May 20, 2015 03:16 PM EDT
In what government officials are calling one of the largest charity fraud cases ever, the Cancer Fund of America (CFA) and its charities have been charged by the Federal Trade Commission (FTC) and regulators from 50 states and the District of Columbia. The FTC says that almost all of the nearly $200 million the "sham charities" garnered from donors were spent by the cancer-free family and friends of those running the groups; spent on things like meals at Hooters, Caribbean couples' cruises, subscriptions to dating websites, jet ski rides, and Victoria's Secret shopping trips.
Worse still, the FTC complaint alleges that one of the charities used some of the paltry sum it did spend on cancer victims to give sick kids antibiotics-which were not only expired, but also are contraindicated for children. Another of the accused charities gave drugs to breast cancer victims that "are not typically used for the treatment of breast cancer and, in some instances, are not recommended for use by persons who have had cancer.. . .Some have even been associated with an increased risk of cancer."
Patriarch James T. Reynolds Sr. is at the heart of the scandal; he founded the CFA in 1987 and expanded the operation to include four distinct cancer charities. He was joined in this fraudulent business by family members, friends, and fellow congregants of his Knoxville, Tennessee LDS church. Reynolds Sr. hired his wife, son, sister-in-law, and mother-in-law, not to mention his ex-wife, his stepson, and a step-nephew. Reynolds's son, James Jr. ran one of the four "charities," the Breast Cancer Society. Reynolds's ex-wife, Rose Perkins, ran the Children's Cancer Fund of America.
"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," Director of the FTC's Bureau of Consumer Protection, Jessica Rich says. "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."
The sham charities told donors and the public that they spent 100 percent of their proceeds on vital services including buying pain medication for children, hospice care, and transportation for chemotherapy patients. The FTC complaint stated, "These were lies," explaining that less than 3 percent of donations went to cancer patients.
"When charities lie to donors, it is our duty to step in to protect them. At the same time, however, this historic action should remind everyone to be vigilant when giving to charity. This case is an unfortunate example of why I always tell my constituents to give from the heart, but give smart," South Carolina Secretary of State, Mark Hammond says.
"Some charities use donations to send children with cancer to Disney World. In this case, the Children's Cancer Fund of America used donations to send themselves to Disney World."
The complaint also accuses the charities of reporting inflated revenues and falsifying financial documents. The organizations allegedly also overvalued gift donations like Little Debbie snack cakes and plastic cutlery supposedly delivered to cancer patients; some donated goods never reached cancer patients at all. Part of the lawsuit argues that these sorts of bookkeeping tricks may have been what allowed the charities to operate for years.
The New York Times reports that neither Mr. Reynolds nor his associates responded to their requests for comments. The website of the Breast Cancer Society now displays a letter, apparently penned by James T. Reynolds II, the group's executive director, which inexplicably blames government scrutiny for the charity's woes:
"I am especially proud to have created The Hope Supply Program, which has allowed us to. . .provide personal care supplies and much-needed items for patients and their families free of charge. Charities - including some of the world's best-known and reputable organizations - are increasingly facing the scrutiny of government regulators. . .Unfortunately, as our operations expanded - all with the goal of serving more patients - the threat of litigation from our government increased as well.. . .The silver lining in all of this is that the organization has the ability to continue operating our most valued and popular program, the Hope Supply."
However, Mr. Reynolds II has agreed to settle the charges against him and will be banned from charity management, fund-raising, and oversight of charitable assets. Although Reynolds II has a $65,564,360 judgment against him (along with the BCS), it will be suspended when he pays $75,000 because his bank accounts contain insufficient funds. The judgment amount was set based on how much money was donated to the BCS between 2008 and 2012.
The Breast Cancer Society, along with the Children's Cancer Fund of America, will be dissolved as part of their settlements with the FTC. However, the order gave BCS the option, subject to court approval, for "spinning off its Hope Supply Warehouses program to a legitimate, qualified charity." The case against the two other charities and other defendants will proceed.
All money paid through the settlements will be distributed to legitimate charities in the complaining states.
Sadly, this was not the first sign of deceit on the part of the Cancer Fund of America. The Center for Investigative Reporting and the Tampa Bay Times placed CFA at number two on a list of America's worst charities. They based this ranking on how much cash solicitors received over a 10-year period. In 2013 Charity Navigator rated two of the organizations at one out of four stars. And South Carolina's Scrooge list cites three of the four charities as among those that spend far more on fund-raising than on charitable programs.
In fact, the Washington Post reports that Daniel Borochoff, founder of independent watchdog group CharityWatch said his organization has been giving "F" grades to the Cancer Fund of America and its associated charities for years.
"I'm glad to see our government regulators are putting a stop to these four outfits that for too long have been misleading the public and wasting millions of our charitable dollars. This is a significant action, but it's the tip of the iceberg. There are a lot of other problems like this out there. . . .I hope they continue to go after some of these questionable operators."
So, if everyone in the industry knew these charities were terrible, why did it take so long for the FTC to act?
William Josephson, retired from the law firm of Fried, Frank, said the FTC had to wait to take action until all states were on board. "You need to keep these charities from reincorporating elsewhere," said Mr. Josephson, also an alumnus of the New York State attorney general's charities bureau. "This is a very significant development."
At most Reynolds Sr. faces a monetary judgment that he will likely never pay, avoiding the responsibility just as his son and his ex-wife did. He faces no imprisonment.
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