The Law of Fundraising. Bruce R. Hopkins
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professional fundraiser, professional solicitor, or other person who engages in a method, act, or practice in violation of the statute or a rule or regulation promulgated in connection with the statute; or employs or uses in a solicitation of charitable contributions a device, scheme, or artifice to defraud, or to obtain money or property by means of any false pretense, deception, representation, or promise.
Occasionally, the attorney general is collaterally granted some or all of this authority with respect to individuals or organizations masquerading as charitable organizations or as charitable organizations entitled to an exemption from the statutory requirements. Thus, the statute may empower the state's attorney general to institute legal action against a charitable organization or person which or who operates under the guise or pretense of being an organization or person exempted by the act and is not in fact an organization or person entitled to such an exemption.
These state statutes usually include the obligatory provision that they may not be construed to limit or restrict the exercise of powers or performance of duties of the attorney general that he or she otherwise is authorized to exercise or perform under any other provision of law. The charitable solicitation act is likely to explicate this principle, by providing that the attorney general must enforce the due application of funds given or appropriated to public charities within the state and prevent breaches of trust in the administration thereof.
§ 3.20 MISCELLANEOUS PROVISIONS
In several states, a solicitor is required to place contributions in an account at a financial institution; in most of these states, the account must be solely in the name of the charitable organizations involved.
In some states, charitable organizations and/or professional solicitors are required to timely send confirmations or receipts of contributions to the donors. The law may provide an opportunity for a donor to subsequently cancel a contribution. In a few states, the solicitation of contributions in the state is deemed to be doing business in the state.
The laws in some states mandate a public education program as to charitable giving and fundraising abuses.
In most states, the regulatory officials are expressly granted the authority to promulgate rules and regulations to accompany the particular state's charitable solicitation act.
In some states, the law provides that county or municipal units of government may adopt other and/or more stringent requirements regarding the solicitation of charitable contributions and, expressly or impliedly, that these requirements will not be preempted by the state law. This rule is sometimes referred to as the municipal option.
In a few states, a provision makes it clear that the charitable solicitation law may not be construed to restrict the exercise of authority generally accorded to the state's attorney general.
Occasionally, the regulators must make an annual report to the governor and the legislature on the activities with respect to charitable solicitations in the state. In a few states, the regulators must maintain a registry of charitable organizations or professional solicitors.
The law may authorize a commission or council to serve, in an advisory capacity and/or otherwise, as part of the administration of the state's charitable solicitation act.
In a few states, there are limitations as to use of the telephone for charitable solicitation purposes, particularly where the callers are compensated. One jurisdiction flatly prohibits the practice.75 Others state the hours during which the calls may be made, either by a charitable organization, a professional fundraiser, or a professional solicitor. The law may prohibit a gift solicitation by telephone where there is harassment, intimidation, or torment.
§ 3.21 SANCTIONS
The means of enforcing a state charitable solicitation act are plentiful. The principal enforcement mechanisms, which come into play upon the occurrence of one or more violations of the act, are the following: authorization of the revocation, cancellation, or denial of a registration; authorization of an investigation by the appropriate governmental officials; authorization of injunctive proceedings; authorization of the levying of fines and other penalties; and authorization of the imposition of criminal penalties (including imprisonment). Many states characterize violations of these statutes as misdemeanors, with specific penalties referenced elsewhere in the state's code of laws. One state mandates loss of tax-exempt status as a sanction, while some states affirmatively recognize private actions.
In some states, a violation of the state's charitable solicitation act simultaneously constitutes a violation of the state's unfair trade practices or deceptive practices law.
In all of the jurisdictions, a person may be found to have committed a fraud against the public, in the setting of the solicitation of charitable gifts.76
§ 3.22 UNIFIED REGISTRATION
The National Association of State Charities Officials and the National Association of Attorneys General developed a project to standardize, simplify, and economize the process of registration pursuant to the states' charitable solicitation laws. This project is manifested in the Unified Registration Statement (URS). The URS is part of a larger effort by these organizations to consolidate the information and data requirements of all states requiring registration by charitable organizations engaged in fundraising.
The URS effort consists of three phases: (1) compilation of an inventory of registration information demands from all of the states, (2) production of a format (or form) that incorporates all or most of these demands, and (3) encouragement of the states to accept this standardized format as an alternative to their own forms. This project is ongoing; at present, 36 states are participating in it. A number of states, however, request additional information, entailing supplementary forms.77
The URS project addresses registration only. Once registered, even under this uniform approach, a fundraising charitable organization is on its own in connection with annual reporting. Nonetheless, a project is under way to produce a format for annual reporting with the states in the fundraising context.
§ 3.23 OTHER LAWS
In addition to the panoply of state charitable solicitation acts, charitable organizations soliciting gift support from the public may have to face other state statutory or other regulatory requirements. These include:
A state's nonprofit corporation act, which has registration and annual reporting requirements for foreign (out-of-state) corporations that are doing business within the state. It is not clear whether, as a matter of general law, the solicitation of charitable contributions in a foreign state constitutes doing business in the state.78 Some states provide, by statute, that fundraising is the conduct of business activities in their jurisdictions. If the solicitation of charitable contributions were declared, as a matter of general law, a business transaction in the states, the compliance consequences would be enormous, considering the fact that nearly every state has a nonprofit corporation act. This type of a requirement would cause a charitable organization that is soliciting contributions in every state to register and report more than 90 times each year, not taking into account federal and local law requirements!
A state insurance law, which may embody a requirement that a charitable organization writing charitable gift annuity contracts obtain a permit to do so and subsequently file annual statements.
A state's blue sky statute regulating securities offerings, which may be applicable to offers to sell and to sales of interests in, and the operation of, pooled income funds. These laws may also apply with respect to charitable remainder annuity trusts and unitrusts.