Fund-Raising Company to Pay $400,000 to Settle Dispute With 19 States

Nineteen states have agreed to a $400,000 settlement with a fund-raising company accused of using deceptive marketing techniques in direct-mail solicitations sent on behalf of more than 30 charities, according to statements released by attorneys general from several of the states.

Officials at Newport Creative Communications, in Duxbury, Mass., which from 2001 to 2005 sent thousands of solicitations containing sweepstakes promotions, deny any wrongdoing. State officials say the sweepstakes promotions were misleading because they implied that recipients had already won and only needed to make a donation to receive a prize, but the company in most cases paid out no prize money.

“Commercial fund-raising firms that solicit donations must employ tactics that do not deceive consumers or the charities they represent,” said Bill Lockyer, the California attorney general, in a statement. “This agreement will ensure that Newport’s future solicitations are not misleading.”

The president of Newport Creative Communications said his company’s sweepstakes mailings were not deceptive and did not violate state laws.

The states “were saying that the overall impression of the pieces was that the consumer had already won, and we simply disagree with that,” said John Pannell, president and founder of Newport. The company has agreed not only to pay $400,000, but to make changes in its future sweepstakes mailings.

Two Approaches

Winners of sweepstakes are generally determined in one of two ways: An entry is randomly selected after the contest, or an entry is chosen by a third party before mailings are sent out. When a winner is chosen before the mailings are sent, sweepstakes are not required by federal law to disburse prize money if the winning entry is not returned.

Mr. Pannell said that language used in the mailings made clear that the sweepstakes winner had been selected before the mailing was sent out.

As part of the settlement, Newport Creative Communications also agreed to distribute a prize to a randomly selected winner once a month if the winning entry is not returned by the recipient. As a result of this change, Mr. Pannell said, the company has already lost charity clients to other fund-raising companies that do not face such a requirement. The settlement, he said, “created an unlevel playing field.”

Mr. Pannell said he agreed to the settlement to avoid the expense of “taking on 19 states.” He added, “Not only was it the expense, but we also wanted to get on with our business.”

A statement released by the Pennsylvania attorney general’s office said the mailings urged recipients to return the enclosed entry form to the charity named in the promotion.

Those who returned an entry form typically included a $5 or $10 donation to the named charity. Most of the groups that hired Newport Creative Communications to send sweepstakes mailings were health and social-services groups.

Mr. Pannell said the mailings included explanations in three places that no donation was required to participate in the sweepstakes. He said about 40 percent of the returned entry forms did not include a donation.

“We really thought we had cooperated with the states to the nth degree,” said Mr. Pannell. “We thought there would be a much more friendly resolution.”

The $400,000 penalty fee paid by the fund-raising consulting group will defray costs of the investigation into the sweepstakes mailings and finance consumer-protection efforts. The company also agreed that its mailings would not suggest that a government entity, such as the Internal Revenue Service or the U.S. Postal Service, had approved the solicitation.

In addition to California and Pennsylvania, the states that agreed to the settlement were Arkansas, Kentucky, Massachusetts, Michigan, Minnesota, Montana, Nevada, New Jersey, North Carolina, Ohio, Oregon, South Carolina, Tennessee, Texas, Virginia, Washington, and Wisconsin.