Foundations, Consumers Victimized by Growing “Free Cash Grant” Scam

By DEBRA E. BLUM

Disabled and on welfare, Bruce Eckelberry could not resist the magazine advertisement he saw a couple of years ago touting “free cash grants” from foundations across the country. He mailed $19.95 to the company that promised to match him with grant makers that might give him the $23,000 he needed to buy a trailer home and start a business.

Mr. Eckelberry, who has not had a job since he injured his back in 1988 working as a truck driver, received a list containing the names and addresses of more than 100 foundations that, the company said, would be most likely to provide him with the money. He sent grant requests to each of the organizations. But none offered him any money, and few, Mr. Eckelberry later found out, make grants or loans to individuals for any reason.

“It was all a farce,” says Mr. Eckelberry, who lives in Milaca, Minn. “I was out there asking for help, but I was really being taken advantage of.”

Mr. Eckelberry is not alone. Tens of thousands of consumers around the country have been duped over the last few years by a variety of companies that together are making millions of dollars touting what they call cash-free grants or grant-matching services. Similar businesses have cropped up before, but the scam appears to be spreading as a growing number of companies copy the lucrative efforts of others.

One grant-matching operation in New Jersey was collecting as much as $30,000 per week from consumers when a court ordered the company closed last summer pending a trial on federal fraud charges. The company, called Cash Free Grants, in East Windsor, N.J., had been charging people up to $49 apiece for foundation lists. A trial in the case has not yet been scheduled.

Law-enforcement officials have shut down at least three other grant-matching operations in the last two years — in Florida, Nevada, and Ohio. But similar companies continue to thrive, law-enforcement and foundation officials say.

“Suffice it to say that when you close down a scam in one place, another pops up somewhere else,” says Jane C. Nober, special counsel at the Council on Foundations, an association of grant makers in Washington. “It’s an easily replicable scam, and people are seeing others make money from it.”

Tarnished Reputations

Most foundations included on the grants lists give money only to nonprofit organizations, not to individuals, Ms. Nober says. But once the grant makers land on the lists, they may receive hundreds of appeals from people seeking money for a range of items including medical expenses and vacations. Overburdened by such requests, some foundations have begun using post cards and Web pages to tell consumers that they don’t make grants for personal expenses.

More troubling than the increased workload is the potential damage the scams could do to the reputation of the foundation world, grant makers say.

“There’s a concern that foundations might be tarred by association with these scams,” Ms. Nober says. “For the people who write to the foundations with a burst of hope, the foundation will be a source of disappointment for them. Also, these are desperate people who the foundations just plain feel bad about having to say no to.”

Federal laws do allow foundations to make grants to individuals within limits. And according to the Foundation Center, a research organization in New York that publishes a directory, Foundation Grants to Individuals, more than 3,800 foundations each make at least $2,000 in such grants annually.

But most foundation grants to individuals are for scholarships or fellowships intended for specific educational purposes. And recipients must meet a variety of specific criteria, such as being from a certain area or following a particular course of study. Only in rare instances do foundations make grants to needy individuals for broader charitable purposes, says Ms. Nober. And in those cases, she says, grant makers would probably limit the money’s use.

“A charitable purpose might be to buy furniture” for a destitute person, Ms. Nober says, “not the purposes, like going on vacation, advertised in those scams.”

Indeed, a typical advertisement — in a magazine, in a direct-mail solicitation, or on the Internet — for one of the grants operations leads consumers to believe foundations regularly give away wads of cash to people for almost any purpose.

For example, an appeal from a now defunct Ohio company stated, “Foundations give away billions of dollars every year to individuals.” And, the ad told consumers, “you may obtain the money to pay off bills, go on vacation, meet emergency needs or to buy anything that you might need, as long as the foundation agrees to it.”

Like ads for similar businesses, the Ohio company’s ad also stated that most people who use its services go on to get foundation grants. And it included a promise to refund customers’ money if they don’t get such grants.

But, say foundation lawyers and government officials, many of the ads make false or deceptive claims, and thus may violate federal mail- and wire-fraud laws, as well as a host of federal, state, and local criminal statutes.

Legal Charges

In Mr. Eckelberry’s case, the State of Minnesota stepped in to charge the company whose ad he had answered. State officials said the company falsely claimed it would match consumers with foundations according to the consumers’ financial needs.

The ad, from a Florida company called Grant Finders, stated: “As a Financial Finder & Matching Service, we’ll review your service application form and determine which foundations may be most likely to provide you with the money that you need.” On a short application form, Mr. Eckelberry explained that he would use a grant to pay for a home course in small-appliance repair, to buy tools and supplies, and to buy a small trailer home with space for a workshop.

But, according to a 1999 lawsuit filed against the company by the Minnesota attorney general’s office, instead of receiving a foundation list tailored for him, Mr. Eckelberry received the same list that the company sent to all its customers. Moreover, the suit says, most of the foundations on the list do not make grants to individuals for personal use.

Andrew Messiana, of Fort Lauderdale, Fla., who ran Grant Finders and a Nevada company, Premium Publications, made a court-approved agreement with the State of Minnesota last year, agreeing to refund Minnesota residents any fees they had paid to the companies, and to shut down both operations. The companies were found to have violated state laws barring consumer fraud, false advertising, and deceptive trade practices.

Law-enforcement officials in New Jersey made similar charges in the federal lawsuit filed against Cash Free Grants. The state’s U.S. attorney’s office alleged that the company violated federal mail- and wire-fraud laws by making claims to consumers “with intent to defraud or with reckless disregard for the truth.”

The suit said, for example, that the company made unsubstantiated claims in its advertisements, such as that there “is a much higher percentage of approval for Cash Grants from Private Foundations than in most local banks for a small loan.” The suit also said that despite guarantees, consumers were unable to receive refunds.

The husband-and-wife team that ran the grants business in Ohio, also called Cash Free Grants but unrelated to the New Jersey operation, was scheduled to be sentenced in Lorain County, Ohio, court this week. The couple, Larry R. and Carol Hensley, of the city of Lorain, each pleaded no contest to charges of engaging in a pattern of criminal activity and possession of criminal tools. Together, the charges carry a maximum sentence of 10 years in jail.

Of the ads that the couple ran touting their business, Lisa I. Swenski, the Hensleys’ lawyer, says: “There are some people who see them and say, What is the problem? Other people jump up and down and say, You’re trying to cheat me.”

She says that the company was true to its claims, and even refunded the money of more than 300 consumers who said they did not receive grants. She allows, however, that not all consumers received a customized foundation list, as promised, because the company could not keep up with the number of orders it received.

Federal Action

Along with the action by law-enforcement officials in several states, the Federal Trade Commission may be taking a broad look at grant-matching businesses around the country.

Tracy Thorleifson, a lawyer in the commission’s Seattle office, said that the Council on Foundations had forwarded to the commission thousands of appeal letters received by foundations from people who apparently purchased materials from grant-matching businesses. Ms. Thorleifson would not confirm whether her office was pursuing an investigation, but she said that some of the operations appear to violate federal laws that bar businesses from making false or deceptive claims to consumers.

The Fraser-Parker Foundation is among those that forwarded appeal letters to the Council on Foundations.

A small family foundation in Atlanta that gives away about $1-million each year, almost exclusively to Georgia charities, Fraser-Parker found itself on a list sold by the Hensleys’ company. Since the foundation does not, as a policy, make any grants to individuals, even for scholarships, foundation officials were alarmed when the organization started receiving about five letters a week from people telling their hard-luck stories and asking for money.

John W. Stephenson, Fraser-Parker’s executive director, says that not only was the number of appeals suspicious, but so, too, was the similarity of the letters.

“They all told their own sad story, but it was obvious they were all produced under the guidance of one of these operators because they all started off by saying something like: ‘It’s come to our attention that you give cash-free grants,’” Mr. Stephenson says. “That’s the odd phrase that these scam artists have come up with: cash-free grants.”

The Fraser-Parker Foundation ended up receiving about 60 such letters. Other grant makers have been inundated with hundreds of appeals after landing on a company’s list.

The Maytag Corporation Foundation, the philanthropic arm of the Maytag Corporation in Newton, Iowa, for example, has received 500 grant requests — so many that the fund has printed a special post card to send back in response, explaining that it doesn’t give money to individuals.

The W.K. Kellogg Foundation, in Battle Creek, Mich., had heard from so many people who had apparently purchased phony foundation lists that, about a year ago, it put a special notice on its Web site. The notice says that the claims that some grant-matching businesses make — such as that consumers can receive thousands of dollars within hours of applying to a foundation — “are grossly overstated.” As for Kellogg, it says, the foundation “awards grants to nonprofit organizations and not to individuals.”

Nike Speltz, a senior program officer at the New Hampshire Charitable Foundation, in Concord, worries about the scams’ impact on both consumers and foundations.

“People with seriously sad problems who can least afford it are being tricked into investing money, time, energy, and hope into something that is utterly impossible,” she says, noting that her foundation, which gives grants only in New Hampshire, has received appeals from people around the country. “It’s like offering phony cures for a disease.”

In addition, Ms. Speltz says, the scams “can have an impact on a foundation’s credibility because people can’t sort out false and misleading information from accurate information.

“People are having bad experiences with foundations,” she says, “and may not know we are being used, too.”