Acting Attorney General John J. Hoffman announced today that New Jersey has joined with every other state, the District of Columbia and the Federal Trade Commission in suing four allegedly bogus cancer charities and their operators for scamming more than $187 million from donors across the country, including more than $6 million from New Jersey contributors.
Named in the lawsuit are the Cancer Fund of America, Children’s Cancer Fund of America, Cancer Support Services and The Breast Cancer Society, four charities that have used telemarketing calls and direct mail to portray themselves as legitimate charities that aided cancer patients.
In fact, the multi-state and federal lawsuit alleges, most dollars raised by the four purported charities have not gone to help cancer patients, but rather to pay inflated staff salaries and to fund the luxury-heavy personal expenses of a clique of family members and friends who oversee, help manage, or are employed by the organizations, but are unqualified to do so.
“Today I am pleased to join with our state and federal partners in presenting a unified front against charity fraud of the most despicable kind,” said Acting Attorney General John J. Hoffman. “With this action today, we are permanently ending a pattern of deceptive solicitation that went on for a number of years, and targeted countless charitable donors in New Jersey and across the nation.”
The lawsuit filed today alleges that the four defendant organizations misrepresented themselves as legitimate charities with substantial nationwide programs whose primary purposes were to provide direct support to cancer patients, children with cancer, and breast cancer patients in the United States.
In reality, the Complaint alleges, the overwhelming majority of donations collected benefited only the individual defendants, their families, friends and professional fundraisers, who often received 85 percent or more of every contribution. The lawsuit alleges that donations were wasted and misused, that cancer victims were not helped, and that claims by the defendants that the four charities were legitimate were false.
Among other things, defendants or their telemarketers often told donors that their contributions would be used to provide pain medication to children suffering from cancer, transport cancer patients to chemotherapy appointments, and/or pay for hospice care for cancer patients. These claims, however, were false. The defendants did not operate programs that provided such services.
Filed in federal court, the Complaint announced today names Cancer Fund of America, Inc. and Cancer Support Services, Inc., as well as the president of the two corporations, James Reynolds, Sr. Also named as a defendant is Kyle Effler, the Chief Financial Officer of both organizations and the former president of Cancer Support Services.
Other defendants include Children’s Cancer Fund of America, Inc., the organization’s president and Executive Director, Rose Perkins, The Breast Cancer Society, Inc., and its Executive Director and former president, James Reynolds, II.
The federal and state plaintiffs, including New Jersey, today also filed stipulated judgments – essentially settlement agreements — with five of the defendants: Children’s Cancer Fund and Rose Perkins; The Breast Cancer Society and James Reynolds, II; and Kyle Effler. Litigation will proceed against Cancer Fund of America, Cancer Support Services (which the complaint alleges operates as a common enterprise with Cancer Fund of America), and James Reynolds, Sr.
The lawsuit filed today alleges that Cancer Fund of America, Cancer Support Services, Children’s Cancer Fund of America, and the Breast Cancer Society were sham 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.”
The individual defendants allegedly hired family members and friends — whether qualified or not — and used the four ostensibly charitable organizations to provide them with steady, lucrative employment. The lawsuit alleges that the sham charities spent more money on salaries than on the goods and services they provided to cancer patients. In addition, the complaint alleges that the defendants spent donations on things like cruises, jet ski outings, concert tickets, and dating site memberships—actions that were made possible by corporate boards who rubber-stamped the decisions of the individual defendants.
In the eight-count Complaint, the Federal Trade Commission and all the plaintiff states, including New Jersey, allege that the defendants essentially lied about how contributions would be used for charitable purposes, misrepresented specific program benefits, misrepresented revenue and program expenses related to international gifts-in-kind, and misrepresented that the primary focus of their reported programs was to provide direct assistance to individuals in the United States.
Thirty-six states, including New Jersey, also joined in a count alleging that the defendants made false and misleading statements in their filings with state charities regulators. In addition, the FTC and 36 states allege that Cancer Fund, Children’s Cancer Fund, and the Breast Cancer Society provided their professional fundraisers with deceptive fundraising materials and thus the means and instrumentalities of deception. Finally, the complaint alleges that defendants violated the FTC’s Telemarketing Sales Rule.
To hide their high administrative and fundraising costs from donors and regulators, the complaint alleges that Cancer Fund, Children’s Cancer Fund, and Breast Cancer Society used an accounting scheme that involved the shipping of purportedly donated goods, called gifts-in-kind, to developing countries so as to grossly overinflate their claimed revenue and program services in their financial statements.
Through this accounting scheme, these corporate defendants claimed to have received more than $223 million dollars in donated gifts-in-kind goods, and then reported distributing these goods to international recipients. In fact, however, the complaint alleges that these defendants were merely pass-through agents, did not own the gifts-in-kind as they claimed, and should not have reported it as donated revenue or program expenses. By misleadingly reporting on gifts-in-kind, the defendants created an illusion that they were much larger and much more efficient with donors’ dollars than they actually were.
Under the settlements with the five defendants announced today, Children’s Cancer Fund and Breast Cancer Society are required to be dissolved, and individual defendants Rose Perkins, James Reynolds, II, and Kyle Effler are banned from fundraising, and from operating charities.
Settlement agreements filed concurrently with today’s lawsuit provide that the five settling defendants agree to leave the charity business and to stop fundraising.
Defendants Children’s Cancer Fund of America and Rose Perkins also have agreed to entry of a judgment against them for approximately $30.1 million — the amount that consumers donated to Children’s Cancer Fund between 2008 and 2012. The judgment against Children’s Cancer Fund will be partially satisfied by payment of the proceeds of the liquidation of all its assets by a receiver.
In addition, the receiver will dissolve the corporate existence of Children’s Cancer Fund. The judgment against Perkins will be suspended based upon her documented inability to pay. In addition, Perkins will be banned from fundraising, from managing a charity, and from oversight of charitable assets.
Breast Cancer Society has agreed to entry of a judgment against it for $65.5 million — the amount consumers donated to it between 2008 and 2012. Breast Cancer Society also has agreed to the appointment of a liquidating receiver who will close its operations, liquidate its assets, and dissolve its corporate existence.
The Breast Cancer Society settlement provides an option, subject to court approval, for the organization’s Hope Supply Warehouse program to be spun off to a legitimate, qualified charity unrelated to the current individual defendants and their family members, if a willing charity that meets all criteria can be located. Remaining assets will be paid to plaintiffs to partially satisfy the judgment.
In a separate order, settling defendant James Reynolds, II, the former CEO of Breast Cancer Society, has also agreed to a $65.5 million judgment against him — the amount of injury caused by the corporation he controlled. Reynolds II will pay $75,000 to the multi-state, with the reminder of the judgment suspended due to his limited ability to pay.
In a separate settlement, the former Cancer Support Services president and chief financial officer of Cancer Fund, Kyle Effler, agreed to entry of a $41.1 million judgment against him — the amount that consumers donated to Cancer Support Services between 2008 and 2012. Effler will pay $60,000 to the multi-state, with the remainder of the judgment suspended due to his limited ability to pay.
The action announced today was filed in the U.S. District Court for the District of Arizona. The settlement agreements will not be final until approved by the Court. Litigation will proceed against Cancer Fund of America, Cancer Support Services, and James Reynolds, Sr.
Deputy Attorney General Erin M. Greene is representing the state in this matter.