Part 2: A failure of regulation

Four years ago, charity regulators in 38 states banded together to take down one of the most deceptive charity solicitors in America.

In an unusual show of force, they marshaled resources from across the country and targeted Community Support Inc.

An investigator in Iowa posed as a donor and secretly recorded calls coming from boiler room operations around the country. Investigators in Missouri spent five months digging through the company’s records.

Again and again, they found evidence that the company’s employees were lying to donors. Phone operators exaggerated how much money would get to the needy and falsely promised help would go to people nearby, regulators said.

More than 30 boxes were seized from a telemarketing company as part of an investigation by the Iowa attorney general.

Credit: Kendall Taggart / The Center for Investigative Reporting

When it was all done, state officials levied a $200,000 penalty and hoped they had sent a message to the charity industry.

The effort failed.

Within months, the same people who had built Community Support into a multimillion-dollar business had moved on to a new telemarketing company. Boiler room workers were once again dialing unsuspecting donors on behalf of America’s worst charities and collecting huge fees for their services.

In a few short years, the new telemarketer was collecting millions of dollars annually on behalf of many of the same charities that had benefitted from Community Support’s lies.

This is how charities and their for-profit solicitors are regulated in America.

Unscrupulous operators collect hundreds of millions of dollars each year while fooling donors. When they get caught, they have little to fear, even if regulators try to shut them down. They simply reopen in another place or under a new name, leaving regulators none the wiser.

The Tampa Bay Times and The Center for Investigative Reporting interviewed regulators in more than 20 states and took the first national accounting of actions against charities and solicitors by piecing together documents from across the country. Of more than 8,000 violations, reporters identified about 1,000 serious cases and tracked what happened to the offenders in many of them.

Among the findings:

  • More than 35 charities and their hired solicitors have been caught breaking the rules multiple times but continue to take money from donors. The most frequent violators have been cited five times or more. One solicitor has been cited 31 times and is still in business.
     
  • Bans issued by state regulators are meaningless. Over the past decade, at least a dozen solicitation companies and charities have been forced out of one state only to continue raising donations elsewhere.
     
  • State regulators make it easy for operators to start over. Instead of targeting individuals, they often ban only the charity or the fundraising company, leaving executives free to move to a new organization. Regulators have not created a national list to track charity violators or a formal system to share information.
     
  • Charity regulation offices nationwide are consumed with paperwork. They collect reams of information on charities but don’t analyze it for signs of fraud. Florida has issued hundreds of fines for late paperwork but has blocked only a handful of charities from soliciting in the state over the past decade.
     
  • When states do take action, they typically issue a small fine and require no admission of guilt, even for the worst offenders. The most common penalty is $500, a small price for organizations that collect millions.

Most reputable charities raise money using their own employees. They don’t rely on professional solicitors, whose profits are dictated by the success of cold calls to potential donors.

Charities that do rely on telemarketers direct millions of dollars annually away from worthwhile causes and into their fundraisers’ pockets.

The Times and CIR spent a year identifying the 50 worst charities in America based on the enormous sums they divert to for-profit solicitors.

Over the past decade, these charities have relied on deception to generate more than $1.3 billion in donations. About 75 percent went to pay charity executives and the solicitors who raise the donations.

While most charities never run afoul of regulators, three-quarters of the charities on the Times/CIR list have been cited at least once.

Eight of the 50 have been banned in at least one state but continue collecting donations elsewhere.

Repeated efforts to crack down on high-cost solicitors and to stop fraudulent organizations from moving to another state have failed. In part that’s because well-respected charities have lobbied to prevent stricter regulations.

More than a decade ago, several states tried to pass rules to limit how much money charities could pay to professional solicitors. That would have given regulators a clear-cut way to go after the worst offenders.

But in 2003, more than 200 charities, including the American Heart Association, Easter Seals and the National Wildlife Federation, supported arguments before the U.S. Supreme Court to prohibit states from limiting how much a charity can pay its solicitation companies.

The court, citing First Amendment free speech rights, agreed, preventing states from implementing a powerful enforcement tool.

“The laws are so weak in this area that when you finally get someone it’s pretty much a slap on the wrist,” said Dean Zerbe, who investigated charities while he was senior counsel for the U.S. Senate Finance Committee. “It’s probably the most frustrating part of it. There are some really bad actors, and when you finally bring the book on them, they’re back at it.”

Hard to tell who’s in charge

The Internal Revenue Service grants charities their tax-exempt status and can audit their annual financial filings. Once charities start raising money, oversight is largely left to the states. The system is so fractured it’s difficult to know who is in charge.

In Pennsylvania, it’s the Department of State; in California, the attorney general. Florida leaves its charity regulation to the Department of Agriculture and Consumer Services. Texas has two different departments enforcing three different statutes that only apply to certain types of charities.

The rules from state to state are even harder to follow.

At least 39 states and the District of Columbia require charities or professional solicitors to register before they start collecting donations. Twenty-three states require charities to undergo an annual audit.

In at least 20 states, charities must report the results of every solicitation campaign run by a professional telemarketer.

Some states ban these telemarketers from hiring anyone convicted of a financial crime. And a few force telemarketers to file copies of their phone scripts, to make sure the pitches don’t mislead donors.

But every state agency’s authority ends at the state line, leaving them ill-equipped to stop bad charities, which typically operate on a national scale.

The IRS could do more.

Some charity experts say the federal agency does not aggressively go after fraudulent nonprofits because they don’t pay taxes. That means cases against them don’t generate revenue.

The IRS has been more reluctant to take on charities for high fundraising costs because such cases are difficult to win, experts say.

“There’s a great vacuum out there when it comes to the regulation of charities,” says Paul Streckfus, a tax attorney who worked for the IRS.

Credit: Courtesy of Leonard Streckfus

As a result, regulation falls largely on a patchwork of state agencies, said Paul Streckfus, a tax attorney who worked for the IRS.

“The IRS needs somebody at the top with real guts, who says, ‘It’s my responsibility to weed out this corruption,’ ” Streckfus said. “There’s a great vacuum out there when it comes to the regulation of charities. And there’s no evidence there will be any improvement.”

IRS officials would not comment on how their agents monitor charities. Citing financial privacy laws, they also declined to provide the names of charities that lost their tax-exempt status because of fundraising abuses.

Hard to stop bad charities

To chart how charities are regulated, the Times and CIR went state by state, examining laws and interviewing authorities across the country.

Reporters also asked regulators in each state to provide a list of disciplinary actions taken against charities and solicitation companies.

Regulators in 38 states had no such list. Many of them said the only way to identify charities that had been cited was to look at old press releases and comb through newspaper reports.

These states offer donors no way to check on past violations. As a result, the public continues giving blindly to the nation’s worst charities.

The Times and CIR pieced together the available information going back at least a decade to create the first public database of regulatory actions against charities and their fundraisers.

It contains more than 8,000 actions involving everything from minor paperwork violations to outright fraud.

And it reveals what state regulators have been missing: An operator’s ability to stay in business despite multiple actions is a chronic problem.

Earlier this year, the Iowa attorney general’s office began secretly recording calls from Telequal, an Iowa company that runs a boiler room on behalf of charities.

In one of those calls, a Telequal employee tried to persuade an undercover investigator to donate to Youth Development Fund – No. 12 on the Times/CIR list of America’s worst charities.

Listen to a pitch

Iowa's attorney general, Tom Miller, called this a "highly deceptive pitch" and used it as evidence to try to shut down Telequel, a telemarketing firm. 
Credit: Audio courtesy of the Iowa attorney general's office     

Over the past decade, Youth Development Fund has paid nearly 83 cents of every dollar raised to its for-profit solicitors, IRS tax filings show. About $230,000 has been given directly to those in need.

Instead of noting the meager amount of cash given to the needy, Telequal’s solicitor told the undercover donor that “a lot” of money went to children.

Iowa regulators called the solicitation misleading and accused Telequal of routinely trying to fool donors. In April, a judge banned Telequal and its president, Travis Held, from ever again soliciting in Iowa.

But Held stayed one step ahead of regulators.

A month before the ban, he had moved his operation to Plymouth, Ind., and formed a new telemarketing company, Held Marketing.

Held declined to comment for this story.

The Times and CIR found similar stories across the nation, in Indiana, Oregon, Alabama and Florida.

In each case, unscrupulous solicitors were banned in one state but continued raising donations in others.

Back in business

The solicitor's shuffle: Create, collect, repeat

The solicitor's shuffle:
Create, collect, repeat

1989

Mark Gelvan launches All-Pro Telemarketing Associates in New Jersey.

1993-96

State and federal regulators bring three cases against Gelvan and All-Pro, claiming his employees pretended to be affiliated with the state police and lied to donors about whether they had given previously. He does not admit wrongdoing.

2002

New York’s attorney general sues Gelvan and All-Pro, alleging they fraudulently collected more than $5 million in charitable donations.

April 2, 2003

Gelvan’s father-in-law, a 71-year-old home health nurse, incorporates a new telemarketer, Community Support Inc., with Thomas Berkenbush. Many of Gelvan’s charity clients sign contracts with the newly formed company.

January 2004

As part of a settlement agreement with the New York attorney general, Gelvan is banned from raising money for charity in that state. He does not admit wrongdoing.

May 2009

Charity regulators in more than 30 states reach a settlement agreement with Community Support after accusing its employees of lying to donors during fundraising calls. Berkenbush does not admit wrongdoing but agrees to a $200,000 fine and other sanctions that state officials believe will shut down Community Support. Gelvan is not scrutinized.

September 2009

Outreach Calling, another new telemarketing company, incorporates in Nevada. The president listed in documents is an aspiring actor and telemarketer who previously had done business with Gelvan. Gelvan begins transferring charity clients.

Today

Outreach Calling has worked with one-third of the charities that previously did business with Community Support. It has grown to a more than $3 million-a-year operation.

The case against Community Support was supposed to be different. Instead of one state acting alone, regulators from 38 states joined together.

They pieced together dozens of complaints from people across the country who said telemarketers called them at home repeatedly and lied to get their money. The most common problem: Solicitors falsely claimed donors had previously given to the charity.

Investigators relied heavily on recorded conversations made in Iowa, where a secretary in the attorney general’s office had for years pretended to be a potential donor.

She had been secretly recording hundreds of calls from solicitors across the nation, including those from Community Support.

In those calls, telemarketers for the company claimed 80 percent of donations for various causes would go to the charity. The reality was closer to 20 percent.

With lies caught on tape, the investigation culminated in spring 2009 with settlement talks at the state attorney general’s office in Kansas City, Mo.

Representatives from the Federal Trade Commission, Texas, Iowa and Missouri sat across the table from Thomas Berkenbush, the man listed on contracts as the company’s president. Regulators from more than 20 states listened in by phone.

Berkenbush admitted no wrongdoing but agreed to pay a $200,000 fine. He also agreed to submit to aggressive new reporting requirements. Regulators thought the rules would be so onerous that Community Support would be forced to shut down.

It was a three-hour meeting. When it ended, regulators went out for barbecue.

“The goal was to put the organization down, and we did do that,” said Hugh Jones, the chief charity regulator in the Hawaii attorney general’s office.

But the action against Community Support proved meaningless.

Within months, at least one-third of Community Support’s charity clients had migrated to a new telemarketing company, Outreach Calling.

The men behind this seamless transition included Mark Gelvan.

Officially, Gelvan has nothing to do with Community Support or Outreach Calling.

But he has been a puppet master behind the scenes of both companies for nearly a decade. By acting as a broker and consultant, Gelvan operates outside regulators’ view.

He dropped out of sight in 2004 after New York’s attorney general banned his telemarketing company from raising money in that state.

Just as Gelvan’s company came under scrutiny, his 71-year-old father-in-law, a longtime home health aide, launched Community Support.

Gelvan arranged contracts between many of his old charity clients and his father-in-law’s company.

Then, when regulators went after Community Support, Gelvan started moving charity clients to Outreach Calling, another newly formed solicitor started by an associate.

Damian Muziani, the owner of Outreach Calling, is an aspiring actor and a telemarketer who had done business with Gelvan years prior.

With Gelvan steering clients there, Outreach Calling became a multimillion-dollar operation in its first three years.

Muziani, who said he is the sole shareholder of Outreach Calling, lives in an apartment above a New Jersey liquor store next to one of his company’s offices, a store clerk said. According to his website, Muziani was once a contestant on NBC’s dating show “Average Joe,” and he played a fugitive in an episode of “America’s Most Wanted.”

Gelvan, who owns a $2.6 million gated home less than an hour outside Manhattan, said he has no ownership interest in Outreach Calling. Over the years, he said, he has advised many charity operators looking for a telemarketer. He said he often gave them a list of several options.

But three charity operators said Gelvan was their primary contact when dealing with Outreach Calling and that he gave them the impression he owned the company. All three said they had never heard of Muziani or had met him only once.

Jacqueline Gray, president of Woman to Woman Breast Cancer Foundation in Lauderdale Lakes, Fla., showed reporters a document from 2010. It was signed by Gelvan on Community Support letterhead. She said Gelvan also handled her transfer from Community Support to Outreach and gave her a tour of its phone room in New Jersey.

In addition, New York’s attorney general stated that “Outreach Calling is run by Mark Gelvan” in a 2011 complaint filed against one of the telemarketer’s clients. New York officials declined to provide additional information.

Gelvan calls himself a “service provider to the nonprofit and for-profit sectors.”

His company acts as a one-stop shop for fledgling charities, creating their marketing materials, lining them up with telemarketers, even arranging startup funding when necessary. In return, the company gets exclusive rights to direct their fundraising and gets a cut of every donation.

Berkenbush, the president of Community Support when regulators went after the company, now works at Gelvan’s consulting firm. Gelvan’s company does not report to a single regulator.

Ignoring violations

Charities play the same game as their solicitors, changing names and moving their fundraising efforts from state to state to survive run-ins with regulators.

Since 1992, Phil LeConte and David Dierks have run three police charities and been sued by regulators in at least six states, including Illinois, Ohio and Massachusetts.

States accused charity employees of falsifying documents and overstating charitable deeds. Telemarketers went as far as pretending they were police officers to raise money, according to complaints filed by California and Illinois.

In 2010, California Gov. Jerry Brown, the state’s attorney general at the time, banned LeConte and Dierks’ Police Protective Fund from raising money in the state.

A Police Protective Fund telemarketing office in Florida buzzes with activity. In 2010, California’s attorney general banned the charity from raising money in the state.

Credit: Douglas R. Clifford / Tampa Bay Times

But it made no difference. Today, Police Protective Fund runs its own boiler room operations, raising money in seven other states, including Florida. It collects $6 million a year – as much as it did before it was forced to stop calling California residents.

From 2001 to 2010, Police Protective Fund raised $50 million and spent more than $14.5 million on outside soliciting companies. It spent an additional $27.7 million on in-house fundraising efforts, including its own telemarketing boiler rooms.

California widely announced its action against the charity, notifying other attorneys general offices around the country, including Florida’s. But that message was not always passed to the people who monitor charities day to day.

In Florida, that’s the Department of Agriculture and Consumer Affairs. Officials there say no one from California or the Florida attorney general’s office told them about the ban, even though Police Protective operates all five of its call centers in Florida, four of them in the Tampa Bay area.

These charity-run boiler rooms are tucked behind unmarked doors in low-rent, mostly vacant strip centers. During a visit to one earlier this year, reporters saw about 20 men sitting at long tables, hunched over computers and wearing headsets. Working to raise enough money to hit bonus levels scrawled out on a whiteboard, they asked donors to give to help the families of officers killed in the line of duty.

Police Protective Fund’s Florida operations were ignored by state regulators until 2010.

That year, a local sheriff’s office fielded a complaint and raided one of the charity’s phone rooms in Port Richey.

According to the Pasco County Sheriff’s Office report, deputies found that 11 of the 27 employees who were calling for donations and taking down credit card numbers were convicted felons.

Florida law bars telemarketers from hiring felons who have been convicted of fraud, theft or other financial crimes. When officials at the Department of Agriculture and Consumer Affairs were confronted with the potential violation, they did nothing.

Instead, they closed the case. They said they had no authority to run criminal background checks on employees of the charities they are supposed to monitor.

The Agriculture Department warned Police Protective Fund not to hire felons, but it did not follow up to ensure workers with convictions for grand theft and burglary were dismissed.

Erin Gillespie, Agriculture Department spokeswoman, said there was no follow-up because “no one has lodged a complaint.”

In fact, at least four complaints about Police Protective Fund have been received by Florida Attorney General Pam Bondi’s office since 2010. They were not passed on to the Agriculture Department.

A retired police officer in Maryland asked regulators to investigate the organization after he was solicited. A North Carolina woman complained that Police Protective Fund had fraudulently obtained her 95-year-old mother’s personal information and charged her credit card.

It was only after the Times and CIR began asking questions in April that Florida regulators acted. Gillespie said the Agriculture Department has asked Police Protective Fund for a list of its employees so it can check their backgrounds. That investigation is pending.

David Dierks, of the Police Protective Fund, said the group has provided information requested recently by Florida regulators. He said the Florida law would only apply to telemarketing employees calling numbers in Florida. Although the charity solicits Florida residents, the call center that was raided only calls outside of the state, Dierks said.

“To my knowledge the Sheriff’s Department found nothing of concern during their 2010 visit as no action was taken or requested by them as a result of that visit,” he said.

Drowning in paper

Regulators in some of the nation’s largest states say they don’t have enough bodies to seek out and stop bad charities.

In Florida, Agriculture Commissioner Adam Putnam is supposed to regulate everything from fair rides to propane tanks, as well as 16,500 charities and 120 professional solicitors.

The office has the equivalent of about 25 people overseeing charities, with half handling registration issues, and three investigators. Putnam’s spokeswoman said the department has revoked the solicitation licenses of only a handful of entities over the past decade.

In New Jersey, where Mark Gelvan is based, the attorney general's office has the equivalent of 11 employees responsible for overseeing 25,000 charities. New Jersey has banned two for-profit solicitors and 12 individuals over the past decade.

“People out there are overwhelmed and dejected. They’re trying to keep up,” said Ed Shevenock, a former senior charity investigator with the Pennsylvania Department of State.

Though more states are now requiring charities and solicitors to file reports electronically, for decades they have spent the vast majority of their resources handling paperwork. The same basic information is sorted, filed and sometimes typed into computers by hand in state after state, until hundreds of thousands of pages become millions.

The sheer volume is on display in California, where office workers at the Registry of Charitable Trusts spent more than four years scanning 5 million paper documents into computers.

The office has been described by lawmakers as a massive filing cabinet. Today, about a dozen clerks spend their days sorting, scanning and cataloging 1.2 million pages every year filed by nearly 230,000 charities and fundraisers registered to do business in the state.

The regulatory office has 11 lawyers and eight auditors to keep up with the never-ending onslaught. Although the office says it has opened dozens of cases in the past 18 months, few enforcement actions have come of it. In the past year, the state has taken one legal action against a charity.

A soft-spoken prosecutor in Iowa has done far more with a staff of four. Steve St. Clair has worked in the attorney general’s consumer protection division in Des Moines for 26 years and still arrives at the office each morning around 7.

More than a decade ago, he trained his secretary to run miniature sting operations. She answers solicitation calls and records what telemarketers say.

That work has allowed the state to ban 14 operations in the past 10 years. That’s more than many states with far more resources.

While other states might not be able to replicate Iowa’s success, there are steps they could take to become more effective.

Experts say fines could be increased so that they become deterrents, not just a cost of doing business.

States could formally share information on troublesome charities and solicitors, just like they share driver history records and information on physicians who have been disciplined.

Some regulators have advocated using the wealth of paperwork they accumulate to identify potential fraud.

Bill Josephson is the former head of the New York attorney general’s charities division. Years ago he argued that his agency could make better use of the data it had collected.

Every year, the office uses the finance reports filed by solicitors to tell the public how much solicitors raise and how much goes to charity.

New York’s “Pennies for Charity” report highlights the high cost of fundraising and tries to educate the public about the issue.

But the effort stops there, Josephson said.

He suggested using the data to zero in on every charity that paid their professional solicitors 90 cents on the dollar or more over a five-year period.

Said Josephson, “It’s such an obvious thing to try to do.”

His suggestion was never adopted.

CNN Senior Producer David Fitzpatrick, CNN researcher Haimy Assefa and CIR interns Alyssa Jaffer and Yousur Alhlou contributed to this report along with Times researcher Caryn Baird, computer-assisted reporting specialist Connie Humburg and Web developer Bill Higgins.

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