Cancer charities defrauded donors out of $187 million, feds say

Ideally, the act of giving to charity would never be marred with doubt or cynicism. But as a lawsuit filed by the Federal Trade Commission (FTC) against a major network of charities demonstrates, parting with your money for any reason – even a noble one – is worth a second look.

The FTC teamed with regulators from all 50 states and the District of Columbia to charge four notorious charities with defrauding donors out of a combined $187 million between 2008 and 2012. The organizations, which include Cancer Fund of America, Cancer Support Services, Children’s Cancer Fund of America, and The Breast Cancer Society, were part of a group of so-called “sham” charities operated by founder James Reynolds Sr. and his friends and family members claiming to help cancer patients pay for things like medical equipment, pain medications, and transportation to and from chemotherapy treatments, among others.

“The defendants told donors their money would help cancer patients, including children and women suffering from breast cancer, but the overwhelming majority of donations benefitted only the perpetrators, their families and friends, and fundraisers,” the FTC’s complaint reads. Instead of using the money to benefit cancer patients, it continues, “the defendants used the organizations for lucrative employment for family members and friends, and spent consumer donations on cars, trips, luxury cruises, college tuition, gym memberships, jet ski outings, sporting event and concert tickets, and dating site memberships. They hired professional fundraisers who often received 85 percent or more of every donation.”

Less than 2 cents of every dollar donated to the Knoxville, Tenn.-based charity network went to aid for cancer patients and their families, according to a 2013 report from the Tampa Bay Times and the Center for Investigative Reporting.

“Many charities use donations to send kids with cancer to Disney world,” South Carolina Secretary of State Mark Hammond, one of the state officials joining the lawsuit, said in an FTC press conference Tuesday. “The Children’s Cancer Fund used donations to send themselves to Disney World.”

Additionally, the complaint alleges, the charities’ operators falsified their finances, inflating donation numbers to hide that most revenue was going toward operating costs like administrative salaries and fundraising efforts. The defendants in the suit claimed $223 million in “gifts in kind” (donations of goods and services instead of cash), which made it appear as though a larger proportion of donations were going toward services, not operating cost.

On its surface, a high percentage of revenues going towards program cost is a mark of a well-run charity, but the FTC’s case shows the relative (if rare) ease of doctoring it. “These organizations have to be rigorously evaluated in ways that cover more than just finances,” says H. Art Taylor, president of the Better Business Bureau’s charity evaluation arm, the Wise Giving Alliance, in a phone interview.  

Government agencies have settled with some of the defendants, including Mr. Reynolds’ son James Reynolds Jr., and are taking the rest (including James Reynolds Sr.) to trial in federal court. The complaint is asking that the charities be dissolved, and that Reynolds and his associates be federally banned from charitable fundraising.

Any recovered assets will be liquidated and donated to more reputable charities. Most of the $187 million, however, is unrecoverable because the defendants spent it. “We are not in a position to provide donors with their money back,” said Jessica Rich, director of the FTC Bureau of Protection.

On Tuesday afternoon, websites and Facebook pages for Cancer Fund of America and Children’s Cancer Fund of America were either unavailable or under maintenance. The Breast Cancer Society’s website displayed a statement from James Reynolds, Jr.: “Charities – including some of the world’s best-known and reputable organizations – are increasingly facing the scrutiny of government regulators in the U.S.,” it read, in part. “The Breast Cancer Society is no exception… it does not help those who we seek to serve, and those who remain in need, for us to engage in a highly publicized, expensive, and distracting legal battle around our fundraising practices.”

Cancer Fund of America and the rest have been pegged as bad apples in the philanthropy world for years, perennially topping lists of the worst charities in America and appearing on donor advisory lists from state agencies and charity watchdog groups. Several media outlets, including the Tampa Bay Times and CNN, have conducted in-depth investigations on their deceptive practices.

This made the timing of the FTC’s announcement frustrating to some, but getting state and federal agencies aligned for a unified suit was worth the delay, Ms. Rich and Mr. Taylor argued. It’s easy to incorporate a charity on the state level, they said, so without unified action, a crooked charity could jump from state to state and continue to raise funds. On both a state and federal level, “the big challenge is resources,” Taylor says. “These regulators operate on a shoestring. You don’t hear people clamoring to give more tax dollars for charity regulations. That they have gotten here is something to applaud.” 

But those limitations make it doubly important for donors to do due diligence before giving to any charity, even though all but a few organizations are in it for the right reasons. Several watchdog groups, including the Wise Giving Alliance, Charity Navigator, and CharityWatch evaluate millions of charities on a regular basis and are easily searchable online. 

But what about the late-night phone call or supermarket fund box asking you to give? Taylor says there are ways to make sure your money goes where it should in those cases as well. “Ask basic questions: How long has [this charity] been in business? How much goes toward programs, staff, board members? The more questions you ask, at some point they will either get tired of answering or they will give enough information to make you comfortable.”

“Give from the heart, but give smart,” added Mr. Hammond, the South Carolina official, in Tuesday’s conference.