A Tennessee man and his family used much of the $187 million it collected for cancer patients to buy themselves cars, gym memberships and luxury cruise vacations, pay for college tuition and employ family members with six-figure salaries, federal officials alleged Tuesday in one of the largest charity fraud cases ever, involving all 50 states.
The joint action by the Federal Trade Commission and the states says James T. Reynolds Sr., his ex-wife and son raised the money through their various family-run charities: The Cancer Fund of America in Knoxville, Tennessee, and its affiliated Cancer Support Services; The Breast Cancer Society in Mesa, Arizona; and the Children's Cancer Fund of America in Powell, Tennessee.
The charities billed themselves as offering financial aid and other support to cancer patients, including pain medication and hospice care.
But little money made it to cancer patients, as the groups "operated as personal fiefdoms characterized by rampant nepotism, flagrant conflicts of interest, and excessive insider compensation" with none of the controls used by bona fide charities, the FTC said Tuesday.
Officials hailed the enforcement action as a warning sign to charity scams. But under settlement agreements with Reynolds' son, ex-wife and a longtime associate of the family — Kyle Effler — that bans the three from fundraising and shuttered their organizations, little of the money could be recouped because it's already been spent.
Litigation against Reynolds Sr. and Cancer Fund of America is ongoing.
None of the groups returned phone calls and emails asking for comment. Attempts to reach family members at home by telephone were unsuccessful.
The Breast Cancer Society, which agreed to cease operations as part of the settlement agreement, posted a lengthy statement online Tuesday attributed to its executive director — Reynolds' son, James T. Reynolds II — that blamed increased government scrutiny for the charity's downfall.
"While the organization, its officers and directors have not been found guilty of any allegations of wrongdoing, and the government has not proven otherwise, our board of directors has decided that it does not help those who we seek to serve, and those who remain in need, for us to engage in a highly publicized, expensive, and distracting legal battle around our fundraising practices," according to the statement.
Reynolds Sr. identified himself as president of the Cancer Fund of America. The fund's website said he served in the U.S. Army Medical Corps for 12 years and attended Brigham Young University. The website appeared to be down Tuesday ahead of the FTC announcement.
Reynolds' ex-wife, Rose Perkins, ran the Children's Cancer Fund of America. That group's website also was taken down.
According to the complaint, the organizations hired telemarketers and used direct mail to solicit donations they said would provide support for cancer patients, such as providing patients with pain medication, transportation to chemotherapy visits and hospice care. Instead, cancer patients received little while the group's executives bought "cars, trips, luxury cruises, college tuition, gym memberships, jet ski outings, sporting event and concert tickets, and dating site memberships." Professional fundraisers hired to raise money often received 85 percent or more of every donation, according to the FTC.
To hide their high administrative costs from donors and regulators, the groups filed public financial documents saying they had taken in more than $223 million "gifts in kind," which would be distributed to international recipients. Investigators say that number was inflated and helped to create the illusion that the groups were being more efficient with donated money than they actually were. According to the FTC, 36 states alleged that the defendants filed "false and misleading" financial statements with state charities.
The settlement agreement imposed hefty judgments based on the amount of money donated to the charities between 2008 and 2012. But because of Perkins' "inability to pay," her $30 million judgment would be suspended entirely. The $65.5 million judgment against Reynolds II would be suspended after he pays $75,000.
Effler, former president of Cancer Support Services, faced a $41 million judgment that would be forgiven after paying $60,000.
For more about what you should know before donating to a charity, visit the FTC website.