"Operation Missed Giving" Targets Fraudulent Charitable Fundraising

How to respond when the voice on the other end of the telephone claims to be raising money for police, fire fighters, children, veteran or other deserving causes is a quandary many consumers find themselves in every day. While most of the over $140 billion Americans give annually to charities reaches the intended beneficiaries, sometimes the good intentions of consumers are frustrated by deceptive telephone fundraising schemes. In an effort to educate consumers on how to detect such schemes, the Federal Trade Commission, 40 states, and the American Association of Retired Persons (AARP) today announced “Operation Missed Giving,” a sweeping nationwide campaign against fraudulent fundraising. The joint initiative targets telephone fundraisers who misrepresent ties with police departments, fire fighters, veterans groups, childrens’ health organizations, and other community organizations and it seeks to educate consumers about things they can do to help decide whether the caller on the phone is someone they want to give money to.

At a press conference in Washington, D.C., federal and state officials announced 39 law enforcement and regulatory actions and offered tips on how consumers and small businesses can get the information they need to make wise giving choices. In addition, at the press conference, AARP released the results of a national survey on charitable giving habits of Americans, distributed a new educational video about telephone fundraising fraud, and operated a “reverse boiler-room,” – a spin-off of the phone centers used by fraudulent telemarketers – manned by volunteer callers warning consumers that they may be targeted by deceptive charitable fundraisers and providing them with information on how to protect themselves from scams.

Fraudulent telephone fundraising involves misrepresentations about charitable donations, including misrepresentations of the solicitor’s identity, and misrepresentations that donations will be used to benefit particular persons or programs in the consumer’s community and that solicited funds will support particular causes. The solicitors may claim that contributions will be used locally, to support particular causes popular with consumers, such as funding a drug abuse education program, or buying bullet proof vests for local police. In some cases, contributions are solicited in the name of a fallen officer. According to the FTC, consumers should check out claims like these to make sure they are not false. Claims that the caller is a police officer should especially raise red flags for consumers because in many states and locales, police officers are prohibited by law or department policy from soliciting donations.

Small businesses also fall victim to deceptive fundraisers claiming a “badge” or other charitable affiliation. For-profit companies solicit small businesses by telephone, requesting that the business purchase advertising in publications with law enforcement, public safety or other civic-purpose themes. In many cases, according to the FTC, the touted publications often lack the implied connection to legitimate law enforcement and are rarely distributed in the community as claimed, so that the businesses fail to get the promised advertising benefit.

“The injury to civic spirit and the public interest that results from telephone fundraising fraud is immeasurable. Dollars are diverted from important community purposes and consumers become distrustful of all fundraising efforts when their donations don't go to the promised local activity,” said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. “Operation Missed Giving sends the strongest message possible -- together, an aggressive law enforcement effort and an educated consumer can stop fraudulent charitable fundraising. We encourage consumers to continue their record of generous giving, and suggest that they investigate, ask questions, and seek information that will assure them their contributions are being used as they intended.”

“Consumers should see red, and hear warning bells and whistles, whenever a telephone solicitor calls. The tactics may vary – impersonating a law enforcement official, lying about a past contribution, falsely inflating program activities – but the result, invariably, is to deprive truly critical public and worthwhile charities of scarce dollars and credibility,” said Connecticut Attorney General Richard Blumenthal. “Always ask for information in writing before you give. Never give out personal financial information over the phone. Give your dollars generously, but give wisely.”

“Operation Missed Giving” FTC Law Enforcement:

The FTC filed charges in federal court against two companies alleging violations of the FTC Act for misrepresenting the identity of the telefunders and the program benefits provided by the nonprofits. The first case involves Santa Ana, California-based, North American Charitable Services, Inc. (NACS) and its principals, Mitch Gold and J.P. Cohen, along with several others employed by or affiliated with the company. NACS is a for-profit professional fundraiser that contracts with nonprofit organizations for the right to solicit donations on their behalf. In its second case, the FTC filed charges against Eight Point Communications, Inc., and its principal, one of the “subagents” that contracted with NACS to solicit donations on behalf of NACS' clients. Consumer injury in these two cases likely totals at least $10 to $12 million annually, the FTC said.

North American Charitable Services, Inc.

According to the FTC’s complaint detailing the charges, NACS and its subcontractors currently solicit donations on behalf of such nonprofit clients as the American Deputy Sheriffs’ Association (ADSA), Foundation for Disabled Firefighters (FDF), National Association of Veteran Police Officers (NAVPO), Regular American Veterans (RAV), Handicapped Childrens’ Services of America (HCSA), and Adolescent Aids Foundation (AAF). The FTC complaint does not name these nonprofits as defendants or allege any wrongdoing on the part of these NACS' clients.

According to the FTC’s complaint, NACS works with more than 70 fundraising companies as its agents throughout the country to solicit for their nonprofit clients. NACS' solicitors have called consumers claiming to be a law enforcement officer or fire fighter -- in many instances from the city or county where the consumer resides. The complaint also alleges that NACS' solicitors falsely claimed that a donation would support a particular charitable program, often in the donor’s community, and that NACS’ solicitors expressly misrepresent the percentage of the donation that goes to the nonprofit.

The complaint alleges also that, in exchange for the right to solicit in the nonprofit’s name, NACS agrees to pay the nonprofit either a weekly flat fee, or a percentage of the amount donated. The nonprofit contract typically authorizes the defendants to open and control a bank account in the nonprofit’s name. The contracts with the nonprofit organizations require NACS to use telephone scripts and printed materials approved by the nonprofits. According to the FTC, NACS actively participates in creating the telephone solicitation scripts and other written materials describing the nonprofit and its programs. Whether or not the nonprofits have specifically approved the telephone scripts, NACS routinely fails to ascertain the truthfulness of the claims made in the scripts or other printed materials, the agency charged.

The complaint alleges that NACS does not adequately screen, monitor or review the solicitation practices of its subcontractors.

The complaint also charges that NACS’ telefunders solicit small businesses to purchase advertising space in publications that the defendants print for some of their nonprofit clients. In numerous instances, the solicitors make several, varied, material misrepresentations about these ads. For example, solicitors have misrepresented that the publication will be widely distributed in the businesses’ local community.

In addition, the complaint alleges that NACS’ solicitors often falsely represent that the publications will be widely distributed in the business’ local community, or to local fire department personnel, that the business’ ad will receive special placement or distribution, or that proceeds from the advertising sales will benefit particular programs. In fact, according to the complaint, none of these representations is true.

The complaint also names the following as defendants: U.S. Marketing, Inc. (USM), a predecessor corporation to NACS; Mitchell D. Gold, an officer or director of USM and NACS; Patricia Cooley Gold, a director or manager of USM and NACS; Herbert Gold, an officer or director of USM; Celia Gold, a director or manager of USM; Jonathan Philip Cohen, an officer or director of USM and NACS; and Steven John Chinarian, a manager, officer or director of USM and NACS.

The FTC has asked the court to issue a temporary restraining order halting the alleged deceptive practices pending trial and, ultimately, order a permanent injunction, a refund of monies paid and the disgorgement of ill-gotten gains.

The FTC filed its complaint against NACS in the U.S. District Court for the Central District of California, in Santa Ana, on November 9.

Eight Point Communications, Inc.

According to the complaint, this Southfield, Michigan-based company and its owner and president, John Spangler, solicit donations on behalf of nonprofit organizations, such as the ADSA, FDF, and the International Union of Police Associations (IUPA). Typically, the company solicits consumers or small businesses -- on numerous occasions, identifying themselves as local law enforcement officers or fire fighters – and misrepresent to prospective donors that their donations will benefit the donor’s local law enforcement or fire fighting organizations, the FTC said. Neither of these claims is true, the FTC charged.

The FTC has asked a federal court to issue a preliminary injunction halting the alleged deceptive practices pending trial and, ultimately, order a permanent injunction, and other relief.

The FTC filed its complaint against Eight Point Communications and John Spangler in the U.S. District Court for the Eastern District of Michigan, in Detroit, on November 10.

The Commission votes authorizing staff to file the complaints were 4-0.

In related cases, the FTC last month charged three Fort Wayne, Indiana telemarketers with deceptively soliciting and convincing small businesses they owe for unordered advertisements in publications purported to be affiliated with “civic” or “charitable” organizations. Named by the FTC in three separate complaints are: Omni Advertising, Inc., and company officers Christopher Ehrhorn and Stacey Stanley, doing business as FRI, Inc., American Deputy Sheriffs’ Association, and Disabled Firefighters; T.E.M.M. Marketing, Inc., and Rodney L. Turner, Brian A. Edwards, and Michael D. Merryman, all officers of the company; and Tristate Advertising Unlimited, Inc., company officer Jerome Anthony Wilkins, and Daryl Allen Bender. The court granted the FTC’s request for temporary restraining orders and trial is pending in these cases.

“Operation Missed Giving” Public Education Campaign:

In conjunction with “Operation Missed Giving,” AARP announced the results of a new survey concerning charitable giving practices among consumers. Also released by AARP is a new video concerning fraudulent charitable solicitations that will be available for consumer education efforts. *A list of the enforcement/regulatory actions and/or consumer education participation announced by the states is attached.

At the press conference, the FTC issued a new quick-reference tip list for consumers to refer to when fund-raisers call. Tips for consumers and businesses when called by a fundraiser include

• Call your local police or fire department if funds are solicited on their behalf. Find out if they are aware of the fundraising campaign and if they have or will benefit from the funds raised.

• Ask for written information, including the nonprofit’s name, address, and telephone number. A legitimate charity or fundraiser will give you materials outlining the charity’s mission, how your donation will be used, and proof that your contribution is tax-deductible.

• Watch out for similar sounding names. Some phony nonprofits use names that closely resemble those of respected, legitimate organizations.

• Refuse high pressure appeals. Legitimate fundraisers won’t push you to give on the spot, and be wary of nonprofits offering to send a courier to collect your donation immediately.

• Give generously -- but on your own terms. Make an annual giving plan and stick to it. Identify the causes you want to support and then do your homework by checking out the charities that support these causes.

Also available from the FTC are a series of consumer and business education materials with tips on reducing the risk of being victimized by deceptive solicitations. In addition, a brochure for nonprofits considering hiring a professional fundraiser is available. Copies of these publications are available from the FTC’s Web site at: http://www.ftc.gov and from the FTC’s Consumer Response Center, located at the address below -- as well as from each state’s charities regulator, typically the Attorney General or the Secretary of State.

In developing “Operation Missed Giving,” the FTC worked with the National Association of Attorneys General, the National Association of State Charities Officials, and the American Association of Retired Persons. Assistance was also provided by the National Sheriff’s Association, the BBB Wise Giving Alliance, and the Philanthropic Advisory Service of the Better Business Bureau.

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaints are not a finding or ruling that the defendants have actually violated the law. The cases will be decided by the courts.

Copies of the complaints, and the consumer and business education materials are available from the FTC’s Consumer Response Center, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-382-4357; TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC’s World Wide Web site at: www.ftc.gov

(Civil Action Nos: NACS – SACV 98- 968 LHM (EEx); EPCI – 98-74855)
(FTC File Nos: NACS- 982 3544; EPCI- 982 3630)