Attorney General Mark Herring today joined the Federal Trade Commission and 58 law enforcement partners from every state and the District of Columbia to announce that they have charged four sham cancer charities and their operators with bilking more than $187 million from consumers.
The defendants told donors their money would help cancer patients, including sick children and women fighting breast cancer, but the overwhelming majority of donations benefited the perpetrators, their families and friends, and fundraisers. This is one of the largest charity fraud actions ever brought by enforcers and the Virginia Office of Attorney General has served on the Executive Committee for this multistate action.
Named in the federal court complaint are:
- Cancer Fund of America, Inc.
- Cancer Support Services, Inc.
- Children’s Cancer Fund of America, Inc.
- The Breast Cancer Society, Inc.
- James Reynolds, Sr.,
- James Reynolds, II,
- Rose Perkins,
- Kyle Effler
Children’s Cancer Fund of America, The Breast Cancer Society, James Reynolds, II, Rose Perkins, and Kyle Effler have agreed to settle the charges against them. Under the proposed settlement orders, James Reynolds, II, Perkins, and Effler will be banned from fundraising, charity management, and oversight of charitable assets, and CCFOA and BCS will be dissolved. Litigation will continue against Cancer Fund of America, Cancer Support Services, and James Reynolds, Sr. The defendants are accused of violations of the Virginia Solicitation of Contributions law
“The allegations of fundraising for personal gain in the name of children with cancer and women battling breast cancer are simply shameful,” said Attorney General Mark Herring. “This is the first time the FTC, all 50 states, and the District of Columbia have filed a joint enforcement action alleging deceptive solicitations by charities and I hope it serves as a strong warning for anyone trying to exploit the kindness and generosity of others.
“Cancer is a debilitating disease that impacts millions of Americans and their families every year. The defendants’ egregious scheme effectively deprived legitimate cancer charities and cancer patients of much-needed funds and support,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “The defendants took in millions of dollars in donations meant to help cancer patients, but spent it on themselves and their fundraisers. I’m pleased that the FTC and our state partners are acting to end this appalling scheme.”
According to the complaint, the defendants used telemarketing calls, direct mail, websites, and materials distributed by the Combined Federal Campaign, which raises money from federal employees for non-profit organizations, to portray themselves as legitimate charities with substantial programs that provided direct support to cancer patients in the United States, such as providing patients with pain medication, transportation to chemotherapy, and hospice care. In fact, the complaint alleges that these claims were deceptive and that the charities “operated as personal fiefdoms characterized by rampant nepotism, flagrant conflicts of interest, and excessive insider compensation, with none of the financial and governance controls that any bona fide charity would have adopted.
According to the complaint, the defendants used the organizations for lucrative employment for family members and friends, and spent consumer donations on cars, trips, luxury cruises, college tuition, gym memberships, jet ski outings, sporting event and concert tickets, and dating site memberships. They hired professional fundraisers who at times received 85 percent of every donation.
The complaint alleges that, to hide their high administrative and fundraising costs from donors and regulators, the defendants falsely inflated their revenues by reporting in publicly filed financial documents over $223 million in donated “gifts in kind” which they claimed to distribute to international recipients. In fact, the defendants were merely pass-through agents for such goods. By reporting the inflated “gift in kind” donations, defendants created the illusion that they were larger and more efficient with donors’ dollars than they actually were. Thirty-five states alleged that the defendants filed false and misleading financial statements with state charities regulators.
In addition, the FTC and 36 states, including Virginia, charged Cancer Fund of America, Children’s Cancer Fund of American, and the Breast Cancer Societywith providing professional fundraisers with deceptive fundraising materials. The FTC and the attorneys general also charged the defendants with violating the FTC’s Telemarketing Sales Rule (TSR), Cancer Fund of America, Children’s Cancer Fund of American, and the Breast Cancer Society with assisting and facilitating Telemarketing Sales Rule violations, and Cancer Support Services with making deceptive charitable solicitations.
In addition to the bans imposed on charity work by the settling individual defendants and the dissolution of two corporations, terms of proposed final orders include:
Children’s Cancer Fund of America and Rose Perkins— a judgment of $30,079,821, the amount donated between 2008 and 2012, to be partially satisfied via liquidation of its assets; the judgment against Perkins will be suspended based upon her inability to pay.
The Breast Cancer Society and James Reynolds II— a $65,564,360 judgment, the amount donated between 2008 and 2012, with an option, subject to court approval, for spinning off its Hope Supply Warehouses program to a legitimate, qualified charity. BCS’s remaining assets will be liquidated and used to partially satisfy the judgment. The judgment against Reynolds II will be suspended when he pays $75,000.
Kyle Effler—a judgment of $41,152,231, the amount donated to Cancer Support Services between 2008 and 2012. The judgment will be suspended upon payment of $60,000.
The full judgment amounts against the individuals will become due immediately if they are found to have misrepresented their financial condition. Participating states are expected to receive compensation for their time and legal fees, though the amount will be subject to court approval and determined by the amount of money raised through liquidation of assets and other payments by settling parties. The settlements announced today are subject to court approval.