Cancer charities' $187 million in donations paid for luxuries and fundraisers, feds say

50 states, FTC file fraud suit, accusing four cancer charities of cheating consumers out of $187 million

The pitch was simple, and played on the images of a devastating disease to tug on heartstrings and open pocketbooks.

One of the websites featured pictures of smiling children, some of them in hospital beds, one in a tutu and a scarf covering her bare head.

The money, people were told, would go directly to helping women and children sick with cancer, paying for wigs, pain medications, and transportation to chemotherapy appointments.

All of those claims were “outright lies,” according to a lawsuit filed Tuesday by the Federal Trade Commission, all 50 states and the District of Columbia.

In reality, officials say, millions of dollars raised by four “sham charities” lined the pockets of the groups’ founders and their family members, paying for cars, luxury cruises, and all-expense paid trips to Disney World for charity board members.

The 148-page fraud lawsuit accuses the charities of ripping off donors nationwide to the tune of $187 million from 2008 to 2012 in a scheme one federal official called “egregious” and “appalling.”

The charities — Cancer Fund of America, Cancer Support Services, Children’s Cancer Fund of America and the Breast Cancer Society — were incorporated nonprofit organizations with tax-exempt status with the Internal Revenue Service, according to a lawsuit naming the charities and their top executives as defendants.

According to the FTC, the charities engaged in deceptive fundraising by mail and phone in the name of cancer patients, billing themselves as legitimate charities that helped provide direct relief to suffering patients.

“Cancer is a debilitating disease that impacts millions of Americans and their families every year,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “The defendants’ egregious scheme effectively deprived legitimate cancer charities and cancer patients of much-needed funds and support.”

The charities were founded and controlled by James Reynolds Sr., who is from Tennessee, according to the Associated Press, and two of his family members, the joint complaint says. Reynolds served as president of Cancer Fund of America, dating to 1987, and Cancer Support Services. His ex-wife, Rose Perkins, worked for the charities for nearly two decades before becoming executive director of the Children’s Cancer Fund of America in 2005.

James Reynolds II, Reynolds’ son and executive director of the Breast Cancer Society, began working in the family businesses at 16 and “learned the cancer business from his father,” the complaint alleges.

The Reynolds family and their charities were the subject of a 2013 investigation by the Center for Investigative Reporting and the Tampa Bay Times. Two of the groups named in Tuesday’s lawsuit were labeled among the top 10 “worst charities” in America, according to the report.

Most of the $187 million the groups raised went to pay professional fundraisers, who took as much as 90 cents of each dollar contributed, the complaint says. Much of what was left went to pay the salary of Reynolds and a network of at least two dozen extended family members and close friends of top executives.

In the end, less than 3% of the donations were used for goods and cash distributed to the patients they claimed to serve, the complaint says. In 2012, the Children's Cancer Fund of America spent just $45,000 -- or 0.71% of donations that year -- to provide cash assistance to the families of children with cancer. That same year, the group paid Perkins $231,672.

The groups “operated as personal fiefdoms characterized by rampant nepotism, flagrant conflicts of interest, and excessive insider compensation,” lacking any controls “any bona fide charity would have adopted,” according to the joint complaint.

Board members were hand-picked by the charities’ directors, the complaint alleges, and “rubber-stamped” many of their decisions without questioning them.

Among the allegations is that Perkins gave 10% across-the-board bonuses twice a year to employees, regardless of performance, and was allowed to set her own salary and bonuses up to a limit without the approval of board members. In 2010, when donations to the Breast Cancer Society were declining, Reynolds II’s salary ballooned from $257,642 to $370,951, according to the complaint.

Donations were also allegedly used to pay for Perkins’ daughter-in-law’s college tuition, and gym memberships, jet ski outings, meals at Hooters and Victoria’s Secret purchases and two trips to Disney World for “board trainings,” including the use of a babysitter during the trip.

Meanwhile, the little “support” the charities actually provided to cancer patients came in the form of “cancer boxes” of “seemingly random items,” the complaint says.

The packages, packed by volunteers and sent to cancer patients, included sample-size soaps and shampoos, small amounts of Carnation Instant Breakfast drink, adult briefs and bed pads, disposable plates, iPod covers, batteries, blank greeting cards, and Little Debbie snack cakes, according to the complaint.

The Little Debbie cakes were provided, Reynolds Sr. said, because “they make people happy,” according to the complaint. At one point, the charities switched to purchasing Moon Pies instead, because Reynolds said they “make you happier.”

For a small number of patients who lived in Alaska and Hawaii, about 100 people over five years, the charities sent cash assistance in the form of $50 checks.

The scam charities bought many of the items they provided at steep discounts, paying as little as 2% to 5% of the products’ retail value, the complaint says. They would later claim the full retail value of the donations they distributed, according to the complaint, exaggerating the amount they spent on in-kind donations and making it look as though a larger share of donations were going toward helping cancer patients than was actually the case. At one point, the Cancer Fund of America reported $2.65 million in expenses for items they paid $314,000 to buy.

James Reynolds II and Perkins, along with their charities, have agreed to settle, the FTC said. No settlement has been reached with James Reynolds Sr., the Cancer Fund of America or Cancer Support Services, and the lawsuit against them will continue, the FTC said.

Websites for the Breast Cancer Society and the Children’s Cancer Fund of America had been taken down as of Tuesday afternoon, and websites for the Cancer Fund of America and Cancer Support Services were listed as in “maintenance mode,” and “temporarily unavailable.”

In a letter that appeared Tuesday on the Breast Cancer Society website before it went down, James Reynolds II addressed the allegations.

“Charities -- including some of the world’s best-known and reputable organizations -- are increasingly facing the scrutiny of government regulators in the U.S. The Breast Cancer Society is no exception,” Reynolds wrote. “While the organization, its officers and directors have not been found guilty of any allegations of wrong doing, 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.”

Under the terms of the proposed settlements, the Breast Cancer Society and the Children’s Cancer Fund of America are shutting down and will be responsible for $65.6 million and $30.1 million in judgments, respectively, the amount both charities raised from 2008 to 2012.

Kyle Effler, the former president and chief financial officer of Cancer Support Services, has also agreed to a $41.2-million settlement. All three will be banned from fundraising or managing or overseeing charities in the future, the FTC says.

Calls to Reynolds Sr., Perkins, Reynolds Jr. and Effler were not returned Tuesday, and The Times’ attempts to reach the charities were unsuccessful.

It’s unlikely the FTC and state governments will recover a significant amount of the donations -- much of the money has already been spent, Rich said at a news conference Tuesday.

She declined to say whether a criminal investigation was pending, the Associated Press reported, and said only that the regulatory agency does not have the authority to open one.

The younger Reynolds’ settlement will be suspended when he pays $75,000, the FTC says, and Perkins’ settlement will be suspended entirely “based on her inability to pay,” unless authorities discover they lied about their assets. Effler’s will be suspended after he pays $60,000.

According to Rich, any money recovered after liquidating the two charities’ assets will be distributed to pay for the costs of investigating the scam, and part of it will also be set aside for legitimate cancer charities that assist patients.

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Copyright © 2016, Los Angeles Times


5:04 p.m.: This article has been updated throughout with additional details from the complaint and background.

This article was originally published at 11:15 a.m.