FTC Brings Charges Against Four ‘Sham’ Cancer Charities

May 21, 2015

The Federal Trade Commission has charged four US cancer charities with fraud, accusing them of diverting more than $187 million in charitable donations.

The Federal Trade Commission (FTC) and regulators from 50 states and the District of Columbia this week charged four US cancer charities with fraud, accusing them of diverting nearly all of more than $187 million in charitable donations to pay for solicitors, staff salaries, bonuses, and personal expenses.

In a complaint filed in federal court, the FTC charges Cancer Fund of America (CFA), Cancer Support Services (CSS), Children’s Cancer Fund of America (CCFOA), and the Breast Cancer Society (BCS) with running sham charities and lying to consumers. Donors were told their money would help cancer patients by providing them with medicines or taking them to chemotherapy appointments, for example, but in reality less than 3% of donations were spent on direct cancer care.

“The defendants’ egregious scheme effectively deprived legitimate cancer charities and cancer patients of much-needed funds and support,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection, in a news release. “The defendants took in millions of dollars in donations meant to help cancer patients, but spent it on themselves and their fundraisers.”

According to the complaint, the groups lied to consumers contacted through telemarketing, direct mail, and Web sites about how their money would be spent. For example, CCFOA telemarketers claimed donations would support hospice care or pain medications for children with cancer but in 2012 the group spent less than 1% of consumers’ donations on those things. Instead, most of the money was used to pay staff exorbitant salaries and bonuses and cover other perks, including trips, cars, and college tuition.

The fundraising scheme originated with James Reynolds Sr., who founded CFA in 1987 and remains its president, the complaint states. The other three charities were spun off from CFA and employed an inter-related group of  family members, friends, and members of Reynolds’ church in Knoxville, Tenn. Reynolds’ son, James Reynolds II, headed BCS while his ex-wife, Rose Perkins, was president of CCFOA.

In addition, the groups employed professional fundraisers who were typically paid 80% or more of each dollar raised. As a result, the combined fundraising costs of three of the groups was more than $120 million, not including any amounts paid to employee fundraisers, the complaint states.

The defendants falsified their financial reports in order to hide their high administrative costs from regulators. Collectively, they reported receiving and distributing more than $223 million in pharmaceuticals and other goods to developing countries. However, CFA’s “direct patient aid” program consisted of mailing out gift packages containing things like sample-size toiletries, snack cakes, and DVDs, the complaint says.

The groups claimed that they used donor contributions to fill the gift packages but in reality they received most of the items free from procurement agents who make overstocked items available to nonprofits, according to the complaint. In addition, the gifts often went to recipients with no connection to cancer, such as a food bank, a firefighters association, and a soccer program.

Settlements have been reached with CCFOA and Perkins; BCS and Reynolds II; and CSS’ former president Kyle Effler. The FTC will continue to pursue litigation against CFA, CSS, and Reynolds Sr.

In addition to dissolving BCS and CCFOA and banning the executives from charity work, the settlements impose large monetary judgments based on donations raised between 2008 and 2012-$30 million against CCFOA and Perkins; $66 million against BCS and Reynolds II; and $41 million against Effler. The FTC does not expect to recover the full amounts but any money collected from defendants or through liquidation of assets will be distributed to legitimate charities.

“This is the first time the FTC, all 50 states, and the District of Columbia have filed a joint enforcement action alleging deceptive solicitations by charities,” said Virginia Attorney General Mark Herring. “I hope it serves as a strong warning for anyone trying to exploit the kindness and generosity of others.”