luxury Caribbean cruises, college tuition, gym memberships, concert and sporting event tickets, and dating site memberships. The defendants also hired professional fundraisers who received up to 85 percent or more of every donation. The complaint asserted that in order to hide their high administrative and fundraising costs from donors and government regulators, the defendants falsely inflated their revenues by reporting more than $223 million in donated gifts-in-kind that were allegedly distributed to international recipients. The complaint states that by reporting the inflated gift-in-kind donations, the defendants created the impression that they were more efficient with donors' dollars than was actually the case. Thirty-five states also alleged that the defendants filed fraudulent and misleading financial statements with state charities regulators.
Two of the charities, the CCFA and BCS, agreed to settle the charges before the complaint was filed. Under the proposed settlement orders, Effler, Perkins, and Reynolds II will be banned from fundraising and charity management, and CCFA and BCS will be dissolved. On March 30, 2016, the Federal Trade Commission announced the total disbandment of the CFA and CSS. Further, James Reynolds Sr. was barred from operating or engaging in fundraising for nonprofit organizations.
Similarly, on July 21, 2015, the New York attorney general announced that his office had filed a court action to close the National Children's Leukemia Foundation (NCLF), and to hold its president and others accountable. The lawsuit came after an investigation by the Attorney General's Charities Bureau revealed that the NCLF, which held itself out as a leading organization in the fight against leukemia, did not conduct most of the programs it advertised, including claims that it operated a bone marrow registry and fulfilled the last wishes of dying children. The court papers charge that, despite claims it had a board of directors and other financial and scientific controls, the 20-year-old organization was in fact operated by a single founder out of the basement of his Brooklyn, New York, home.
In February 2016, a federal class action was filed against Gospel for Asia, one of the largest mission organizations in the United States. The lawsuit alleged that the founder of the entity took offerings from tens of thousands of individuals, claiming it was feeding and housing impoverished people. In reality, according to the allegations, the founder used the contributions to build an empire including a $20 million headquarters, homes, and sports facilities.
On March 28, 2016, Michigan's attorney general announced publication of his annual “professional fundraising charitable solicitation report,” which identified the total amount raised by charities in the state, concluding that professional fundraisers were retaining two-thirds of contributions.
On May 25, 2016, Minnesota's attorney general filed a lawsuit against Associated Community Services, Inc. for sending false pledge reminders to donors and making other misleading statements in a campaign to solicit contributions for the Foundation for American Veterans. According to the complaint, the company has an extensive history of misconducting solicitations for charities.
The attorney general of New York announced on November 10, 2016, that his office had settled its case against the National Vietnam Veterans Foundation. According to a statement, nearly all of the funds raised through its direct mail efforts were used to pay the Foundation's fundraisers. It is said that in 2014, for example, the Foundation devoted $7.7 million of the $8.6 million raised to fundraising. It is further stated that the “fraction” of the money that went to the Foundation “was further reduced by a pattern of abuse, mismanagement, and misspending” by its former president. That individual and the Foundation's vice president are now subject to a “permanent nationwide ban” on access to and decision-making with respect to charitable assets.
New York's attorney general's office, on December 22, 2016, released its annual “Pennies for Charity” report, which focuses on the $1.1 billion that was contributed in that state in 2015 as the result of 1,143 fundraising campaigns conducted by professional fundraisers. An accompanying press release states that the fundraisers “kept” 34.5 percent of the gift proceeds, or $379 million. The press release contains these “other significant findings”: in 239 of the campaigns, the charities involved “retained” 70 percent or more of the funds raised; in 622 campaigns, charities retained less than one-half of the funds raised; and in 192 campaigns, fundraising expenses exceeded revenue, for a loss of $16.7 million.
On November 29, 2017, New York's attorney general announced a settlement with Yisroel Schulman, the former president of the New York Legal Assistance Group, Inc. (NYLAG), for breaching his fiduciary duties of care, loyalty, and obedience to NYLAG, a charity providing free legal services to low-income New York residents, and other charities with which Schulman was affiliated. The settlement was reached after an extensive investigation by the Charities Bureau of the Attorney General's office, which led to the filing of a complaint in the New York Supreme Court. The Attorney General's investigation found that from around 1998 through 2013, Schulman diverted millions of dollars from NYLAG to other charities that he controlled. These funds were diverted to various donor-advised funds and similar accounts. In choosing donor-advised funds to hold NYLAG's funds instead of an investment account, Schulman breached his duty to prudently invest and safeguard the assets of NYLAG. Schulman settled with the Attorney General. Pursuant to the settlement agreement, Schulman agreed to pay $150,000 to NYLAG. The settlement also bans Schulman from serving as an officer or director of New York nonprofit organizations for five years.
A day earlier, the New York attorney general released his annual “Pennies for Charity: Where Your Money Goes; Fundraising by Professional Fundraisers” report. In 2016, more than $1.2 billion was raised in the state of New York through 987 fundraising campaigns conducted by professional fundraisers. The report found that of the $1.2 billion raised through campaigns conducted by professional fundraisers, charities received more than $822 million, or 67 percent of the proceeds, while professional fundraisers' fees totaled $403 million, or 33 percent. In the report, the Attorney General stated: “Today's report shines a light on the high percentage of charitable dollars that too often get pocketed by outside fundraisers. Our Charities Bureau will continue to hold unscrupulous or fraudulent fundraisers accountable.”
*On July 31, 2019, the New York attorney general announced an investigation into the website “www.NYCharities.org,” alleging that the online fundraising platform failed to distribute hundreds of thousands of dollars to New York charities in 2018 and 2019. This investigation was based on more than 100 complaints from individuals and organizations, including those with unpaid contributions ranging from $200 to more than $100,000.
§ 1.4 CONTEMPORARY REGULATORY CLIMATE
p. 19. Insert following second complete paragraph:
In September 2016, a study, conducted by the Charities Regulation and Oversight Project at Columbia Law School and the Center on Nonprofits and Philanthropy at the Urban Institute, was released. This is the first organized analysis of state-level oversight and regulation of charitable organizations. The study has three components: (1) a legal analysis of laws pertaining to charities in 56 U.S. jurisdictions; (2) a survey of state and territory offices with oversight, regulatory, and enforcement authority over charitable organizations; and (3) interviews in most of those offices. Major findings of this study include the following:
There is no single state law of charities oversight; rather, this oversight entails a complex mix of substantive areas, including charitable trust law, governance, criminal law, solicitation and registration requirements, and compliance, corporate transaction review, and conservation easements.
Organization and staffing of state charity offices vary greatly; in 41 percent of the states, one office has primary responsibility, while in the other states responsibility is shared with other agencies or offices.
Within an attorney general's office, 13 jurisdictions have a charities bureau; 14 jurisdictions house charities
