Cancer Fund of America Lawsuit
FTC, States Settle Claims Against Sham Charities; Sham Charities to Dissolve, and President Banned From Charitable Activities
Two nationwide organizations purporting to be cancer charities will be dissolved, and their president is banned from profiting from any charity fundraising in the future, under a settlement with the Federal Trade Commission, all 50 states and the District of Columbia.
Cancer Fund of America Inc. (CFA), Cancer Support Services Inc. (CSS) and their leader, James Reynolds, Sr., agreed to settle charges that CFA and CSS claimed to help cancer patients, but instead, spent the overwhelming majority of donations on their operators, families and friends, and fundraisers.
The agencies’ complaint, filed in May 2015, targeted four purported non-profits, which the Commission alleged were sham charities, run by Reynolds and his family members that allegedly bilked more than $187 million from donors. CFA and CSS were responsible for more than $75 million of that amount. The other two alleged sham charities settled in May 2015. The settlement announced today concludes the largest joint enforcement action ever undertaken by the FTC and state charity regulators.
Below are key pleadings and judicial orders from the Cancer Fund of America lawsuit, in order of the most recent filing:
• 310 Stipulated Order Appointing Liquidating Receiver over CFA and CSS
• 309 Order for Permanent Injunction and Monetary Judgment Against CFA, CSS, and James Reynolds, Sr.
• 304 Stipulation re Order for Permanent Injunction and Monetary Judgment Against CFA, CSS, and James Reynolds, Sr.
—304-1 Stipulated Order for Permanent Injunction and Monetary Judgment Against CFA, CCS, and James Reynolds, Sr.
• 305 Stipulation re Order Appointing Liquidating Receiver Over CFA and CSS
—305-1 Stipulated Order Appointing Liquidating Receiver Over CFA and CSS
• 287 Order Regarding Joint Stipulation to Extend Deadlines and Resolve Pending Matters
• 286 Order Regarding Stipulation re Preliminary Injunction Appointing Receiver Over Cancer Fund of America Inc., and Cancer Support Services, Inc.
• 284 Joint Stipulation to Extend Deadlines and Resolve Pending Matters
——284-1 Proposed Order
• 283 Stipulation re Preliminary Injunction Appointing Receiver Over Cancer Fund of America, Inc., and Cancer Support Services, Inc.
——283-1 Proposed Order
• 278 FTC Reply to Defendants’ Response to Motion for TRO
——278-1 Ex 1 Dec of Tracy Thorleifson
——278-2 Ex 2 Declaration of Krista K. Bush
——278-3 Ex 3 Declaration of Thomas Everett
——278-4 Ex 4 Stephen Daves Deposition
——278-5 Ex 5 Declaration of Leah Cooper Boggs
——278-6 Ex 6 Declaration of Douglas M. Renew, Jr.
——278-7 Ex 7 Declaration of John Alexander
——278-8 Ex 8 Declaration of Hugh Jones (CSS Call Transcript)
——278-9 Ex 9 Declaration of Hugh Jones (CSS Registration Records)
——278-10 Ex 10 Charity Navigator 2010 CEO Compensation Study
——278-11 Ex 11 Declaration of Brian C. O’Brien in support of FTC
——278-12 Ex G 2011 990 CFA
——278-13 Ex H 2012 990 CFA
——278-14 Ex J 2012 990 CSS
• 269 Defendants’ Response to FTC’s Motion for TRO
——269-1 Exibit 1 Affidavit of William Doyle
——269-2 Exhibit 2 Deposition of Alanna Goodman
——269-3 Exhibit 3 What Ms. Goodman Does Not Know and Did Not Do
——269-4 Exhibit 4 Affidavit of Carol Cruze
——269-5 Exhibit 5 Affidavit of Maria Lewis Snider
——269-6 Exhibit 6 Dieter Wiliiam Bergner Rough Draft Transcript
——269-7 Exhibit 7 Affidavit of David Ellis
——269-8 Exhibit 8 Affidavit of Steve Clarke
——269-9 Exhibit 9 Affidavit of Brenda Howard
——269-10 Exhibit 10 Affidavit of Shirley Williams
——269-11 Exhibit 11 Affidavit of James Reynolds Sr. for CFA
——269-12 Exhibit 12 Affidavit of James Reynolds Sr. for CSS
——269-13 Exhibit 13 FTC Press Release May 20 2003
——269-14 Exhibit 14 FTC Press Release May 20 2009
——269-15 Exhibit 15 Guidestar 2009 IRS View of Nonprofit Governance
——269-16 Exhibit 16 Guidestar June 2009 Article re new 990 forms
——269-17 Ex 17 Intermediate Sanctions IRC 4958 Update
——269-18 Ex 18 Automatic Excess Benefit Transactions IRC 4958
——269-19 Ex 19 Charity Nav_How do we rate Charities Financial Health
——269-20 Ex 20 Charity Nav Financial Ratings Tables
——269-21 Ex 21 Charity Nav How do we Decide to Post Donor Advisory
——269-22 Ex 22 Charity Nav_CFA
——269-23 Ex 23 Charity Nav_CSS
——269-24 Ex 24 2014 990 Instructions
——269-25 Ex 25 2015 990 Schedule M
——269-26 Ex 26 IRS Pub 561 Determining Value of Donated Property
——269-27 Ex 27 IRS Public 526 Charitable Contributions_2014
• 261 Memo in Support of Motion for Temporary Restraining Order
• 260 Plaintiff FTC’s Motion for Temporary Restraining Order
——260-1 Proposed TRO
• 259 Order Granting Parties Stipulation for Extension of Time
• 258 Order Approving Receiver’s Fifth Report re: BCS
• 257 Receiver’s Amended Motion to Authorize Payment of Fees and Cost re: BCS
——257A Fifth Report of the Receiver For BCS
——257B Summary Time Sheet RMI
——257C FitzGibbons_BCS Billing Fees and Expenses Sep 2015
——257D Guttilla Murphy Anderson Fees Sep 30 2015
——257E Proposed Order re Receiver’s Fifth Report
• 256 Stipulation for Extension of Time for Defendants to File a Motion for Judgment on the Pleadings
• 255 Order re Evidentiary Hearing on Plaintiffs’ Motion for Preliminary Injunction, Appointment of a Receiver, and Asset Restriction
• 254 Plaintiffs Motion for PI and Appt Receiver_CFA CSS Asset Restriction Sr
——254-1 Proposed Order
• 253 Plaintiffs’ Motion for Preliminary Injunction, Appointment of a Receiver over CFA, CSS, and an Asset Restriction on the Assets of James Reynolds, Sr.
——253-1 Exhibit Index
——253-2 Exhibit A
• 250 Order Granting Stipulation re seal on documents
• 246 Plaintiffs Statement re Briefing and Discovery Related to Preliminary Injunction
• 245 Defendants CFA and James Reynolds Sr Separate Proposal for Discovery and Hearing on Plaintiff’s Motion for Preliminary Injunction
——245-1 Exhibit 1
——245-2 Exhibit 2
• 228 Plaintiff’s Memorandum in Support of Motion for Preliminary Injunction, Appointment of a Receiver, and Asset Freeze
• 222 Stipulation re: Protective Order for Production of Plaintiffs’ Document in Response to Defendants’ First Request for Production of Documents
——222-1 Proposed Order
• 214 Order Establishing Procedures for the Sale of Real Property of BCS and CCFA
• 213 Order Approving the Receiver’s Fourth Report re: CCFA
• 212 Order Approving Receiver’s Fourth Report re: BCS
• 211 Order Approving Procedures for the Disposition of Personal Property
• 210 Order Establishing Procedures for Adjudication of Claims Against BCS and CCFA
• 207 Plaintiffs’ Reply to Defendants’ Reponse to Motion to Strike Certain Affirmative Defenses
• 204 Joint Proposed Discovery Plan
——204-1 Proposed Order
• 198 Receiver’s Fifth Report and Motion to Authorize Payment of Fees and Costs re: BCS
——198 Exhibit A
——198 Exhibit B
——198 Exhibit C
——198 Exhibit D
——198 Exhibit E
• 197 Defendants CFA, CSS, and James Reynolds, Sr.’s Response to Plaintffs’s Motion to Strike Certain Affirmative Defenses
• 196 Order Granting Defendants’ Motion to Exceed Page Limitations
• 192 Defendants CFA, CSS, and James Reynolds, Sr.s’ Motion to Exceed Page Limitations in Response to Plaintiffs’ Motion to Strike Certain Affirmative Defenses
——192-1 Exhibit 1 – Proposed Order
• 191 Defendants CFA, CSC, and James Reynolds, Sr.’s Response to Plaintiffs Motion to Strike Certain Affirmative Defenses from Defendants’ First Amended Answer
• 188 Motion for Approval of Procedures for the Sale of the Real Property of BCS and CCFA
• 187 Order Approving Receiver’s Fourth Report and Payment of Fees and Costs re: CCFA
——187 Exhibit A
——187 Exhibit B
——187 Exhibit C
• 186 Order Approving the Receiver’s Fourth Report and Payment of Fees and Costs re: BCS
——186 Exhibit A
——186 Exhibit B
——186 Exhibit C
——186 Exhibit D
——186 Exhibit E
• 185 Order Authorizing Receiver to Make Certain Payments re: CCFA
• 184 Order Authorizing Receiver to Make Certain Payments re: BCS
• 183 Order Approving Receiver’s Third Report Re: BCS
• 182 Order Granting Receiver’s Motion to Approve Report and Authorize Payment of Fees and Costs
• 181 Order Approving Receiver’s Report Concerning the Hope Supply Warehouse Operation
• 180 Motion for Order Approving Procedures for the Disposition of Personal Property
• 179 Order Denying Defendants’ Motion for an Order Referring Action to a Magistrate Judge
• 178 Plaintiffs’ Response Opposing Motion for an Order Referring Action to a Magistrate Judge to Conduct an Expedited Settlement Conference
• 177 Amended Motion for Order Establishing Claims Procedures for BCS and CCFA
• 176 Plaintiff’s Motion to Strike Certain Affirmative Defenses from Defendants’ First Amended Answer and Memorandum of Law in Support Thereof
• 175 Plaintiff’s Motion to Strike Certain Affirmative Defenses from Defendants’ First Amended Answer and Memorandum of Law in Support Thereof
• 174 Order re: Second Stipulation to Amend the Order Appointing Receiver over BCS
• 173 Order re: Second Stipulation to Amend the Order Appointing Receiver Over CCFA
• 172 Second Stipulation to Amend the Order Appointing Receiver over BCS
• 171 Second Stipulation to Amend the Order Appointing Receiver Over CCFA
• 167 Order Granting Stipulated Motion for Extension of Time
• 166 Stipulated Motion for Extension of Time to Strike Certain Affirmative Defenses from Defendants’ First Amended Answer
• 164 Order re: Any Objections to Receiver’s Report Concerning Hope Supply Warehouse
• 163 Receiver’s Notice and Report Concerning the Hope Supply Warehouse Applications
• 161 Defendants’ Motion for Order Referring Action to a Magistrate Judge to Conduct an Expedited Settlement Conference
• 159 Receiver’s Motion to Authorize Payment of Fees and Costs for the Period Ending July 31, 2015 re: the Breast Cancer Society, Inc.
• 158 Notice of Filing Defendants CFA, CSS, and James Reynolds, Sr.’s First Amended Answer to Plaintiffs’ Complaint
• 155 Defendants CFA, CSS, and James Reynolds, Sr.’s First Amended Answer to Plaintiffs’ Complaint
• 150 Order Setting Rule 16 Scheduling Conference
• 149 Defendants Cancer Fund of America, Cancer Support Services, and James Reynolds, Sr.’s Demand for Jury Trial
• 148 Defendants Cancer Fund of America, Cancer Support Services, and James Reynolds, Sr.’s Answer to Plaintiff’s Complaint
• 144 Order Denying Amended Motion for Settlement with ASC and CPS to Allow for Modified Settlement Motion
• 143 Order re: Requirement to Meet and Confer before Filing Motions and Amended Pleadings
• 141 Plaintiff, State of Rhode Island’s Pre-hearing Brief re: Questions Posed by the Court
——141 Exhibit A to Rhode Island Brief
——141 Exhibit B to Rhode Island Brief
——141 Exhibit C to Rhode Island Brief
——141 Exhibit D to Rhode Island Brief
• 139 Receiver’s Supplement to Receiver’s Amended Motion for Order Approving Settlement with ACS and CPS
——140 Exhibit A
• 138 Notice of Errata re: Plaintiff’s Pre-Hearing Brief
• 137 Nonparties ASC and CPS’s Response to Court’s 8-19-15 Order
• 136 Order Striking Nonparties ACS and CPS’s Non-conforming Filing
• 135 Notice of Errata re: Declaration of Robert S. Tigner
• 133 Plaintiff’s Pre-Hearing Brief re: Questions Posed by the Court in its 8-19-15 Order
——133 Index to Exhibits to Plaintiff’s Pre-Hearing Brief
——133 Exhibit 1
——133 Exhibit 2
——133 Exhibit 3
• 129 Motion for Order Establishing Claims Procedures for the Breast Cancer Society and Children’s Cancer Fund of America
• 124 Order Setting Hearing re: Receiver’s Amended Motion for Order Approving Settlement with Associated Community Services and Central Processing Services
• 122 Order Granting Unopposed Motion by the Plaintiff States for Leave to Appear Through a Representative
• 121 Unopposed Motion by the Plaintiff States for Leave to Appear Through a Representative
• 115 Proposed Order Approving Settlement
• 113 Receiver’s Amended Motion for Order Approving Settlement with Associated Community Services, Inc. and Central Processing Services, LLC
• 112 Receiver’s Second Report re: Children’s Cancer Fund of America, Inc. and Motion to Approve Report and Authorize Fees
• 111 Receiver’s Second Report re: Breast Cancer Society, Inc. and Motion to Approve Report and Authorize Fees
• 110 Order Denying Motion to Approve Settlement with Associated Community Services, Inc. and Central Processing Services, LLC
• 109 Order Granting Defendants’ Motion for Extension of Time to File Answer
• 97 Defendants’ Motion for Extension of Time to File Answer
• 58 Stipulated Order Appointing Receiver over the Breast Cancer Society
• 57 Stipulated Order Appointing Receiver over Children’s Cancer Fund of America
What are gifts-in-kind donations? Gifts-in-kind (GIK) are noncash donations made to a charity. Common examples of GIK are food, clothing, prescription drugs, equipment, and medical supplies.
How are gifts-in-kind used? Charities give the products directly to those in need or to other charities for redistribution. Charities may also sell the goods and use the proceeds to further their charitable mission. Certain types of charities, such as thrift stores and relief organizations, may receive significant amounts of GIK.
Are charities required to report gifts-in-kind like they report cash donations?Charities are required to report their donations and program expenses on filings with the IRS (the Form 990) and state agencies.
What’s the problem? Not all charities accurately report gifts-in-kind. False GIK reporting can be used to make an organization appear more financially successful than it is and to hide high fundraising and administrative costs. This may increase an organization’s ranking by charity watchdogs, and justify higher employee compensation. False GIK reporting can happen in several ways. A charity might mark up the value of goods (for example, medicine worth $.05 a pill is valued at $50 a pill), or assign some value to goods that are actually worthless (for example, broken machines). In other cases, charities take credit for the value of GIK even though they merely acted as a “pass-through” or “middleman” by just passing the goods from one organization to another without having ownership of the goods. The following chart illustrates one version of a GIK scam:
The pie charts below illustrate the huge impact GIK donations can have on a charity’s numbers. XYZ Charity, Inc. takes in $10,000,000 in cash donations. Of that amount, the fundraiser receives $7,000,000 and $2,000,000 goes to XYZ’s overhead expenses. That leaves $1,000,000 for the charity’s programs.
When XYZ adds in $30 million in misrepresented GIK, the charity looks much different. The charity looks much bigger–now it’s a $40 million charity, not a $10 million charity, and it looks like 77.5% of a cash donation goes to the charity’s programs, when in fact only 10% of your dollar goes to programs.
Do all charities use gifts-in-kind this way? No. Many charities report GIK donations correctly. When used and reported as intended, GIK can be an important part of a charity’s programs. Worthy causes get needed supplies, donors may get a deduction, and items that might otherwise be discarded are put to good use.
What can a donor do? Do your research and ask questions!
Research the charity to see how it describes its programs. Go to the charity’s website, check on Facebook and other social media, and do a Google search. Make sure that the charity’s program described to you and that you want to support is one that the charity really conducts.
Review the charity’s financial information and make sure you are comfortable with how it will spend your money. Ask the charity, or review its Form 990 and financial reports to see how the organization receives and spends its money. Schedule M of the Form 990 should contain information about GIK. The Form 990 and/or financial reports should be available from the charity, online with your state, or at www.guidestar.org.
Be wary if the charity reports high GIK numbers. If you have questions about what is being donated and how it supports the charity’s mission, ask the charity yourself. For more information about GIK and to learn how to review a charity’s financial reports for signs of a potential scam, see GIK Schemes – How They Can Be Used to Deceive
May 19, 2015:
Federal Trade Commission, and Attorneys General for all Fifty States and DC announced today the filing of a complaint (Case No. 2:15-cv-884) charging four sham cancer charities and their operators with bilking more than $187 million from consumers. 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.
Named in the federal court complaint are Cancer Fund of America, Inc. (“CFA”); Cancer Support Services, Inc. (“CSS”); Children’s Cancer Fund of America, Inc. (“CCFOA”); The Breast Cancer Society, Inc. (“BCS”); James Reynolds, Sr., Kyle Effler, Rose Perkins, and James Reynolds, Jr. CCFOA, BCS, Effler, Perkins, and Reynolds, Jr. have agreed to settle the charges against them. Under the proposed settlement orders, which are subject to judicial approval, Effler, Perkins, and Reynolds, Jr. 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 Reynolds, Sr.
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 appointments, 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 over $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, defendants created the illusion that they were larger and more efficient with donors’ dollars than they actually were. Thirty-six states alleged that the defendants filed false and misleading financial statements with state charities regulators.
In addition, the FTC and 36 states charged CFA, CCFOA, and BCS with providing professional fundraisers with deceptive fundraising materials. The FTC and the attorneys general also charged the defendants with violating the FTC’s Telemarketing Sales Rule (“TSR”); CFA, CCFOA and BCS with assisting and facilitating in TSR violations, and CSS with making deceptive charitable solicitations.
The Complaint was filed today, May 19, 2015, in the United States District Court for Arizona.