Federal Trade Commission Joins 34 States in Crackdown on Fund-Raising Fraud

The Federal Trade Commission and charity regulators in 34 states have begun a campaign to crack down on fraudulent fund raising.

“Operation Phoney Philanthropy” is aimed at people who gull donors into contributing to charities supposedly set up to benefit police or firefighters and their families, veterans, terminally ill children, or other sympathetic causes, but who wind up keeping most of the money they raise.

“These scam artists undermine the public’s confidence in legitimate charitable fund raising and injure legitimate nonprofit organizations that are competing for charity dollars,” said Howard Beales, who directs the FTC’s Bureau of Consumer Protection.

The announcement came in the wake of this month’s unanimous U.S. Supreme Court decision that cleared the way for the State of Illinois to prosecute a telemarketer for fraud (The Chronicle, May 15). But an FTC spokeswoman said the campaign had been in the works for some time before the court’s decision was announced.

The federal agency has filed five legal actions against organizations and individuals who allegedly deceived donors by their fund-raising schemes. They include Community Affairs, a Florida fund-raising company with at least 75 nonprofit clients nationwide, including the Virginia Firefighters Foundation and the Texas Fraternal Order of Police; and West Coast Advertising & Marketing, a California fund-raising company whose clients include the Junior Police Academy and the American Veterans Network.

The FTC also has published information intended to help people and businesses avoid being duped by deceptive appeals.

The advice includes being especially wary of emotional appeals involving patriotism or current events and asking telemarketers the name of the charity and what percentage of the donation will go toward charitable activity.

More information about the FTC’s campaign is available at a new Web site, http://www.ftc.gov/charityfraud.

New State Laws

Other attempts to crack down on fraud are being made at the state level. The Vermont Legislature has passed, and the New Jersey Legislature is considering, separate measures to tighten regulation of charity fund raising.

The Vermont legislation bars professional fund raisers from restricting charities’ use of donor lists generated during a fund-raising campaign. It also requires charities that apply for grants or contracts from the state to disclose the percentage of gross receipts they get from any fund-raising campaign conducted on their behalf during the previous two years, as well as the minimum percentage of fund-raising receipts for which they have contracted in any current or known future campaign. And it requires paid fund raisers soliciting contributions by phone and following up by mail to make all relevant disclosures — that they are being paid, for example, and how prospective donors can get information on fund-raising costs from the state — both orally and in writing, rather than solely in the letter.

The New Jersey bill would require fund raisers to register with the state and would bar them from misrepresenting who would benefit from a donation, where the charity beneficiary is located, or the nature of its relationship with a government agency or emergency-services workers. It also would provide that proof of criminal convictions or civil judgments in other states could be the basis for legal action against a registered charity or professional fund raiser.