Settlements with Two Corporations and Three Individuals Net Judgments of Nearly $137 Million, Litigation Proceeds Against Others
Attorney General Peter F. Kilmartin, with state law enforcement partners in every other state in the nation, the District of Columbia, and the Federal Trade Commission, have jointly filed a federal lawsuit against four phony cancer charities and their operators, who allegedly scammed more than $187 million from consumers throughout the country.
Lauding this historic cooperative effort, Attorney General Kilmartin said, "Today I am pleased to join with our state and federal colleagues and the District of Columbia as we present a unified front combatting charity fraud of the worst kind. With our actions today, we are permanently ending deceptive solicitations by these individuals that claimed to assist children with cancer and breast cancer patients - solicitations that targeted residents of Rhode Island and every other state in the country. We are also continuing the fight against Cancer Fund of America in court, where we will be seeking to halt its deceptive acts as well."
The joint complaint alleges that the defendants - including Cancer Fund of America, Children's Cancer Fund of America, Cancer Support Services and The Breast Cancer Society - portrayed themselves to donors as legitimate charities with substantial nationwide programs whose primary purposes were to provide direct support to cancer patients, children with cancer, and breast cancer patients in the United States. In fact, the overwhelming majority of consumers' contributions benefitted only the perpetrators, their families and friends, and professional fundraisers, who often received 85% or more of every donation. Consumers' donations were wasted and misused, cancer victims were not helped, and the representations that defendants were legitimate charities were false. Among other things, defendants or their telemarketers often told donors that their contributions would be used to provide pain medication to children suffering from cancer, transport cancer patients to chemotherapy appointments, and/or pay for hospice care for cancer patients. These, however, were lies. The defendants did not operate programs that provided these services.
"The shams pulled by Cancer Fund of America and the other entities are audacious and shocking. Preying on the good and generous nature of Americans, these outfits took money from people who were led to believe was going to help children and women with cancer. Instead, it went to fund lavish lifestyles of the perpetrators of these frauds," said Attorney General Peter Kilmartin.
The federal court complaint names Cancer Fund of America, Inc., Cancer Support Services, Inc., the president of these two corporations, James Reynolds, Sr., as well as the CFO of both and the former president of Cancer Support Services, Kyle Effler; Children's Cancer Fund of America, Inc., and its president and Executive Director Rose Perkins; and The Breast Cancer Society, Inc., and its Executive Director and former president, James Reynolds, II. The federal and state plaintiffs today also filed stipulated judgments with five of these defendants: Children's Cancer Fund and Rose Perkins; The Breast Cancer Society and James Reynolds, II; and Kyle Effler. Litigation will proceed against Cancer Fund of America, Cancer Support Services (which the complaint alleges operates as a common enterprise with Cancer Fund of America), and James Reynolds, Sr.
The federal court complaint alleges that Cancer Fund of America, Cancer Support Services, Children's Cancer Fund of America, and the Breast Cancer Society were sham 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." The individual defendants allegedly hired family members and friends, whether qualified or not, and used the organizations to provide them with steady, lucrative employment. The sham charities spent substantially more money on salaries than on the goods and services they provided to cancer patients. In addition, the complaint alleges that the defendants spent donations on things like cruises, jet ski outings, concert tickets, and dating site memberships—actions that were made possible by corporate boards who rubber-stamped the decisions of the individual defendants.
In the eight-count complaint, the FTC and all the plaintiff states charged the defendants with misrepresenting that contributions would be used for charitable purposes, misrepresenting specific program benefits, misrepresenting revenue and program expenses related to international GIK, and misrepresenting that the primary focus of their reported programs was to provide direct assistance to individuals in the United States. Thirty-six states also charged defendants with making false and misleading filings with state charities regulators. In addition, the FTC and 36 states charged Cancer Fund, Children's Cancer Fund, and the Breast Cancer Society with providing their professional fundraisers with deceptive fundraising materials and thus the means and instrumentalities of deception. Finally, the FTC and the plaintiff attorneys general, including the Attorney General of the District of Columbia, charged defendants with violating the FTC's Telemarketing Sales Rule. Cancer Fund, Children's Cancer Fund, and the Breast Cancer Society were charged with assisting and facilitating in TSR violations and Cancer Support Services was charged with violating the TSR's prohibitions on deceptive charitable solicitations.
To hide their high administrative and fundraising costs from donors and regulators, the complaint alleges that Cancer Fund, Children's Cancer Fund, and Breast Cancer Society wrongly reported certain gifts-in-kind (GIK) as donated revenue and program services in their financial statements. Through this accounting scheme, these corporate defendants claimed to have received more than $223 million in donated GIK goods, and then reported distributing these goods to international recipients. In fact, however, the complaint alleges that these defendants were merely pass-through agents, did not own the GIK goods as they claimed, and should not have reported them as donated revenue or program expenses. By reporting these GIK improperly, the defendants created the illusion that they were much larger and much more efficient with donors' dollars than they actually were.
Settlements require that Children's Cancer Fund and Breast Cancer Society be dissolved; Individuals Perkins, Reynolds, II, and Effler banned from fundraising, operating charities
In settlements filed concurrently with the complaint, five defendants agreed to leave the charity business and to stop fundraising. Children's Cancer Fund of America and Rose Perkins agreed to entry of a judgment for $30,079,821, the amount that consumers donated to Children's Cancer Fund between 2008 and 2012. The judgment against Children's Cancer Fund will be partially satisfied by payment of the proceeds of the liquidation of all its assets by a receiver. In addition, the receiver will dissolve the corporate existence of Children's Cancer Fund. The judgment against Perkins will be suspended based upon her documented inability to pay. In addition, Perkins will be banned from fundraising, from managing a charity, and from oversight of charitable assets.
Breast Cancer Society agreed to entry of a judgment for $65,564,360, the amount consumers donated to it between 2008 and 2012. Breast Cancer Society also agreed to the appointment of a liquidating receiver who will close its operations, liquidate its assets, and dissolve its corporate existence. The Breast Cancer Society settlement provides an option, subject to court approval, for the organization's Hope Supply Warehouse program to be spun off to a legitimate, qualified charity unrelated to the current individual defendants and their family members, if such a charity willing to accept the program can be located. Remaining assets will be paid to plaintiffs to partially satisfy the judgment. In a separate order, Reynolds, II also agreed to a $65,564,360, judgment for the injury caused by the corporation he controlled, but that judgment will be suspended because of his limited ability to pay, upon payment of $75,000. In addition, Reynolds, II will be banned from fundraising, from managing a charity and from oversight of charitable assets.
In a separate settlement, the former Cancer Support Services president and chief financial officer of Cancer Fund, Kyle Effler, agreed to entry of a $41,152,231 judgment, the amount that consumers donated to Cancer Support Services between 2008 and 2012. That judgment will be suspended following a payment of $60,000. Effler will also be banned from fundraising, from managing a charity, and from oversight of charitable assets.
"Rhode Islanders should not let today's announcement and actions against these outfits deter them from donating to a good cause. The overwhelming majority of charitable organizations are reputable and deliver on the promise of what the funding will go towards," added Kilmartin. "This settlement should serve as a reminder to do your homework before making a charitable donation to ensure the money goes toward the intended purpose."
The action was filed in the U.S. District Court for the District of Arizona. The settlement agreements will not be final until approved by the Court. Litigation will proceed against Cancer Fund of America, Cancer Support Services, and James Reynolds, Sr.