California Attorney General Sues Charities, Directors & Fundraisers

From a May 29, 2009 news release from the Office of the Attorney General:

As part of a nationwide crackdown on fraudulent charities, Attorney General Edmund G. Brown Jr. is filing today eight lawsuits against 53 individuals, 17 telemarketers and 12 charities that "shamelessly exploited" people's generosity and squandered millions of dollars of donations intended to help police, firefighters and veterans. 

Brown's suits are intended to permanently stop the charities' deceptive practices and require the repayment of all funds raised under false pretenses. Brown is seeking involuntary dissolution of eight of the charities. 

"These individuals shamelessly exploited the goodwill of decent citizens trying to help police, firefighters and veterans," Brown said. "In point of fact, a shockingly small portion of donations went to those in need, while millions went to pay for aggressive telemarketing and bloated overhead – and in one case – to purchase a 30-foot sailboat." Brown filed these suits in conjunction with the Federal Trade Commission and 48 other states as part of a nationwide sweep called "Operation False Charity."

See more about Operation False Charity at the FTC site here.

The California Attorney General's suit against one charity, Law Enforcement Apprenticeship Program ("LEAP"), its directors, and its fundraisers, contends that they:
  • Conspired to defraud donors.
  • Engaged in unfair business practices in violation of Business & Professions (B&P) Code Sec. 17200. 
  • Failed to use contributions for the purpose solicited in violation of B&P Code Sec. 17510.8.
  • Made illegal distributions in violation of Corporations Code Sec. 5237. 
  • Knowingly filed false public documents in violation of Corporations Code 6215. 
  • Failed to keep corporate books and records in violation of Corporations Code 6320.  

While the case against LEAP may be based on egregious violations, there are lessons here for other charitable nonprofits:

  • Spend a significant amount of funds raised in furtherance of charitable purposes stated in the organization's governing documents and solicitation materials. 
  • Do not loan funds or otherwise improperly distribute funds to directors.
  • Keep accurate corporate books and records. 
  • File accurate information returns.