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20+ Year-Old Charity that Solicited for Non-Existent Programs Is Shuttered

   Jan 27, 2016

National Children's Leukemia Foundation (NCLF), a long-time "F"-rated charity by CharityWatch, is to be shut down under the terms of a settlement agreement announced in December 2015, but unfortunately, not before raising millions of dollars from unsuspecting donors nationwide. The settlement agreement resolves a lawsuit filed in July 2015 against NCLF, its founder and his son, its president, and its auditor, wherein the Attorney General of New York (OAG) alleged that NCLF repeatedly lied to donors about the extent of its charitable programs and submitted false official filings, including falsely reporting a large portion of fundraising expenses as a public education program and filing false audit reports. Of the approximately $9.7 million donated to NCLF between April 2009 and March 2013, the OAG claimed that approximately $7.5 million, or about 77%, was paid to the charity’s professional fundraisers while only $57,541, or less than 1%, was spent on direct cash assistance to leukemia patients. NCLF did report making $655,200 in grants to an alleged research organization in Israel, but the organization was a “shell” that was created by NCLF’s founder and headed by his sister, according to the OAG, and the OAG was not provided with satisfactory proof to establish how much of the $655,200 was actually used for research purposes.

The OAG’s investigation found that NCLF made false statements on its website and in its solicitations claiming to conduct program activities that it never had conducted, or had not in many years. For example, some of the defendants in the suit have admitted that contrary to NCLF’s claims, the charity never operated a bone marrow registry; never banked umbilical cord blood; never established a research program that could be described as a cancer research center; and its heavily promoted “Make A Dream Come True” program did little more over the past several years than pay for a laptop computer for one terminally ill child and a trip to Disney World for another. Some of the defendants also admitted that NCLF:  pretended to have a functioning board of directors by submitting filings with falsified listings of board members who had no involvement with the charity; claimed in submitted filings to have a compensation committee when no such committee existed; submitted reports that purported to represent valid financial audits of NCLF even though they did not meet basic auditing standards; and filed annual reports that minimized NCLF’s fundraising expenses and created the false appearance that it was spending substantially more on programs than it did, thereby further deceiving donors, according to the OAG.

The falsehoods in NCLF’s solicitations were made with the approval or full awareness of the founder and leader of NCLF, Zvi Shor, according to admissions by some of the defendants, as Shor essentially was able to create NCLF and control its operations out of the basement of his Brooklyn, NY home with no oversight by any bona fide board of directors. Shor started NCLF in 1991 and held the title of president until May 2010 when he relinquished it to NCLF’s accountant, Yehuda Gutwein, after it became public that Shor had been convicted of criminal bank fraud in 1999. According to the OAG, however, Gutwein was a “straw” president in name only while Shor continued to lead NCLF, and Shor enlisted his son to be NCLF’s vice president as of around 2009 merely for the purpose of signing official checks and contracts at his father’s behest. After stepping down as president, admissions by some of the defendants also describe that Shor presented an “Employment & Compensation Agreement” to Gutwein that he in turn signed on behalf of NCLF without consulting any purported NCLF board members or bona fide independent compensation experts regarding its reasonableness. In fact, Gutwein testified that after Shor relinquished the president’s title to him, the only person Gutwein could recall communicating with about Shor’s compensation was Shor himself. The “Employment & Compensation Agreement” terms Shor secured for himself included serving as NCLF’s “Founder and Senior Advisor” for ten years, with a salary of $134,804 and a guaranteed 4% annual increase; a lifetime pension that amounted to more than $100,000 a year; medical insurance for life; and $612,844 allegedly owed to him for back-pay, according to the OAG and admissions by some of the defendants.

At least, however, as part of the settlement terms, Shor agreed to forfeit his claims to the over $600,000 in back-pay and the lifetime pension and insurance benefits. The settlement also bans NCLF’s former officers from soliciting funds on behalf of any charity, as well as from serving as fiduciaries of any New York charity, with a nationwide ban for the Shors. Additionally, the Attorney General will recover $380,000 through the settlement, most of which will be directed to charities helping children with leukemia.

The shutdown of National Children’s Leukemia Foundation provides another cautionary case for donors. Although NCLF gave the appearance that it was running legitimate charitable programs and had standard governance and financial controls in place, unfortunately, even when it comes to charities, appearances may not always be as they seem. That’s why it is important for donors to always beware when solicited by unknown charities with impressive sounding names and programs.

(See also Zvi Shor's entry in the CharityWatch Hall of Shame.)

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