Cancer Charity Fraud

Select network

                   

In a year flanked with scandals ranging from frivolous to questionable and controversial, a more clear-cut case of wrongdoing has finally hit the headlines. Late last month, the Federal Trade Commission (FTC) jointly filed a lawsuit with attorneys in all 50 states and the District of Columbia against four cancer charity groups who allegedly bilked donors out of $187 million between 2008 and 2012, with none of the funds actually going towards cancer care or research. This sample essay takes an in-depth look at the fraud case.

The cancer charity fraud

Four cancer charity organizations were implemented in the embezzlement:

1. Cancer Fund of America, Inc. (CFA)
2. Cancer Support Services Inc. (CSS)
3. Children’s Cancer Fund of America Inc. (CCFOA)
4. The Breast Cancer Society Inc. (BCS)

These organizations are run by members of one extended family, the Reynolds. The CFA and CSS are headed by James Reynolds Sr., whose son, James Reynolds Jr., is CEO of the BCS. Meanwhile, the patriarch's ex-wife, Rose Perkins, runs the CCFOA. The fraud has been called one of the biggest of its kind, with the Reynolds clan operating out of three locales Mesa, Ariz., Knoxville, Tenn., and Powell, Tenn.

Donations were collected via telemarketing firms, which placed cold calls throughout the country asking for donations of $20 or more. The charities untruthfully claimed to be raising funds for people with various types of cancer across different age groups; in each sales pitch, funds were said to be used for chemotherapy, pain medication, patient advocacy, and general cancer patient care.

According to the Commission's Bureau of Consumer Protection Chief, Jessica Rich, the groups released only 3% of the funds to cancer patients; all other money was kept by the Reynolds (Fitzpatrick and Griffin). Members of the family used the money to cover private fundraisers and lavish personal expenses, which included everything from college tuition, dating services, and athletic club memberships to cars, skiing trips, luxury cruises, and tickets to sporting and music events.

One family and one fraud

In what the FTC has described as "rampant nepotism," the Reynolds were careful to keep the charitable work all within their family ("FTC, All 50 States"). For example, James Reynolds Jr. placed his wife, Kristina Hixson, in charge of public relations at the BCS, which also employed her mother—who wrote grant applications for the charity—as well as two sisters and a son from an earlier marriage.

As stated on tax returns, millions were written off in donated goods that were supposedly shipped internationally to recipients of each charity. According to the complaint, however, no such goods were ever purchased by the charitable organizations, which instead hired a private firm to send off the goods from a base in South Carolina. Last year, CNN investigators traveled to Central America in search of recipients of said goods, but were unable to find anyone who had received anything; let alone proof that such gifts existed.

Fallout for the Reynolds Family's cancer charity

In light of the complaint, both the BCS and CCFOA are folding, while fines of $60 million and $30 million are being respectively slapped on James Reynolds Jr. and Rose Perkins. Reynolds will only have to pay $75,000, after which his fine will be suspended. Perkins fine is being suspended outright because of her inability to cover the amount; the liquidation of CCFOA's assets will cover part of the judgment against the charity. Ex-CSS president Kyle Effler—a longtime Reynolds associate—has been hit with a $41 million fine that will be suspended once he pays $60,000.

However, with few assets remaining, the government is not even expected to recoup $1 million of the misused funds. As such, people who donated money to the four charities are unlikely to be refunded; any money that is recovered will go to the states and then be allocated for lawful charities. All parties involved in the case have been barred from further charitable activity. Commenting on the judgments, Virginia Attorney General Mark Herring stressed that he hopes that this:

"serves as a strong warning for anyone trying to exploit the kindness and generosity of others," (Flaherty).

Meanwhile, James Reynolds Sr. plans to fight the charges. On the BCS website, the elder Reynolds has posted a message stating that the charity has:

"not been found guilty of any allegations of wrong doing, and the government has not proven otherwise." Intoning his family's innocence, the patriarch further asserts that "to engage in a highly publicized, expensive, and distracting legal battle," would be of no benefit to "those who we seek to serve, and those who remain in need," (Fitzpatrick and Griffin).

Spotting charity fraud warning signs

It's difficult to identify and prosecute white collar crimes, and some fraud cases go years or even decades before they are caught. The Reynolds have been operating cancer charities since the late 1980s. As early as 1991, the CFA aroused controversy when Connecticut officials settled litigation that swirled around the organization's solicitation methods.

Two years later, all four charities were singled out for alleged shady practices by consumer advocacy group Charity Watch. Since 2007, the four charities have been subjects of frequent reports by the Wise Giving Alliance, a watchdog association of the Better Business Bureau. Despite all the warning signs, donors have kept on giving. Commenting on the phenomenon, Wise Giving Alliance CEO Art Taylor said that people need to protect themselves from shady charities, further emphasizing that if:

"people think there will be others out there protecting them, they are mistaken," (Hunt).

The moral of this fraud case, he insists, is that people need to know about a charity before sending in donations, regardless of whether its name sounds like a noble cause.

Using fake organizations and names to embezzle money

Truth be told, names can be misleading in the world of charity, where some fraudulent organizations are deliberately given similar names to legit causes in order to confuse donors. A perfect example is Cancer Support Services, which in passing would sound interchangeable with Cancer Support Team, a charity accredited by the Better Business Bureau.

In fact, solicitations on behalf of cancer care is a cause ripe for fraud because it's an emotional issue that people have a hard time saying no to; the same can be said for charities purporting to help veterans, firefighters, police officers, and the handicapped. A dead giveaway is when a charity only accepts donations over the phone; as Taylor states:

"if they have other fundraising campaigns, overall their fundraising will cost less than if they just did telemarketing," (Hunt).

As a general rule of thumb, no one should donate to any charity that admits to spending more than 35 percent of its proceeds on telemarketing overhead. According to Taylor, when:

"a charity says 80 cents out of $1 is staying with the telemarketing firm and the charity doesn't do another fundraising, that's one worth hanging up on," (Hunt).

It's also best to avoid making donations over the phone, especially when a solicitor engages in emotional hard sell. In any case, donations are best made by check, as opposed to cash.

Works Cited

Image Credit: Courtesy of WKYT

Fitzpatrick, David and Drew Griffin. "Government says four cancer charities are shams." CNN. Turner Broadcasting System, Inc. 19 May 2015. Web. 1 June 2015.

"FTC, All 50 States and D.C. Charge Four Cancer Charities With Bilking Over $187 Million from Consumers." Ftc.gov. Federal Trade Commission. 19 May 2015. Web. 1 June 2015.

Flaherty, Anne. "FTC: Family raised $187M for cancer, spent it on themselves." The Washington Post. Nash Holdings, LLC. 19 May 2015. Web. 1 June 2015.

Hunt, Kevin. "The $187 Million Cancer Charity Scam: What Gives?" Hartford Courant. Tribune Publishing. 28 May 2015. Web. 1 June 2015.

Bower, Patrick J. "Why you should 'trust, but verify' charities before donating." The Morning Call. Tribune Company. 1 June 2015. Web. 1 June 2015.

Graham, David. "The Seedy, Profitable World of Scam Charities." The Atlantic. The Atlantic Monthly Group. 20 May 2015. Web. 1 June 2015.

"Is Lamar Odom's Cancer Charity a Fraud?" The Young Turks. The Young Turks Network | YouTube. 3 April 2013. Web. 1 June 2015.