Operation False Charity: Nationwide Crackdown on Dishonest Fundraising

The AIP along with AARP, the National Association of Attorneys General, the National Association of Secretaries of State and a few other public service organizations partnered with the Federal Trade Commission (FTC) and over 60 law enforcers in a 48-state sweep of questionable charities, fundraising companies and individuals. The sweep, which included 76 law enforcement actions, focused on so-called "hero charities" that purport to raise money for police, firefighters and veterans. Why the focus on hero charities? Because unscrupulous fundraisers know that people are more likely to give to these causes than any others. Who wouldn't want to help the heroes that risk their lives to protect us?

At the May 2009 press conference in Washington, DC where the sweep was announced, Sheriff Jerry "Peanuts" Gaines of Warren County, Kentucky spoke of his encounter with a fake charity. The Sheriff, who prides himself on his open door policy, kept hearing from people who wanted to drop off or mail him a check to pay for bulletproof vests. He told these well-intentioned folks that his office's law enforcement personnel already had bulletproof vests and then asked them why they thought otherwise. It turns out that each of them had received a call from a telemarketer who said that he was raising money to buy vests for the local Sheriff's department. So the next time that you want to contribute in response to a solicitation for your local police or firefighters, first contact them to find out if they have authorized it and agree with the need for the appeal.

The FTC announced at the May press conference that it had filed two federal court complaints, one of which was against three AIP F rated charities that claimed to help disabled police or firefighters or needy military families when "[t]heir real goal, however, was to dupe consumers into contributing money that the defendants used overwhelmingly just to support themselves and their fundraisers." American Veterans Relief Foundation (AVRF), Coalition of Police and Sheriffs (COPS) and Disabled Firefighters Fund (DFF), which all operate out of the same address in Santa Ana, California, are alleged by the FTC to be shams. Only 5.4% of the $19 million that these groups raised from 2005 to 2008 was spent on charitable activities.

These three F rated charities "were initially formed by an individual, Joseph Shambaugh, who used them as facades to facilitate raising millions of dollars from generous but unwitting donors," according to the FTC complaint. Shambaugh found a president for each charity who provided no oversight and allowed him to siphon off most of the donated funds after the telemarketer got 80% to 90% of the money raised. From 2000 to mid-2005 less than 2% of the total raised was earmarked for the charitable programs described in the solicitations, according to the complaint. The FTC says Shambaugh was indicted in 2006 for mail fraud and money laundering connected with his fundraising operation and remains a fugitive.

When AVRF, COPS and DFF heard about Shambaugh's criminal problems in 2005 they signed a separation agreement with him, though the charities did not separate from each other. According to the complaint, the charities together moved to a new location where they split expenses three ways, and shared employees and equipment. They also used the same fundraisers, attorney, accountant and printing company. In 2005, all the charities' original directors resigned (each charity had three, including the president) except for Jeffrey Dean Duncan, who assumed the presidencies of both DFF and COPS. Duncan has served as a director of DFF since its inception in 2002. After Duncan became president of DFF he put his wife on the payrolls of COPS and DFF as a part-time employee.

All three of the charities, according to the complaint, "continue to operate in virtually the same manner." They even use the same solicitations originated by Shambaugh and the same telemarketers with nearly identical terms.

The other FTC complaint was against four fundraising-related companies whose ownership, management, personnel and business functions were so related that the FTC deemed them to be a common enterprise. The enterprise solicited for AVRF, COPS, and DFF, as well as for two other AIP F rated charities, Children's Cancer Assistance Network, and Caring for Our Children Foundation. The complaint stated that the fundraisers' fees are usually 80% to 85% of the funds collected and that the groups spent little to nothing on charitable programs. The FTC alleged the telemarketers committed the following 12 unfair or deceptive acts: 

1.)  Misrepresentation of program benefit
2.)  Misrepresentation of local benefit
3.)  Misrepresentation that donor has made a pledge
4.)  Misrepresentation of police affiliation
5.)  Misrepresentation that most of donation supports particular programs
6.)  Failure to substantiate claims, including violation of the Telemarketing Sales Rule
7.)  Making a false or misleading statement to induce a charitable contribution
8.)  Misrepresenting the purpose for which a charitable contribution will be used
9.)  Misrepresenting the percentage or amount going to a charity or program
10.) Misrepresenting a charity's affiliation with a government entity
11.) Submitting billing information for payment without express informed consent
12.) Ignoring do not call requests regarding specific charities

The FTC has done an excellent job in prosecuting these questionable charities and fundraising companies. This does not mean that donors can let down their guard. Donors must remain vigilant and continue to be on the lookout for other charities which operate with different names and from other locations that undertake similarly misleading practices. AIP will continue to name names and identify abusive operating practices, as well as help you to identify efficient and accountable charities. During this time of great need, it is vital that we don't let some bad apples keep us from accomplishing as much good as we can with our limited charitable dollars.