Don’t Be Fooled By Name Rip-off Charity Scams
Posted on June 15, 2018
How much harm could there really be in confusing the names of two charities? Let’s take the example of the Cancer Research Institute (CRI) and American Institute for Cancer Research (AICR), which currently receive an “A” and “D” grade, respectively, from CharityWatch. If a donor were to confuse AICR for CRI because of their similar names, it would mean the difference of about $36 versus $87 out of a $100 donation being spent on cancer research programs. In other words, if a donor mistakenly sends a $100 check to the American Institute for Cancer Research instead of Cancer Research Institute, that donor in essence wasted about $51 on fundraising and general administrative costs that otherwise could have been used for the programs run by the much more financially efficient CRI. Confusing a poorly-run charity for a well-run charity is one thing, but imagine how disheartening it would be if the entire $100 from what you thought was a legitimate charitable donation essentially ended up being stolen because of name confusion.
Two recent phony charity scams give CharityWatch the opportunity to remind donors how easy it can be to fall victim to charity name confusion, and to reinforce the importance of checking the legitimacy of a charity before giving. The scams, which basically relied on ripping-off the names of two large, nationally-recognized charities, are described below.
Exploiting the “Wounded Warrior” Name
On February 28, 2018, two men and two women from Indiana were indicted on federal charges for allegedly running “an elaborate fraud scheme posing as fundraisers for America’s veterans and their families,” according to the U.S. Attorney’s Office for the Southern District of Indiana (USAO). The accused individuals pretended to be raising funds on behalf of two fraudulent charities, Wounded Warrior Foundation and Wounded Warrior Fund. The USAO expressed its belief that the “Wounded Warrior” names used in the scheme were meant to confuse people into thinking that they were donating to Wounded Warrior Project (WWP), the well-known, legitimate veterans charity.
Over $125,000 in donations allegedly were stolen from more than 1,000 individuals in Indiana, Kentucky, and Ohio in connection with the “Wounded Warrior” charity scheme, which began in 2011. Donors allegedly were told that 100% of their contributions would go to veterans and their families. Funds were solicited by telephone, fax, and in person. One of the men is even accused of using the alias of “Sergeant Bob Johnson,” in many cases misleading donors into believing they were being solicited by a credible, former military member, according to the USAO.
Moreover, a picture of at least one of the flyers used by Wounded Warrior Foundation (included with an online report by CNN) shows it claiming to be an “IRS Approved 501(c)(3)” public charity. As part of the alleged scheme, donors were also given printed receipts that instructed them to keep it with their records “for tax deduction purposes,” according to CNN. For donations to be eligible for a tax deduction, a charity needs to have 501(c)(3) tax-exempt status from the IRS, but there is no indication that either the Wounded Warrior Foundation or Wounded Warrior Fund ever obtained 501(c)(3) status, according to the IRS’s online database. (At one time, it appears that Wounded Warrior Foundation had tax-exemption as a 501(c)(4) social welfare organization, but its 501(c)(4) exemption was automatically revoked by the IRS in May 2017 due to its failure to file a Form 990 tax return or notice for three consecutive years.)
None of the donations collected on behalf of the Wounded Warrior Foundation or Wounded Warrior Fund were ever actually used on veterans programs, according to the USAO. Instead, the money allegedly was spent by the defendants on drugs and gambling, and for other personal gain. The accusations even include using donated hotel rooms “to engage in drug activity,” according to a law enforcement source with knowledge of the case quoted by CNN. “The acts of these fraudsters have eroded the trust and good will of those who want to contribute to legitimate fundraising organizations, including those that support our veterans,” said U.S. Attorney, Josh Minkler in the USAO press release. If convicted, the four defendants each face up to 20 years imprisonment.
Crisscrossing the “Red Cross” Name
On March 21, 2018, the Attorney General of North Dakota (OAG) issued a Cease and Desist Order against James Michael Austin, banning him from conducting business in the state. The man, who also uses the name Michael James Fisher, is accused of violating North Dakota’s charitable solicitations and consumer fraud laws through the creation of a phony charity, Red Cross of Americas. Austin solicited donations from North Dakota residents who may have believed that the phony Red Cross of Americas was affiliated with the legitimate American Red Cross, according to the OAG.
Austin registered the Red Cross of Americas name with the North Dakota Secretary of State’s office, but he did not complete the state’s charitable organization or professional fundraiser licensing requirements, per the OAG. The OAG states that after being contacted by investigators, Austin admitted he had solicited and collected donations, but he could not provide information about his charitable purposes. He then stopped responding to further attempts by investigators to contact him. In the words of the AG: “Not only did Mr. Austin create a phony charity so that he could take advantage of generous North Dakota residents, but he deliberately used a name that was almost identical to a well-known international charity, in an attempt to lend legitimacy to his efforts.”
At the time of the OAG’s news release, there was an outstanding arrest warrant for Austin on unrelated theft of property charges in McKenzie County, North Dakota. The authorities believe Austin fled to Texas, where he also has a listed address.
Given how similar the names were to well-known, legitimate charities, it is not surprising that there would be a high likelihood for donor confusion in the “Wounded Warrior” and “Red Cross” phony charity scams described above. Whether intentional or coincidental, when charities (fake or not) have look- or sound-alike names, the potential confusion created for donors is real. Unfortunately, attempting to take advantage of such charity name confusion has long-been a tactic employed by some bad actors looking to personally profit off of generous, unsuspecting donors.
Therefore, keep in mind the “Wounded Warrior Foundation”/ “Wounded Warrior Fund” and “Red Cross of Americas” schemes, and don’t be misled by what may sound like a familiar charity. Even charities with names and/or fundraisers that appear to be authentic may not be. The best way to avoid falling victim to a phony charity or one that will waste your donation instead of using it for bona fide charitable programs is to research the name of the charity before you give. As a donor, you should never let yourself feel pressured to give on the spot. You have the right to refuse, and no legitimate charity will demand an immediate donation.
Some research tips that can help donors avoid charity scams include the following:
- Verify that the charity is recognized by the IRS as a 501(c)(3) tax-exempt, public charity. Having 501(c)(3) tax-exempt status does not give any indication as to if the charity is honest or well-run, but not having an approved tax-exempt status with the IRS can be a red flag. There is no indication that Wounded Warrior Fund or Red Cross of Americas ever had any tax-exempt status from the IRS, and the Wounded Warrior Foundation appears to have misrepresented to donors that it was a 501(c)(3) public charity rather than a 501(c)(4) social welfare organization (at least until the IRS revoked its 501(c)(4) tax-exempt status in 2017). A charity should be willing to show you its tax-exemption determination letter from the IRS or documentation that its application is pending approval. Also be aware that if a charity does not have 501(c)(3) tax-exempt status, it will not be possible to claim a tax deduction for your donation. The IRS’s “Tax Exempt Organization Search” tool, available at IRS.gov, is an easy, reliable way to check if a charity has an active 501(c)(3) tax-exemption.
- Review the make-up of the charity’s board of directors and leadership team. A charity should disclose on its website, and upon request, the individuals on its board of directors and the experience of its leadership team. If a charity is unwilling to provide that information, that is a red flag to donors. A board of directors and/or leadership team that is dominated by members of the same family also should be a red flag. Additionally, look to see if the experience and credentials of the leadership team align with their position and responsibilities at the charity.
- Confirm the charity’s grant-making claims. If a charity is claiming in its fundraising solicitations or telemarketing calls to provide funds to other organizations, contact those organizations yourself to verify they have actually received money from that charity. A charity’s grants in the amount of $5,000 or more to any U.S. organization or government agency also must be reported by name on Schedule I of the charity’s annual IRS Form 990 public filing. The Wounded Warrior Foundation / Fund promised to provide funds to the VFW Departments of Kentucky and Indiana, the Kentucky and Indiana National Guard, and the USO, according to a report by CNN. A call to any one of those organizations inquiring about receiving grants from the Wounded Warrior Foundation / Fund would have raised a red flag since the phony charities did not provide any money to veterans programs.
- Verify that the charity is registered to solicit charitable funds in your state. Almost every state requires charities to file an annual registration in order to legally solicit the public for donations. Red Cross of Americas was not registered to solicit as a charity in North Dakota, as was noted by the OAG. Whether or not a charity has registered in your state can usually be checked fairly easily. Many states have searchable online databases of registered charities, typically via the website of their respective Attorney General or Secretary of State office. (The website links to some of those charity databases can be found by clicking on “Links” from the navigation header, above.) A phone call to those same offices in your state should also provide assistance with verifying a charity’s state registration.
- Check with CharityWatch, of course! CharityWatch provides “A+” to “F” grade ratings for more than 600 of the nation’s largest, most popular charities. And even if we don’t currently provide a rating for the charity you are researching, our other website resources and knowledgeable staff can help guide you to give wisely.