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  6:45 a.m. May 21, 2015
Four cancer charities charged by FTC, all 50 states, and D.C. with bilking over $187 million from consumers


infographicKNOXVILLE — Four sham cancer charities and their operators have been charged with bilking more than $187 million from consumers. Charges were brought by the Federal Trade Commission and 58 law enforcement partners from every state and the District of Columbia. The defendants told donors their money would help cancer patients, including children and women suffering from breast cancer, but the overwhelming majority of donations benefitted only the perpetrators, their families and friends, and fundraisers. This is one of the largest actions brought to date by enforcers against charity fraud.

The charities and their operators have strong roots in East Tennessee. Tennessee Secretary of State Tre Hargett and Tennessee Attorney General Herbert H. Slatery, III joined with other law enforcement forces to file the charges.

Named in the federal court complaint are Cancer Fund of America, Inc. (CFA), Cancer Support Services Inc. (CSS), their president, James Reynolds, Sr., and their chief financial officer and CSS’s former president, Kyle Effler; Children’s Cancer Fund of America Inc. (CCFOA) and its president and executive director, Rose Perkins; and The Breast Cancer Society Inc. (BCS) and its executive director and former president, James Reynolds II.

CCFOA and Perkins, BCS, Reynolds II and Effler have agreed to settle the charges against them. Under the proposed settlement orders, Effler, Perkins and Reynolds II will be banned from fundraising, charity management, and oversight of charitable assets, and CCFOA and BCS will be dissolved. Litigation will continue against CFA, CSS and James Reynolds Sr.

"It's unfortunate that we even have announcements like this. This action is about protecting Tennesseans from people or organizations determined to scam them out of hard-earned dollars they thought were going to help people in need. These organizations made unsuspecting people believe their donations were actually going to help cancer patients,” said Secretary Hargett. “It’s a sad situation, but these types of charities, and their operators, should know we will hold them accountable as long as they prey on the kind hearts of Tennesseans.”

The joint complaint alleges that the defendants—including Cancer Fund of America, Children’s Cancer Fund of America, Cancer Support Services and The Breast Cancer Society—portrayed themselves to donors 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 fact, the overwhelming majority of consumers’ contributions benefitted only the perpetrators, their families and friends, and professional fundraisers, who often received 85% or more of every donation. Consumers’ donations were wasted and misused, cancer victims were not helped, and the representations that defendants were legitimate charities 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, however, were lies. The defendants did not operate programs that provided these services.

“I am happy to join with our state and federal colleagues and the District of Columbia as we present a united front combatting charity fraud of the worst kind. The Public Interest Division of our office, led by Janet Kleinfelter, has worked extremely hard to stop this egregious behavior. With our actions today, we are ending deceptive solicitations that targeted residents of Tennessee and every other state in the country. These companies claim to assist children with cancer and breast cancer patients, but do very little to that end and in the process take advantage of the generosity of individuals who truly want to help those battling the disease. We are also continuing the fight against Cancer Fund of America in court, where we will be seeking to halt its deceptive acts as well,” said Tennessee Attorney General Herbert H. Slatery III.

“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 often received 85 percent or more 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 more than $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, the 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 to the bans imposed on charity work by the settling individual defendants and the dissolution of two corporations, CCFOA and BCS, the proposed final order against CCFOA and Rose Perkins imposes a judgment of $30,079,821, the amount consumers donated between 2008 and 2012. The judgment against CCFOA will be partially satisfied via liquidation of its assets; the judgment against Perkins will be suspended based upon her inability to pay.

The proposed final orders against BCS and Reynolds II impose a $65,564,360 judgment, the amount consumers donated between 2008 and 2012. The BCS order provides 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.

The proposed final order against Effler will impose a judgment of $41,152,231, the amount consumers donated to CSS 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.

The Commission vote authorizing the staff to file the complaint and proposed stipulated final orders was 5-0. The documents were filed in the U.S. District Court for the District of Arizona. The proposed orders are subject to court approval.

“I am grateful for the support we have received from multiple partners in Washington, D.C. and across the country,” Secretary Hargett said.

Published May 21, 2015




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