An Alexandria-based direct-mail firm and a group of charities agreed yesterday to pay $2.1 million to settle lawsuits brought by Virginia and nine other states alleging that they mailed deceptive fund-raising letters to millions of prospective contributors.
The Watson & Hughey Co., as part of the largest settlement ever in a charitable solicitations case, also agreed after 17 months of negotiations with the states to abide by a tough new set of fund-raising standards that may govern charities that operate sweepstakes-style campaigns.
It also agreed that its fund-raising campaigns never will misstate the value of future sweepstakes prizes or the chances of winning those prizes.
The $2.1 million will be divided among the 10 states according to a formula that sets aside the largest sums for the states with the largest number of donors to the charities, according to the Virginia Attorney General's Office. More than half the settlement money will be dedicated by the states to cancer and heart disease research, the stated purpose of five of the six charities involved.
"I find it particularly satisfying that this money will, at last, go to those it was intended to help," Virginia Attorney General Mary Sue Terry said in announcing the state's $100,000 award. "It's been on a long trip, but we'll find a good home for it."
Watson & Hughey and several of the charities came under fire in the late 1980s for conducting massive direct-mail sweepstakes that allegedly misled prospective contributors into believing they had won large cash awards.
People who made donations to the charities received prizes of as little as 10 cents and only a small percentage of the contributions went toward medical research, according to the lawsuits.
Some state regulators complained that the charities' services "amounted to little more than printing the '7 Warning Signs of Cancer' in small print on direct mail solicitations," according to the Virginia Attorney General's Office.
F. Joseph Warin, an attorney for Watson & Hughey, said the settlement makes clear that there was no wrongdoing or liability on the part of the direct-mail company.
"What happened is that there were various states that took actions under a host of theories, many of them inconsistent among themselves," Warin said, adding that the states' complaints were complicated further by the fact that few guidelines existed for charities interested in conducting sweepstakes-style mail campaigns.
MacKenzie Canter III, who represented some of the charities involved, said suggestions that Watson & Hughey or the charities duped donors in order to increase their own profits were simply wrong. Canter said that all new charities pass along very little money to research projects because they have enormous start-up costs.
"If you take a freeze frame of any new charity, you will see the same picture," Canter said. "You have the up-front capital cost, which will always be very high because new charities must purchase mailing lists from other companies and conduct huge blind mailings in an effort to develop a reliable list of sympathetic contributors."
Canter added that although the negotiations with the states took 17 months and cost thousands in legal fees, there was "a silver lining in the cloud." Canter said that "for better or worse, we have now developed standards and dos and don'ts that will guide all charities that in the future consider this kind of mailing."
The six charities named in Virginia's suit were the Cancer Fund of America, of Knoxville, Tenn.; Pacific West Cancer Fund, of Seattle; the Walker Cancer Research Institute Inc., of Edgewood, Md.; the American Heart Disease Prevention Foundation of Virginia; Project Cure Inc., of Washington; and Adopt-A-Pet Inc. of Oklahoma.