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FTC sues four cancer charities over $187 million scam

FTC sues four cancer charities over $187 million scam

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The Federal Trade Commission has accused four cancer charities of defrauding well-meaning donors for over $187 million. Today, the FTC and law enforcement groups from all 50 states have filed a complaint against the Cancer Fund of America, Cancer Support Services, Children’s Cancer Fund of America, and the Breast Cancer Society. The complaint alleges that these four "sham charities" solicited millions in donations by promising to help pay for hospice care, chemotherapy, and other services for cancer patients. But only a fraction of that money actually went to patients. The rest went to company cars, high salaries, and even a Caribbean cruise.

"The defendants took in millions of dollars in donations meant to help cancer patients, but spent it on themselves and their fundraisers," says FTC consumer protection bureau director Jessica Rich. The charities employed for-profit fundraisers who "typically" received 80 percent or more of every dollar raised, providing little oversight. Between 2008 and 2012, the companies reportedly raised $187 million, and they reported $120 million in fundraising costs. The four charities spent between 2.4 percent and 3.4 percent of their money on actual aid.

The remaining money went to employees who were often family and friends of the charities' operators. Most of what fundraisers told donors was allegedly misleading, and much was outright false. This included promises that "one hundred percent of our proceeds go to hospice care," for organizations that didn't fund hospice services at all.

Most of the funds went to for-profit fundraisers, cars, and vacations

In order to cover up this fraud, the companies allegedly reported hundreds of millions of dollars' worth of "gifts in kind," non-cash donations for items that would go to cancer sufferers. In reality, the complaint says, these items were often useless. The Cancer Fund of America, for example, passed on generic pre-packed care boxes containing things like "sample-size soaps, shampoos, and other toiletries, over-the-counter medications, Little Debbie Snack Cakes, toys, disposable plates and plastic cutlery, scarves, batteries, women’s makeup, family-themed DVDs, adult-sized clothing, iPod Nano covers, gift wrap, blank seasonal greeting cards, candy, and/or children’s coloring books."

With these donations, however, the foundations "created the illusion that they were both larger and more efficient with donors' donations than they really were." They sent overstocked or discontinued merchandise to stock the boxes but reported the retail price, vastly inflating the value of "donations."

Investigators outside the FTC had already raised red flags. The Center for Investigative Reporting exposed many of their practices in 2013, describing a cluster of fraudulent charities owned by a group of family members and close associates. The FTC blames the two-year delay in bringing a lawsuit on the need to collect enough information to bring a federal lawsuit in every state in the US.

The agency has proposed federal settlements with several of the organizations and people involved. The Breast Cancer Society would pay $65.6 million, or the amount it took from donors between 2008 and 2012. Its former president James Reynolds II would pay $75,000, and former Cancer Support Society president Kyle Effler would pay $41.2 million, the amount that his group received. The Children's Cancer Fund of America would pay $30 million. They'll also all be banned from further fundraising efforts, although the Breast Cancer Society could spin off part of its efforts into a legitimate charity. State prosecutors can also pursue their own suits.

The FTC has proposed settlements for three of the charities

All four of the organizations appear to have scrubbed their web presence since the lawsuit. On the Breast Cancer Society's site, Reynolds II has posted a comment agreeing to the settlement but denouncing overzealous government scrutiny. "As our operations expanded ... the threat of litigation from our government increased as well," he writes. "While the organization, its officers and directors have not been found guilty of any allegations of wrong doing ... our Board of Directors has decided that it does not help those who we seek to serve, and those who remain in need, for us to engage in a highly publicized, expensive, and distracting legal battle around our fundraising practices."

For donors who want to send money to legitimate charities, the FTC publishes a guide to potential scams, including links to watchdog groups like the Better Business Bureau.