Undercover Investigation Shines Light on the Seamy Side of Charity Telemarketing

"The troubling findings of Attorney General Cuomo's investigation show that some professional fundraisers misrepresent how contributions will be used and exploit the good intentions of donors in the process. These professional fundraisers have no place in the world of not-for-profits..."
- Daniel Borochoff, President of AIP, as quoted in the 1/20/2010 press release from the New York Attorney General's Office

In January 2010, New York Attorney General (AG) Andrew Cuomo filed suit against four professional fundraising companies that he accused of repeatedly breaking New York laws by lying about their status as for-profit fundraisers and the programs for which they were raising money. According to AG Cuomo, these four companies-Caring People Enterprises, Inc. (Caring People), Marketing Squad, Inc. (Marketing Squad), Stage Door Music Productions, Inc. (Stage Door), and Suffolk Productions, Inc. (Suffolk)-"manipulate sympathetic donors in order to raise money for the only cause they truly care about-themselves." Over the past three years, these companies reportedly raised $16 million, keeping an average of 76%, approximately $12 million of the money raised. This is especially troubling in these difficult economic times when donors and charities need their dollars to go further.

Under New York laws regulating charitable solicitation activity, fundraisers are required to "clearly and unambiguously" state their full names, their status as paid fundraising officials, and the name of the professional fundraising company for which they work. They must also provide a clear description of the programs and activities for which they are raising funds. Finally, fundraisers must register and file the script they use with the AG. Fundraisers are expressly forbidden from intimidating donors.

These solicitation laws are in place to ensure transparency and make potential donors aware when solicitations come from paid fundraising professionals. However, when undercover investigators with the New York AG's office secured jobs with these four fundraising companies, they reported observing employees flagrantly breaking these laws. They also reported being trained to disregard these laws.

Unregistered solicitors

In New York, all solicitors must be registered with the AG. If an individual has been convicted of a felony or misdemeanor involving the misappropriation of money or property without receiving an executive pardon, he or she may be prohibited from engaging in solicitation. However, all four companies named in the suits allegedly employed unregistered solicitors. According to the AG's suit, Thomas J. Kershaw, who runs a Stage Door call center out of his home, did register as a solicitor, but he falsely reported that he had no prior convictions. As it turns out, he has been convicted of seven crimes, including petit larceny, possession of stolen property, possession of a forged instrument, malicious injury to property, and fraud and impersonation.

Lying about the charitable programs

Undercover investigators also reported witnessing fundraisers lying about the programs for which they were raising funds. For example, Marketing Squad had a fundraising contract with the New York State Jaycees. On its 2008 IRS Tax Form 990, the most recent available, the New York State Jaycees state that their primary exempt purpose is "leadership, training, and civic responsibility." However, undercover investigators found that Marketing Squad fundraisers told donors their contributions would support a variety of causes, including cancer research, support for terminally ill children, bolstering of food pantries, and anti-smoking programs.

One Marketing Squad solicitor told a donor, "Really, the Jaycees are five organizations rolled into one. We're fighting for research and treatment, supporting folks who already have cancer, beefing up the food pantries, helping kids quit smoking." In testimony before the Office of the Attorney General, the New York State Jaycees stated that they do not support any of the above mentioned causes and that they used the money raised by Marketing Squad to pay administrative expenses and for Jaycee members to attend conventions.

Professional fundraising companies are required to file a script with the AG to prevent this kind of deception, but all four fundraising companies in question filed scripts that bore little resemblance to the embellished scripts their fundraisers at times used.

Obscuring the truth

New York law requires charity telemarketers to "clearly and unambiguously" identify the professional fundraising company which employs them and to disclose that they are paid to solicit contributions. This law is intended to ensure donors know when they are giving to a paid fundraising professional, not directly to a charity. At times, fundraisers from all four companies named in the suit allegedly failed to disclose their status as paid fundraisers. An undercover investigator who obtained a job with Marketing Squad was instructed, "Do not say Marketing Squad is being compensated as a professional fundraiser. You do not need to say 'professional fundraiser.'"

In addition to instructing its employees to lie about the fact that they are paid, Marketing Squad also allegedly instructed solicitors to obscure how much money the charity would actually be paid. According to the complaint filed against Marketing Squad, a trainer for the company instructed solicitors to tell potential donors to the Veterans of Foreign Wars Department of New York (VFW), "It would be great if the VFW could get 100% of the proceeds but it's actually 85-15 [percent] due to fundraising expenses." According to AG Cuomo, VFW received only 15% to 20% of the funds collected by Marketing Squad.

Misrepresenting who they work for

Fundraisers from all four fundraising groups in question at times allegedly used language that made it seem like they were officials from the charity. Instead of saying they were calling on behalf of a charity, these fundraisers commonly said they were from or with the charity. For example, solicitors from Caring People began solicitations with greetings such as, "It's Tom calling from the Onondaga Volunteer Firemen's Association."

According to the lawsuits, all four fundraising companies in question had contracts with law enforcement charities or veterans charities, so when these fundraisers pretended that they were with these groups, some donors likely thought they were speaking with actual law enforcement or military officers. In fact, fundraisers from Stage Door, which had a contract with Saratoga County Sheriffs Officers Association, often truncated the group's name to make it appear as though they were calling directly from the Saratoga County Sheriff's Office. Fundraisers greeted potential donors with misleading statements such as, "This is Glen Miller calling, Saratoga County Sheriffs."

According to the complaint filed against Stage Door, fundraisers were instructed to "make people feel that the Sheriff's Department keeps a list of who donates and who doesn't." Solicitors with Suffolk told donors that when they gave to law enforcement charities they'd receive a badge that might confer special privileges with police officers. A Suffolk solicitor was recorded telling a potential donor, "I'm giving you two police badges…you can give these to the people who work for you. They put this in their wallet…where their license is… and [if stopped] when you open it they'll see that you contribute."

Limitations on reform

Of course, not all professional fundraising companies use the unethical tactics discovered in this undercover investigation. Nonetheless, professional fundraising companies are abundant and raise significant amounts of money. According to AG Cuomo's 2009 report on charitable telemarketers registered in New York, these professionals raised nationally a total of $204.8 million in 2008. The companies kept $123.9 million or 60.5% of the funds raised, while the charities received only $80.9 million or 39.5%.

While New York and other states have laws to protect donors from fraudulent fundraisers, AG Cuomo's investigation reveals that not all fundraisers follow them. There are also limitations to the restrictions that can be placed on solicitors. A recent ruling by a Texas District Court declared unconstitutional a law requiring that solicitors asking for charitable donations of goods must disclose that the items would be sold for profit and the portion of the proceeds that would go to charity. Citing a previous, similar court case, the judge ruled that such disclosures would discriminate against small or unpopular charities that use professional fundraisers.