The Law of Fundraising. Bruce R. Hopkins
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United States Fund for Unicef, University of Michigan).25.4
About one year later, another report speaks of the “transformative promise of online fundraising” that has yet to materialize.25.5 This report looks at the “short history of online fundraising” and finds that it “is not without signs of progress.” It summarizes the successes of online-giving websites and notes that “[y]ear to year, more people give money online to charity.” Still, for most charitable organizations, this report states that online giving “represents a sliver of their overall fundraising.” The “promised revolution” is “moving at glacial speed” because of ancient tech infrastructure, reluctance on the part of fundraising management to place more emphasis on online operations, and lack of understanding by senior executives and board members of the potential of online fundraising. This report concludes that “effective online fundraising doesn't eliminate the human touch at the core of giving.” Every day, the report states, “you see more meaning and substance on the Internet, more people forging thoughtful, deep connections—deeper connections, perhaps than a professional fundraiser could ever hope for with a yearly newsletter.”25.6
§ 1.3 EVOLUTION OF GOVERNMENT REGULATION OF FUNDRAISING
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There continues to be a nationwide crackdown on fraudulent charities that exploit disadvantaged groups in order to solicit donations. On October 11, 2018, the Minnesota attorney general filed a lawsuit against the American Federation of Police and Concerned Citizens, Inc. (AFPCC) for deceptively representing that contributions it received would be used to help families of officers killed in the line of duty. The attorney general found that in fact only 17 percent of AFPCC's spending in 2017 and just 9 percent of the $4 million it received in total donations were used for charitable purposes. On July 19, 2018, the Virginia attorney general announced that his office was taking legal action against two charities, Hearts for Heroes, Inc., and Operation Troop Aid, Inc., alleging they both had used donations to benefit their organizations instead of helping veterans and troops. This suit and settlement are part of a 16-state action. According to a release from the Virginia attorney general's office, the Operation Troop Aid, Inc. settlement requires it to dissolve and prohibits its CEO from assuming any fiduciary role with a nonprofit corporation or soliciting on a nonprofit corporation's behalf.
On September 11, 2017, the Michigan attorney general announced a settlement with Breast Cancer Outreach Foundation, Inc., a Florida nonprofit corporation, resolving the attorney general's claims that the organization deceptively raised $1.4 million nationwide in 2015. The organization's solicitations stated that funds would be used for breast cancer research grants. In reality, all of the money raised, other than one grant, was paid to professional fundraisers and for other expenses unrelated to breast cancer research. As part of the settlement, the Foundation is required to pay $150,000, with $125,000 paid for breast cancer research and the remaining $25,000 to recover the state of Michigan's investigative costs. The organization is also banned from soliciting in Michigan for 10 years.
On May 18, 2015, the Federal Trade Commission and 58 agencies from all 50 states and the District of Columbia filed a complaint charging four cancer charities and the individuals controlling them with allegedly swindling more than $187 million from consumers. The federal court complaint named Cancer Fund of America, Inc. (CFA) and Cancer Support Services, Inc. (CSS), their president, James Reynolds Sr., and their chief financial officer, Kyle Effler; Children's Cancer Fund of America, Inc. (CCFA), and its president and executive director, Rose Perkins; and The Breast Cancer Society, Inc. (BCS), and its executive director and former president, James Reynolds II.
In the complaint, the FTC and state agencies labeled the cancer groups “sham charities” and charged the organizations with deceiving donors and misusing around $187 million in donations from 2008 to 2012. According to the complaint, the defendants represented themselves as legitimate charities that spent 100 percent of their proceeds on services for cancer patients, such as hospice care and buying pain medication for children. The complaint alleged that these claims were false and that the charities operated as “personal fiefdoms characterized by rampant nepotism, flagrant conflicts of interest, and excessive insider compensation, with none of the financial and governance controls that any bona fide charity would have adopted.” Investigators found that, in reality, the charities spent less than 3 percent of donations on cancer patients.
According to the complaint, the defendants used the organizations to pay lucrative salaries to family members and friends and spent contributions on personal items such as cars, trips, luxury Caribbean cruises, college tuition, gym memberships, concert and sporting event tickets, and dating site memberships. The defendants also hired professional fundraisers who received up to 85 percent or more of every donation. The complaint asserted that in order to hide their high administrative and fundraising costs from donors and government regulators, the defendants falsely inflated their revenues by reporting more than $223 million in donated gifts-in-kind that were allegedly distributed to international recipients. The complaint states that by reporting the inflated gift-in-kind donations, the defendants created the impression that they were more efficient with donors' dollars than was actually the case. Thirty-five states also alleged that the defendants filed fraudulent and misleading financial statements with state charities regulators.
Two of the charities, the CCFA and BCS, agreed to settle the charges before the complaint was filed. Under the proposed settlement orders, Effler, Perkins, and Reynolds II will be banned from fundraising and charity management, and CCFA and BCS will be dissolved. On March 30, 2016, the Federal Trade Commission announced the total disbandment of the CFA and CSS. Further, James Reynolds Sr. was barred from operating or engaging in fundraising for nonprofit organizations.
Similarly, on July 21, 2015, the New York attorney general announced that his office had filed a court action to close the National Children's Leukemia Foundation (NCLF), and to hold its president and others accountable. The lawsuit came after an investigation by the Attorney General's Charities Bureau revealed that the NCLF, which held itself out as a leading organization in the fight against leukemia, did not conduct most of the programs it advertised, including claims that it operated a bone marrow registry and fulfilled the last wishes of dying children. The court papers charge that, despite claims it had a board of directors and other financial and scientific controls, the 20-year-old organization was in fact operated by a single founder out of the basement of his Brooklyn, New York, home.
In February 2016, a federal class action was filed against Gospel for Asia, one of the largest mission organizations in the United States. The lawsuit alleged that the founder of the entity took offerings from tens of thousands of individuals, claiming it was feeding and housing impoverished people. In reality, according to the allegations, the founder used the contributions to build an empire including a $20 million headquarters, homes, and sports facilities.
On March 28, 2016, Michigan's attorney general announced publication of his annual “professional fundraising charitable solicitation report,” which identified the total amount raised by charities in the state, concluding that professional fundraisers were retaining two-thirds of contributions.
On May 25, 2016, Minnesota's attorney general filed a lawsuit against Associated Community Services, Inc. for sending false pledge reminders to donors and making other misleading statements in a campaign to solicit contributions for the Foundation for American Veterans. According to the complaint, the company has an extensive history of misconducting solicitations for charities.
The attorney general of New York announced on November 10, 2016, that his office had settled its case against the National Vietnam Veterans Foundation. According to a statement, nearly all of the funds raised through its direct mail efforts were used to pay the Foundation's fundraisers. It is said that in 2014, for example, the Foundation devoted $7.7 million