A group of four cancer philanthropies bilked donors across the country out of $187 million, the Federal Trade Commission charged Tuesday in what the agency called one of the largest government actions against charity fraud.
The four groups named in the civil complaint are the Cancer Fund of America, Cancer Support Services, the Children’s Cancer Fund of America and the Breast Cancer Society. Their operations from 2008 to 2012, which were called a “sham” by the FTC, relied on emotional appeals to help women and children with cancer.
The scheme was a family effort, according to the complaint. Each of the charities was run by either James Reynolds Sr.; his ex-wife, Rose Perkins; or his son, James Reynolds Jr.
“Cancer is a debilitating disease that impacts millions of Americans and their families every year,” Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said in a statement. “The defendants’ egregious scheme effectively deprived legitimate cancer charities and cancer patients of much-needed funds and support.”
The charities solicited donations through telemarketing and Web sites, telling donors that their money would help patients by paying for their pain medications, hospice services and other care.
“One in eight women will be diagnosed with breast cancer in America!” said one letter the charities sent to potential donors. It contained pictures of a woman who appears bald, presumably from chemotherapy. “A family could never prepare for this type of devastation.”
Telemarketers working for the charity told people who answered the phone and agreed to make a donation “God bless your heart” and then asked whether they would be paying by check or credit card.
But the “overwhelming majority” of the money benefited only the charities’ organizers, their friends and fundraisers, according to the complaint from the FTC and the attorneys general of all 50 states. Less than 5 percent of the money went to gifts and financial assistance for patients, the complaint said.
The charities evaded scrutiny for so long because they were part of a tsunami of new charities that have been formed in the past 15 years, experts said. Thanks to the ubiquity of technology, a foundation can be created with a few mouse clicks, and it can then solicit donations through telemarketers or other types of professional fundraisers.
In 2000, there were 643,000 charities registered in the United States. There are more than 1 million today. Last year alone, the Internal Revenue Service approved 94,000 new charities.
“It’s pretty much ‘donor beware,’ ” said Sandra Miniutti, chief financial officer for Charity Navigator, an independent analysis firm. “The government agencies can’t possibly police them all.”
Miniutti said that the lack of an announcement of criminal charges by the FTC “speaks to the fact that there is not a lot of oversight of nonprofits and not a lot of laws with teeth in them to go after scam artists.”
Daniel Borochoff, founder of the independent watchdog group CharityWatch, said his organization has been giving “F” grades to the Cancer Fund of America and its associated charities for years.
“I’m glad to see our government regulators are putting a stop to these four outfits that for too long have been misleading the public and wasting millions of our charitable dollars,” he said. “This is a significant action, but it’s the tip of the iceberg. There are a lot of other problems like this out there. . . . I hope they continue to go after some of these questionable operators.”
Health-care philanthropies, especially those associated with cancer, have become big business in recent years. In 2013, health charities raised $31.86 billion.
The phenomenon has been most apparent in the partnerships between breast cancer charities and companies that make pink clothes, buttons, stuffed animals and other trinkets in the name of saving lives. But a lot of the profit-making takes place behind the scenes, too.
Among the most troubling developments over the past few years, experts said, is the growth of aggressive telemarketers who solicit donations on behalf of charities and then take up to 85 percent of every dollar raised.
The four charities named by the FTC were not well known in the cancer world. But their names were so similar to other, better-known charities that it would not be surprising for the average donor to be confused.
The charities fooled donors into thinking they were larger and more efficient than they actually were, the government said, through financial reporting. The organizations allegedly hid the way that the money was being spent through an accounting scheme that involved shipping pharmaceuticals to developing countries.
Perkins and the younger Reynolds have agreed to settle the charges against them, and they will be banned from fundraising and charity management. The Children’s Cancer Fund of America and the Breast Cancer Society will be dissolved.
Litigation against the older Reynolds, the Cancer Fund of America and Cancer Support Services will continue, FTC officials said.
Authorities are attempting to reclaim the lost donations, but it appears that much of the money is gone.
The government is seeking a $30 million judgment from Perkins and the charity she ran. But the judgment against Perkins will be suspended “based on her inability to pay,” the FTC said.
Likewise, the government is seeking a $65 million judgment against the younger Reynolds. That judgment will be suspended, however, when he pays $75,000.
In both cases, authorities will try to recover some of the money through the liquidation of the charities’ assets.
The Web sites of some of the charities appeared to have gone dark Tuesday. The Breast Cancer Society’s site featured only a letter to supporters, apparently from the younger Reynolds. He attributed the problem to government scrutiny.
“Charities — including some of the world’s best-known and reputable organizations — are increasingly facing the scrutiny of government regulators. . . . Unfortunately, as our operations expanded — all with the goal of serving more patients — the threat of litigation from our government increased as well.”
He noted that while the organization and its officials had not been found guilty of wrongdoing, the group’s board of directors “has decided that 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.”
Borochoff said one unfortunate side effect of Tuesday’s crackdown is that it might sow cynicism among donors and undermine more-legitimate charities.
“It taints them, and that’s wrong,” he said. “What it should do is give people some healthy skepticism not to get suckered into giving into a rip-off charity, because there are plenty of them out there.”