Fundraisers for ‘F’ Rated Charities Hit with a Combined $170.2 Million in Legal Judgments

Imagine receiving a call from a charity fundraiser promising that your donation will be used to provide pain medication to women suffering from cancer, fund hospice care for dying children, give financial support to fire victims, or provide food assistance to homeless and unemployed veterans. Now, imagine finding out that in some cases a measly 10% or less of your donation was used for anything remotely charitable, and that the vast majority of the money you sent in response to these solicitations did nothing more than line the pockets of greedy, for-profit fundraisers.

In separate actions in January 2021 and September 2020, the Federal Trade Commission (FTC) joined forces with state charity regulators across the country to crack down on the predatory fundraising practices of for-profit companies soliciting donations on behalf of charities. The two actions, Federal Trade Commission, et al. v. Associated Community Services, Inc., et al. and Federal Trade Commission, et al. v. Outreach Calling, Inc., et al. (“the FTC actions”), ultimately resulted in consent judgments against for-profit fundraisers amounting to $111.7 million and $58.5 million, respectively.

CharityWatch has been investigating and assigning “F” ratings to most of the charities cited in the FTC actions for many years due to their high fundraising costs and low program spending. As an independent watchdog organization, we are often able to expose inefficient charities and predatory fundraising practices many years before regulators can take the necessary formal steps to pursue legal claims against bad actors and permanently shut them down. In this sense, CharityWatch and state and federal regulators play complementary roles in protecting the public against those who use nonprofit organizations as vehicles to exploit donors’ empathy and generosity. The abusive practices described in the FTC actions serve as powerful reminders of why it is so important for donors to do their research before giving. (See the chart below for names of the charity clients cited in the FTC actions.)

Federal Trade Commission, et al. v. Associated Community Services, Inc., et al.

The FTC, in conjunction with 46 agencies from 38 states and the District of Columbia, worked together to stop a massive onslaught of what the FTC describes as mostly illegal and deceptive calls from telemarketers purporting to raise money for charitable causes. In Federal Trade Commission, et al. v. Associated Community Services, Inc., et al. (“the ACS Complaint”), filed in January 2021, the FTC, et al.^[1] sued Associated Community Services (ACS) and its “sister companies,” as well as many of their owners and managers (“the ACS Defendants”).^[2] The FTC’s March 4th, 2021 press release, citing the ACS Complaint, states that the ACS Defendants “conducted an invasive robocall onslaught and kept the lion’s share of the more than $110 million of consumers’ contributions – as much as 90 cents of every donated dollar.” The ACS Defendants were accused of knowingly duping donors into believing that their donations would help breast cancer patients, families of children with cancer, homeless veterans, fire victims, and others in need. “In reality, almost no money went to the charitable purposes the [ACS] Defendants described to donors,” according to the ACS Complaint.

‘Repeated and Harassing Telephone Calls’

Many donors are sadly accustomed to donating to one charity and ending up on the solicitation lists of dozens of charities and their fundraising vendors as a result. Receiving unwanted telemarketing calls is bad enough when a human is on the other end of the line, but at least the labor costs associated with paying telemarketers puts some limit on the number of calls they can make. The ACS Defendants overcame this obstacle by communicating with donors using soundboard technology which allows each soundboard operator to handle multiple calls at a time. In violation of the Telemarketing Sales Rule, per the ACS Complaint, the outbound calls played prerecorded messages to potential donors, calling many phone numbers repeatedly in a short period of time without providing a way for recipients to opt-out of future messages. Many ACS telemarketers reported that most of the donors they spoke with were elderly and “observed that older adults were more likely than younger ones to be fooled by the prerecorded messages into believing they were talking to another person naturally, and, as a result, not hang up on the call,” according to the ACS Complaint.

The ACS Defendants called more than 1.3 million numbers 10 or more times in a single week and more than 7.8 million numbers two times or more in a single hour, according to the ACS Complaint. Though the calls originated from ACS’s offices in Michigan and from phone rooms in the Philippines and India, technology was used to make the calls appear on recipients’ caller ID displays as if they were coming from local numbers. Some of the messages were designed to convince donors throughout the country that their contributions would help people in their own geographic area, even when the programs they were soliciting for only or primarily existed in a single state.

‘Misleading Claims of Urgency’

The ACS Defendants also solicited donors via direct mail, playing on their emotions to encourage them to donate quickly. One such mailer stated:

‘If it’s at all possible, I’m asking you to fulfill your pledge quickly. […] [I]f we don’t intervene, a family has until the end of the week to catch up on the rent or they’ll be evicted, a little girl with cancer needs new shoes, socks, T-shirts and pajamas because what she’s wearing now is old, worn and makes her feel terrible. […] [I]t would be troubling enough to think you may be without heat, lights or even a roof over your head. But going through such trouble while caring for a son or daughter with cancer, well, that would almost be unbearable wouldn’t it?’

ACS telemarketers were trained to use “claims of urgency and importance in rebuttal statements to overcome objections by reluctant donors,” according to the ACS Complaint, making statements such as: “‘[T]hese men and women who are suffering with Breast Cancer rely on your donation to survive’”; “‘these cancer patients are choosing between chemotherapy and putting food on the table’”; or “‘some of these kids [ ] are terminally ill and may not live to see another birthday/holiday season [which is] why time is of the essence...’” When donors failed to remit promised pledges, they were sent guilt-inducing “dunning letters” reiterating that the need for funds is extremely urgent. The ACS Complaint provides one such example of language included in a dunning letter sent to individuals who had pledged donations to Cancer Recovery Foundation International, dba Women’s Cancer Fund: “‘One of the reasons I’ve sent out this reminder so quickly is because time is always an issue with the women who come to us for aid. … These women are desperate, sick, and in need of our help as fast as we can give it. No. Even faster!’ [emphasis in original].” As the ACS Complaint aptly claims, “The [ACS] Defendants were the only ones to receive immediate benefit from these donations.”

Measly Program Spending by Charity Clients

The ACS Complaint details several examples reflecting that the amounts dedicated to financially helping individual cancer patients were often far less than 5% of donors’ contributions. For example, Cancer Recovery Foundation International, dba Women’s Cancer Fund, reported approximately $14 million in contributions in 2017, but only $17,485 was spent helping 70 women with cancer by paying past due rent and utilities. Other charity clients of the ACS Defendants spent similarly paltry amounts. Of the cash donations raised by Cancer Fund of America, Children’s Cancer Fund, and The Breast Cancer Society from 2008–2012, the amount each spent providing direct aid to cancer patients amounted to 0.1%, 3.4%, and 2.2%, respectively. Another charity client, United Breast Cancer Foundation, spent only $163,520 of its $24 million in 2018 donations helping 14 women with breast reconstruction and providing cancer screening services like mammograms. United Cancer Support Foundation spent only $67,783 of its $2.5 million in 2018 contributions on “cancer detection.” When soliciting on behalf of Children’s Cancer Fund, United Breast Cancer Foundation, The Breast Cancer Society, and Cancer Fund of America, ACS telemarketers promised that donations would be used to provide pain medication, medical supplies, and hospice care or support, according to the ACS Complaint, even though “[n]ot one of these nonprofits provided pain medication to cancer victims or otherwise assisted people in the United States to obtain pain medication that would alleviate their suffering.”

According to the ACS Complaint, the ACS Defendants also targeted donors with fundraising pitches for contributions that would supposedly be used to provide direct aid to homeless veterans, firefighters, burn victims, law enforcement officers, people in need of organ transplants, and children with autism. The amount of direct aid provided was egregiously low. The ACS Complaint includes the following examples:

• None of Volunteer Firefighter Alliance’s approximately $4.6 million in 2018 contributions was spent helping fire stations obtain equipment.
• The Organ Donation and Transplant Association of America spent no money directly supporting or helping transplant patients.
• Only about 3% of donations raised by Law Enforcement Education Program between July 2015 and June 2018 were spent on scholarships to individuals.
• Kids Wish Network spent only 4.7% of the more than $43 million in contributions it received granting wishes from 2016 to 2018.
• Autism Spectrum Disorder Foundation, dba Autistic Children of America, spent more paying its executive director than it did on helping children with autism, per its 2017 and 2018 tax filings.
• Foundation for American Veterans reported in its 2016 tax filing that it received over $13.7 million in donations and spent only $11,505, or about 0.0008%, providing 15 veterans with direct financial assistance.

Even though some of the ACS Defendants had a long history of alleged violations of state law, including allegations of deceptive fundraising practices, they continued soliciting the public for donations. For example, ACS was subject to at least 16 state actions that resulted in hundreds of thousands of dollars in fines and penalties and bans from soliciting in many states. In 2015, the U.S. Department of Justice sued ACS (in connection with ACS’s Chapter 11 bankruptcy) related to its solicitations for Cancer Fund of America, Children’s Cancer Fund, and The Breast Cancer Society.

Although the ACS Defendants neither admit nor deny any of the allegations in the ACS Complaint, the respective stipulations that settle the matter permanently prohibit each of the ACS Defendants from conducting or consulting on fundraising activities, whether directly or indirectly. Additionally, two of the ACS Defendants, Directele, Inc. and The Dale Corporation, must cease operations and dissolve. Monetary judgments of almost $111.7 million were also ordered, but most of that amount was partially suspended due to an inability to pay. As a result, the amounts required to be paid by the ACS Defendants collectively totals $495,000, in addition to the proceeds from the sale of certain personal assets. Upon approval by the court, the funds surrendered will be contributed to one or more legitimate charities that support causes like those for which the ACS Defendants solicited.

The ACS Defendants have been permanently barred from engaging in fundraising activities on behalf of charities, but donors should remain vigilant. New predatory fundraisers tend to crop up to fill the void left by the ones who are caught and put out of business. And as is evidenced in the other of the FTC actions, discussed below, some bad actors find creative ways to continue exploiting donors even after they are caught and punished.

Federal Trade Commission, et al. v. Outreach Calling, Inc., et al.

“It is critically important that donors are able to trust that their contributions are being used as they intended, and not to line the pockets of individuals who exploit the generosity of others,” said the Attorney General of New York in a September 16th, 2020 press release announcing the shutdown of a fundraising operation that solicited donations on behalf of “sham” charities. The “sprawling fundraising operation…allegedly scammed consumers out of millions of dollars [and] will be permanently banned from charitable fundraising along with its owner and others involved in its operation,” the Federal Trade Commission (FTC) states in a press release of the same date. The shutdown of the fundraising network, which has solicitated donations for alleged “sham” charities that include National Vietnam Veterans Foundation, Reserve Police Officers Association, Disabled Police and Sheriffs Foundation, Center for American Homeless Veterans, Circle of Friends for American Veterans, and Crisis Relief Network, is the result of a lawsuit, Federal Trade Commission, et al. v. Outreach Calling, Inc., et al. (“the Outreach Calling Complaint”), filed on September 15th, 2020 by the FTC and the attorneys general of New York, Virginia, Minnesota, and New Jersey.^[3] The defendants charged in the alleged “deceptive fundraising scheme” include the company, Outreach Calling, Inc., and Mark Gelvan, the “primary leader and beneficiary” of the operation, as well as three individuals who aided Gelvan—Thomas Berkenbush, William English, and Damian Muziani (“the Outreach Calling Defendants”).^[4]

The Outreach Calling Complaint asserts that the Outreach Calling Defendants, led by Gelvan, “bilked tens of millions of dollars from well-meaning American donors on behalf of sham charities,” and that “[o]nly a fraction of each donated dollar—typically no more than 5%, if that—is spent on the stated charitable programs, while 85-90% is distributed to for-profit companies that primarily benefit Gelvan.” The Outreach Calling Defendants are accused of “orchestrat[ing] all aspects of their charity clients’ fundraising activities,” such as supplying the lists of prospective donors used by telemarketers in their fundraising campaigns, drafting the scripts used by the telemarketers, and drafting the content of the mailers they sent to prospective donors. The representations made by the Outreach Calling Defendants to raise funds on behalf of their charity clients were false and misleading, the Outreach Calling Complaint alleges.

The Outreach Calling Defendants’ ‘Sham Charity Clients’     

Crisis Relief Network (CRN) is the one “sham charity client” named in the Outreach Calling Complaint that was still operating at the time of filing, and it currently receives an “F” rating from CharityWatch, based on our analysis of its 2019 financial reporting. CharityWatch first raised questions over CRN’s fiscal 2016 financial reporting when we identified multiple fundraising campaigns conducted by fundraisers on the charity’s behalf for which CRN received only 10% to 12% of the gross donations raised. A note in CRN’s 2016 audited financial statements revealed that its executive director had family relations to board members, as well as a board-approved employment agreement that allowed him to provide contractor services for CRN as a therapist. CRN’s 2016 tax filing reflected that, of its five board members, only two were reported as independent, which continues per CRN’s 2019 tax filing. CRN received a “?” rating from CharityWatch, based on CRN’s fiscal 2016 financial activities, and again based on fiscal 2018, due to our concerns about CRN’s financial reporting and governance. In 2018, CharityWatch sent a letter to CRN asking the charity to address our concerns and provide additional information, but we never received a response. The State of Minnesota began investigating CRN and the Outreach Calling Defendants’ alleged deceptive fundraising practices in 2018, according to the Outreach Calling Complaint, which asserts that the Outreach Calling Defendants pocketed approximately 90% of the contributions raised on behalf of CRN. These allegations are consistent with CharityWatch’s analysis of CRN’s fundraising agreements and other financial reporting.

CharityWatch was not surprised by the regulators’ claims about National Vietnam Veterans Foundation (NVVF). Our last “F” rating for NVVF, based on its 2014 fiscal year, reflected that NVVF spent only 7% of its cash budget on program services while incurring an extremely high $89 cost to raise each $100 in funds. “From 2010 through 2016, [the Outreach Calling] Defendants raised over $28 million on NVVF’s behalf and retained over $25 million,” according to the Outreach Calling Complaint. Of the small amount of funds that remained for NVVF, “the bulk was spent on funding its President’s, John Burch’s, lavish lifestyle,” described in the Outreach Calling Complaint as including foreign and domestic travel, and expenditures at the country’s top restaurants and Baltimore nightclubs. NVVF was shuttered in 2016 as part of a settlement it reached with the New York Office of the Attorney General (NY AG). Among other settlement terms, Burch agreed to pay $100,000 in penalties, most of which was to be redirected by the NY AG to charities actually helping veterans. Burch later was sentenced to five months in prison, followed by five months home detention after pleading guilty in June 2017 in the U.S. District Court for the District of Columbia to wire fraud for embezzling at least $149,317 from NVVF and spending it on non-business-related travel, clubs, restaurants, hotels, and women with which he engaged in personal relationships, all according to the Outreach Calling Complaint.

The financial ratios of Reserve Police Officers Association (RPOA) and Disabled Police and Sheriffs Foundation (DPSF) were even worse than NVVF’s, based on CharityWatch’s analysis. RPOA and DPSF spent a measly 6% and 5% on program services, respectively, and they each incurred a shameful $91 to raise each $100 in funds in 2016. The Outreach Calling Complaint describes that RPOA was in business with Gelvan, Berkenbush, English, and Muziani since at least 2005, and from 2010 to 2017, the Outreach Calling Defendants kept more than $3.4 million out of the approximately $3.9 million they raised on RPOA’s behalf. Around 2017, the State of New York initiated an investigation into the Outreach Calling Defendants’ deceptive fundraising practices on behalf of RPOA. In April 2018, RPOA entered an Assurance of Discontinuance with New York and ceased operating. RPOA was also required to pay $15,000 in penalties, all according to the Outreach Calling Complaint.

DPSF “has consistently interacted with Berkenbush, English, and Gelvan on its fundraising campaigns” since the beginning of their business relationship, starting in or around 2002, the Outreach Calling Complaint notes. Of the over $10 million the Outreach Calling Defendants raised for DPSF from 2010 to 2017, more than $9 million was paid to the Outreach Calling Defendants for their fundraising services, according to the Outreach Calling Complaint. A complaint filed by the FTC and the State of Missouri in March 2019 asserted that “the vast majority of contributed funds supported the private interests of for-profit telemarketers or inured to the personal benefit of David Kenik [the founder of DPSF].” As part of the 2019 settlement, Kenik was banned from engaging in charitable fundraising, and a payment of $100,000 was required to be distributed to legitimate charitable purposes like those purported to be conducted by DPSF.

Similar to the Outreach Calling Defendants’ other “sham charity clients,” Center for American Homeless Veterans (CAHV) and Circle of Friends for American Veterans (CFAV), which were both founded by Brian Arthur Hampton, maintained disgracefully low program spending and outrageously high fundraising costs. CharityWatch’s final “F” ratings of the two groups, based on their fiscal 2017 reporting, reflected that CAHV and CFAV spent only 4% and 9%, respectively, on their programs, with the rest of their budgets going for overhead. In fiscal 2017, CAHV spent $90 to raise each $100 in public support, and CFAV spent a similar $89. From 2010 to 2017, the Outreach Calling Defendants retained over $14 million out of the approximately $16 million in funds they raised for CAHV and CFAV, collectively, according to the Outreach Calling Complaint. Furthermore, of the remaining less than $2 million in funds received by CAHV and CFAV, over $1.3 million went towards paying Hampton’s six-figure annual salary from 2010 through 2016, the Outreach Calling Complaint also states. As part of a March 2020 settlement with the Commonwealth of Virginia, CAHV and CFAV were required to distribute $100,000 to charities that provide real assistance to homeless veterans. Hampton was also barred from charitable fundraising. CAHV, CFAV, and Hampton concurrently entered an Assurance of Discontinuance with New York in March 2020 that had “substantially similar” settlement terms as those with Virginia.

The Outreach Calling Defendants’ History of Deceptive Fundraising Allegations

The Outreach Calling Complaint reveals that the Outreach Calling Defendants had a long history of ending up in hot water for the ways they solicited donations for charity clients, describing several prior state enforcement actions against them for alleged deceptive fundraising practices. Gelvan and Berkenbush have been in the fundraising business together for about 30 years. They have had a professional relationship with English and Muziani for about 20 years, dating back to 2001, when all four worked together at All-Pro Telemarketing Associates, Inc. (All-Pro Telemarketing), the first professional fundraising company founded by Gelvan in 1989, according to the Outreach Calling Complaint. All-Pro Telemarketing provided similar fundraising services as provided by Outreach Calling to charity clients. By way of name changes or other newly formed business structures, the Outreach Calling Complaint describes that Gelvan provided charitable fundraising services through companies known as All-Pro Associates Corp., Outsource 3000, Inc., Production Consulting Corp., and Community Support, Inc. (CSI), in addition to All-Pro Telemarketing and Outreach Calling.

In 1996, the State of New York began investigating All-Pro Telemarketing and Gelvan for pretending to be New York State Troopers and making other false representations in connection with their fundraising campaigns on behalf of the Fraternal Order of New York State Troopers. All-Pro Telemarketing and Gelvan resolved the matter later that year by entering into an agreement (the “1996 Agreement”) to pay a $30,000 penalty and to use a pre-approved script for phone solicitations, all according to the Outreach Calling Complaint. Gelvan, however, continued to have run-ins with state authorities related to allegations of deceptive fundraising practices. Some of the other prior actions involving the Outreach Calling Defendants noted in the Outreach Calling Complaint include:

• In January 2004, All-Pro Telemarketing and Gelvan entered a Stipulation and Order of Settlement (the “2004 Stipulation and Order”) barring them from charitable fundraising in New York. The settlement stemmed from a 2002 complaint against the parties for allegedly violating the terms of the 1996 Agreement by continuing their deceptive fundraising practices on behalf of the Fraternal Order of New York State Troopers from 1995 to 2001.
• In May 2009, approximately 30 State Attorneys General entered into consent decrees with CSI as part of “Operation False Charity,” which was a nationwide, federal-state crackdown on fraudulent telemarketers claiming to help police, firefighters, and veterans. The consent decrees barred CSI from making certain misrepresentations related to charity clients in connection with its fundraising campaigns. (Berkenbush was the “purported President” of CSI, and Gelvan’s father-in-law, at Gelvan’s direction, was an officer. Gelvan “claimed he provided ‘consulting’ services to CSI first through All-Pro Telemarketing and then through Outsource,” all according to the Outreach Calling Complaint.)
• In 2014, Gelvan entered an Assurance of Discontinuance with New York to resolve allegations that “brokering” services he was providing to connect fundraising subcontractors with charity clients violated the 2004 Stipulation and Order. Under the terms of the Assurance of Discontinuance, Gelvan “agreed to pay $50,000 ‘as disgorgement for the gains in violation of the [2004 Stipulation and Order],’” according to the Outreach Calling Complaint. The Outreach Calling Complaint also states that at Gelvan’s direction, Outreach Calling paid the $50,000 penalty on his behalf.
  

Although the Outreach Calling Defendants neither admit nor deny any of the allegations in the Outreach Calling Complaint, the respective stipulation orders that settle the matter permanently ban each of the Outreach Calling Defendants from participating in any charitable fundraising or providing fundraising services on behalf of charitable organizations, whether directly or indirectly. Monetary judgments of over $58.5 million were also ordered, but most of that amount was partially suspended due to an inability to pay. As a result, the amounts required to be paid by the Outreach Calling Defendants collectively totals $892,755, in addition to the proceeds from the sale of certain personal assets. The funds surrendered will be contributed to legitimate charities that perform services akin to those purported by the “sham charities.”