitable organization; however, all remaining assets will be liquidated to satisfy part of the judgment. Once James Reynolds, II pays $75,000 the judgment against him will be suspended.
Finally, a judgment in the amount of $41,152,231 will be imposed against Kyle Effler and, once he pays $60,000, the judgment will be suspended.
Conclusion
This is not the first time questions have been raised regarding these organization’s activities. Charity Navigator, a website that rates charitable organizations, gave two of these organizations a low rating, one out of four stars, for the 2013 fiscal year.
Those providing donations should perform due diligence prior to giving to charities to ensure they are donating to a reputable charity. The FTC has, on its website, a section devoted to charity scams which provides tips to help donors ensure that the charitable contributions they are making are actually going to the cause they are hoping to support.
Additional Resource
Download FTC Cancer Charities Fraud Complaint
Ask Our Experts
Please contact a member of WS+B’s Healthcare Services Group at [email protected] for further questions or assistance.
The information contained herein is not necessarily all inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals for your individual facts and circumstances.
