FTC Announces Crackdown on Fraudulent Servicemember Charities

The FTC has announced a regulatory sweep of fraudulent charities that falsely claim to raise money for veterans and servicemembers.  The crackdown is focused upon deceptive schemes that con consumers by falsely promising that their donations will help military members.

State Attorneys General (AGs) have been, and continue to be quite active when it comes to such scams.  Areas of inquiry often include corporate structure, whether funds were actually disbursed to veterans’ organizations, the amount of funds actually disbursed to veterans’ affairs organizations, consumer complaints, advertising claims and disclosures,

Regulators are laser focused on entities created almost entirely to provide profits for the individual defendants and the for-profit fundraisers they hired.  Often, telemarketers falsely claim that the money they are raising will support the families of soldiers fighting overseas.  Bogus operations are often not connected to genuine non-profits.  Often, defendants misrepresent that donations will go to a legitimate charity and tout non-existent programs.  False affiliations with military programs and the government are a regulatory favorite, as are mailed notices to consumers stating they have made pledges.

The Federal Trade Commission, along with law enforcement officials and charity regulators from 70 offices in every state, the District of Columbia, American Samoa, Guam and Puerto Rico have now disclosed more than 100 actions and a consumer education initiative in “Operation Donate with Honor.”  

“Americans are grateful for the sacrifices made by those who serve in the U.S. armed forces,” said FTC Chairman Joe Simons.  “Sadly, some con artists prey on that gratitude, using lies and deception to line their own pockets. In the process, they harm not only well-meaning donors, but also the many legitimate charities that actually do great work on behalf of veterans and servicemembers.”

One defendant charged with violating the FTC Act, the FTC’s Telemarketing Sales Rule and state laws will be banned from soliciting charitable contributions under settlements with the FTC and the states of Florida, California, Maryland, Minnesota, Ohio and Oregon, for falsely promising donors their contributions would help wounded and disabled veterans.  the order imposes a judgment of $20.4 million, which represents consumers’ donations from 2014 through 2017.  The judgment will be partially suspended when the defendant has paid a charitable contribution to one or more legitimate veterans charities recommended by the states and approved by the court. 

Another defendant has been charged with using fake veterans’ charities and illegal robocalls to get people to donate cars, boats and other things of value, which he then sold for his own benefit.  the defendant allegedly made millions of robocalls asking people to donate automobiles, watercraft, real estate, and timeshares, falsely claiming that donations would go to veterans charities and were tax deductible.  The defendant here is charged with violating the FTC Act and the FTC’s Telemarketing Sales Rule.  A federal court issued a TRO prohibiting the defendant from making unlawful robocalls or engaging in misrepresentations about charitable donations while the FTC’s enforcement action is proceeding.

State actions announced include allegations that charities and fundraisers sought donations online and via telemarketing, direct mail, door-to-door contacts and at retail stores, falsely promising to help homeless and disabled veterans, to provide veterans with employment counseling, mental health counseling or other assistance, and to send care packages to deployed servicemembers.  Some actions charged veterans charities with using deceptive prize promotion solicitations.  Others targeted non-charities that falsely claimed that donations would be tax deductible.  Some cases focused on veterans charities engaged in flagrant self-dealing to benefit individuals running the charity, and some alleged that fundraisers made misrepresentations on behalf of veterans charities or stole money solicited for a veterans charity. 

Last year, the FTC and the National Association of State Charities Officials hosted a workshop that brought together regulators, researchers, charity watchdogs, donor advocates and members of the nonprofit sector.  Discussions focused on how people evaluate and respond to various charitable solicitation practices and the role of consumer protection.

FTC guidance, which has all but foreshadowed the recent crackdown announcement, includes donating to trusted charities, avoiding charities that have sprung up overnight, do not assume social media messages are accurate and inquire with the charity is registered.

In 2009, the FTC announced a nationwide, federal-state crackdown on fraudulent telemarketers claiming to help police, firefighters, and veterans.  The FTC was joined by 49 stated in bringing 79 actions against fraudulent solicitors nationwide.  These included two FTC actions against alleged sham non-profits and the telemarketers who made deceptive claims about these so-called charities. 

FTC compliance and defense lawyer Richard Newman will continue to monitor this story.

Richard B. Newman is a regulatory litigation and defense attorney at Hinch Newman LLP focusing on local, state and federal advertising and digital media matters. Follow him on Twitter @FTCLawDefense.

Informational purposes only. Not legal advice. Always seek the advice of an attorney. Previous case results do not guarantee similar future result. Hinch Newman LLP | 40 Wall St., 35th Floor, New York, NY 10005 | (212) 756-8777.

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