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Purported Cancer Charities Settle with FTC in Largest Enforcement Action Taken by FTC and State Charity Regulators

Federal Trade Commission, all Fifty States, and the District of Columbia v. Cancer Fund of America Inc., et al., No. 2:15-cv-00884-NVW (D. Ariz.)

Four organizations purporting to be charities for individuals suffering from cancer were the subject of a complaint brought by the FTC in May 2015. Two of those organizations settled with the FTC in 2015, and the remaining two settled in March 2016. The action constituted the largest joint enforcement action ever taken by the FTC and state charity regulators, alleging violation of the Federal Trade Commission Act and Telemarketing Sales Rule.

The complaint alleges that through telemarketing, direct mail, websites, social media, and other online forums, the organizations engaged in donor deception, representing that contributions to them go to support legitimate charities that primarily assist individuals suffering from cancer. While the organizations claimed to raise money to help cancer patients, they spent the vast majority of the $187 million raised from donors on their operators, families, and friends and to the for-profit fundraisers they hired. The funds supported personal trips, automobiles, and luxurious social outings for those individuals.

Cancer Fund of America, Inc. and Cancer Support Services Inc., with their leader James Reynolds, Sr. and others, hid their high fundraising and administrative costs from donors by using an accounting scheme involving the shipment of pharmaceuticals and other goods to developing countries. Through this scheme, the complaint alleges, they improperly reported over $223 million in revenue and program spending. This scheme made them appear larger and more efficient with donations, deceiving the donating public.

Under the settlement, the organizations will be permanently dissolved, their assets liquidated, and Mr. Reynolds is banned from profiting from charity fundraising and from serving as a charity’s director or trustee, or otherwise managing charitable assets. The settlement imposes a joint and several judgment against the organizations and Mr. Reynolds for more than $75 million, the amount donated to the organizations between 2008 and 2012.

Take away: This enforcement action demonstrates the power when regulators act in concert.  It also shows that fundraising efforts need to be bona fide and transparent in terms of their marketing.

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