(CN) – The Federal Trade Commission and all 50 states on Tuesday accused four cancer charities of scamming donors out of $187 million that the operators then spent on gym memberships, dating website subscriptions, jet ski outings, and other personal expenses.
In a complaint field in the Phoenix. Arizona Federal Court, the plaintiffs say the charities — the Cancer Fund of America, Cancer Support Services, Children’s Cancer Fund of America and the Breast Cancer Society — solicited donations through direct-mail and telemarketing calls, telling prospective donors the money they gave would be spent on medications for children with cancer, transportation for cancer patients to and from chemotherapy or hospice care.
“These were lies. … the vast majority of donor’s contributions have not directly assisted cancer patients in the United States or otherwise benefitted any charitable purpose,” the complaint says.
“Rather, donations have enriched a small group of individuals related by familial and financial interests and the for-profit fundraisers they hired,” the 148-page complaint continues. “This diversion of charitable finds has deceived donors and wasted millions of dollars that could have been spent as donors intended, to help Americans suffering from cancer.”
All four charities were created and controlled by the same network of people, led by defendant James Reynolds Sr., according to the FTC and the attorneys general from all 50 states and the District of Columbia.
The complaint also accuses the defendant organizations of falsifying financial documents, reporting inflated revenues and gifts-in-kind they claimed to distribute internationally.
“Defendants have hidden their high fundraising and administrative costs from donors by using an accounting scheme involving the shipment of pharmaceuticals and other goods (known as gifts-in-kind or “GIK”) to developing countries,” the complaint says. “Through this scheme, collectively from 2008 through 2012, Defendants improperly reported over $223 million in revenue and program spending in their financial statements.
“This had the effect of making Defendants appear to be larger and more efficient with donors; dollars than they actually were, deceiving the donating public,” it continues.
Two of the charities — the Children’s Cancer Fund of America and the Breast Cancer Society — agreed to settle the charges before the complaint was filed. The commission said they will now be dissolved.
James Reynolds II, another of the co-defendants, has also agreed to settle charges and will be banned from future involvement in charity management.
Litigation against the senior Reynolds and the two remaining organizations is ongoing, the FTC said.
Representatives for the remaining defendants could not immediately be reached for comment on Tuesday, but James Reynolds Sr. obliquely referenced the litigation in a posting on the Breast Cancer Society’s website on Tuesday.
“Charities — including some of the world’s best-known and reputable organizations — are increasingly facing the scrutiny of government regulators,” Reynolds wrote. “Unfortunately, as our operations expand — all with the goal of serving more patients — the threat of litigation from our government increased as well.”
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