Arizona Attorney General Mark Brnovich, along with law enforcement partners in every other state in the nation, the District of Columbia, and the Federal Trade Commission (FTC), jointly filed a lawsuit in the U.S. District Court for the District of Arizona against four phony cancer charities and their operators, who allegedly scammed more than $187 million throughout the country.
The joint complaint alleges that the defendants: Cancer Fund of America (CFA), Children’s Cancer Fund of America (CCFOA), Cancer Support Services (CSS), and The Breast Cancer Society (BCS) portrayed themselves to donors as legitimate charities with nationwide programs providing direct support to cancer patients. In fact, the overwhelming majority of contributions benefited only the perpetrators, their friends, and professional fundraisers, who often received 85% or more of every contribution.
Defendants or their telemarketers often told donors that their contributions would be used to provide pain medication to children suffering from cancer, to transport patients to chemotherapy appointments, and pay for hospice care. The defendants did not operate programs providing any of these services. The complaint alleges that the sham charities spent more money on salaries than on the goods and services for cancer patients. The defendants are alleged to have spent donations on cruises, jet ski outings, concert tickets, and dating site memberships.
The federal court complaint names CFA, Inc., CSS, Inc., the president of these two corporations, James Reynolds Sr., as well as the CFO of both and the former president of CSS, Kyle Effler; CCFOA , Inc., and its president and Executive Director Rose Perkins; and BCS Inc., and its Executive Director and former president, James Reynolds II. The federal and state plaintiffs, today, also filed stipulated judgments with five of these defendants: CCFOA and Rose Perkins; BCS and James Reynolds II; and Kyle Effler. Litigation will proceed against CFA, CSS (which the complaint alleges operates as a common enterprise with CCFOA) and James Reynolds Sr.
In the eight-count complaint, the FTC and all plaintiff states charged the defendants with misrepresenting how contributions would be used for charitable purposes, misrepresenting specific program benefits, misrepresenting revenue and program expenses related to international gifts- in- kind (GIK), and misrepresenting that the primary focus of their reported programs was to provide direct assistance to individuals in the United States. Finally, the FTC and the plaintiff attorneys general, charged defendants with violating the FTC’s Telemarketing Sales Rule (TSR). CCFOA and BCS were charged with assisting and facilitating in TSR violations, and CSS was charged with violating the TSR’s prohibitions on deceptive charitable solicitations.
To conceal their high administrative and fundraising costs from donors and regulators, the complaint alleges that CFA, CCFOA, and BCS wrongly reported certain GIK as donated revenue and program services in their financial statements. Through this accounting scheme, these corporate defendants claimed to have received more than $223 million in donated GIK goods, and then reported distributing these goods to international recipients. The complaint alleges that these defendants were merely pass-through agents, did not own the GIK as they claimed, and should not have reported it as donated revenue or program expenses. By reporting this GIK, these defendants created the illusion that they were much larger and much more efficient with donors’ dollars than they actually were.
In settlements filed concurrently with the complaint, five defendants agreed to leave the charity business and to stop fundraising. CCFOA and Rose Perkins agreed to entry of a judgment for $30,079,821, the amount consumers donated to CCFOA between 2008 and 2012. The judgment against CCFOA 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 CCFOA. 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. CCFOA was headquartered in Mesa, Arizona from its inception in 2004 to 2006, and it continues to station one employee in Arizona.
BCS agreed to entry of a judgment for $65,564,360, the amount consumers donated to it between 2008 and 2012. BCS also agreed to the appointment of a liquidating receiver to close its operations, liquidate its assets, and dissolve its corporate existence. Remaining assets will be paid to plaintiffs to partially satisfy the judgment. In a separate order, Reynolds II also agreed to a $65,564,360 judgment for the injury caused by the corporation he controlled, but that judgment will be suspended, because of his limited ability to pay, upon payment of $75,000. In addition, Reynolds II will be banned from fundraising, from managing a charity, and from oversight of charitable assets. BCS is a Delaware corporation headquartered in Mesa, Arizona.
In a separate settlement, the former CSS president and chief financial officer of CFA, Kyle Effler, agreed to entry of a $41,152,231 judgment, the amount that consumers donated to Cancer Support Services between 2008 and 2012. That judgment will be suspended following a payment of $60,000. Effler will be banned from fundraising, from managing a charity, and from oversight of charitable assets.
“It is despicable for anyone to take advantage of public generosity in assisting cancer patients to deceitfully put money in his or her own pocket,” said Attorney General Mark Brnovich. “I admire people who want to help, but I urge everyone who gives to research charitable organizations before sending payment.”
The legitimacy of a charitable organization can be verified at charitynavigator.org or give.org.
The action 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 CFA, CSS, and James Reynolds Sr.
Consumers may file complaints regarding scams by calling the Arizona Attorney General’s Office at (602) 542-5763 (Phoenix), (520) 628-6504 (Tucson) or online at www.azag.gov/complaints/consumer