The Federal Trade Commission and all 50 states accused four cancer charities of being "sham charities," saying the groups had deceived donors and spent more than $187 million in donations on personal expenses in one of the largest charity fraud cases ever, the commission announced Tuesday.
In soliciting donations through telemarketing calls and direct mail, the complaint says, the charities described specific uses for the money they solicited, like transporting patients to and from chemotherapy or purchasing pain medication for children.
"These were lies," the complaint says, adding that the money went to the people running the charities for expenses like gym memberships, college tuition and dating website subscriptions. "Donations have enriched a small group of individuals."
The charities -- the Cancer Fund of America, Cancer Support Services, the Children's Cancer Fund of America and the Breast Cancer Society -- were created and controlled by the same network of people and led by James Reynolds Sr., the FTC says.
Together with attorneys general from all 50 states and the District of Columbia, the trade commission filed suit against the organizations Monday in the U.S. District Court for Arizona, also naming Reynolds and some of his relatives and associates as defendants.
"Anytime an Arkansan makes a donation to a cause, they should have full confidence that the money will be used for its intended purpose," state Attorney General Leslie Rutledge said. "Unfortunately, con artists have discovered that a quick and easy way to make money is by posing as charities. These four charities targeted donors in every state and misrepresented the scope and nature of their charitable programs in order to benefit themselves and close friends."
According to the complaint, Reynolds devised the fundraising scheme in 1987 and recruited his son, friends and members of his church congregation to participate in the years that followed. The trade commission's finding of $187 million in misspent donations reflects the charities' activity from 2008 to 2012. In that time, the charities spent less than 3 percent of donations on cancer patients.
"The defendants' egregious scheme effectively deprived legitimate cancer charities and cancer patients of much-needed funds and support," said Jessica Rich, director of the Trade Commission's bureau of consumer protection.
The complaint also accuses the organizations of falsifying financial documents, reporting inflated revenue and "gifts in kind" they claimed to distribute internationally.
Two of the charities -- the Children's Cancer Fund of America and the Breast Cancer Society -- agreed to settle the charges before the complaint was filed Monday, according to the commission. Those organizations will be dissolved.
Litigation will proceed against the two other groups and Reynolds. His son, James Reynolds II, who also is named in the complaint, agreed to settle charges and will be banned from fundraising, charity management and oversight of charitable assets.
Questions have been raised about some of the groups in the past. The Cancer Fund of America placed second on a list of America's worst charities published by The Tampa Bay Times and the Center for Investigative Reporting last year. (That ranking was based on cash paid to solicitors over a 10-year period.) Charity Navigator, a rating site, gave two of the organizations a low rating, one out of four stars, for the 2013 fiscal year.
By Tuesday, most of the charities' websites had gone dark, but the Breast Cancer Society's page included a nine-paragraph note from the younger Reynolds, the group's executive director.
"Charities -- including some of the world's best-known and reputable organizations -- are increasingly facing the scrutiny of government regulators," he wrote. "Unfortunately, as our operations expanded -- all with the goal of serving more patients -- the threat of litigation from our government increased as well."
The action is the first regarding charity fraud taken by the Federal Trade Commission and all state attorneys general in combination.
Mark Hammond, secretary of state for South Carolina, said that the revelations were a reminder: "Be vigilant when giving to charity."
Information for this article was contributed by staff members of the Arkansas Democrat-Gazette.
A Section on 05/20/2015