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California Atty. Gen. Kamala Harris sues to shut down 2 car donation charities

The radio and TV jingles have bombarded Californians for years, urging them to donate their cars to help those in need.

Hundreds of charities now successfully solicit millions of dollars’ worth of cars — ostensibly to support groups that assist military veterans, seek to cure diseases and help the homeless, among other causes.

But car donation organizations give a much smaller portion of the donations they receive to charity than similar sorts of fundraising campaigns, spending nearly two-thirds on salaries for their own employees and other administrative costs, according to a report released Tuesday by the attorney general's office.

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The report was issued the same day the office filed civil lawsuits asking judges to shut down two Southern California-based charities for misappropriating millions of dollars from donated cars. The lawsuits, filed in cooperation with local district attorney’s offices, allege that Ventura County-based Cars 4 Causes and Los Angeles County-based People’s Choice Charities illegally profited from the charitable donations by keeping nearly all the funds and falsely reporting how much they forwarded to needy causes.

An attorney general’s spokeswoman said that office’s investigation into the businesses was triggered by the work of Los Angeles Times columnist Steve Lopez, who detailed earlier this year how one of the organizations, Cars 4 Causes, operates and called into question how much of its revenue was going to charitable programs.

“These charities exploited the goodwill of generous donors by misrepresenting their charitable programs, misappropriating donations and accruing excessive administrative costs,” Atty. Gen. Kamala D. Harris said in a statement.

Vehicle donation programs have become a big business in California, where more than 360 organizations operated last year with revenue of $23.5 million. The programs typically sell donated vehicles to raise money for other charities.

But in 2014, only about 35% of the industry's revenue in California, or $8.2 million, was distributed to charities, the attorney general’s report said. By comparison, general fundraisers passed on more than half the donations to charity.

Cars 4 Causes is accused in one of the lawsuits of misappropriating about $2 million in such funds that were meant to go to thousands of charities, including those that conduct medical research and others that provide help for children and services to military veterans and the poor. The organization used 87% of donations to pay for advertising and other administrative costs, including the salaries of its staff, the lawsuit alleges.

The lawsuit also alleges that the organization employed friends and family of its president, Patti Livingston, and paid more than $3 million to her family, friends and their companies using funds that should have gone to other charities. Cars 4 Causes did not return calls for comment Tuesday. Livingston could not be reached for comment.

The attorney general’s office said it conducted an audit that found Cars 4 Causes reported to the IRS that it donated $15.9 million to other charities from 2009 to 2014 but actually donated only $5.4 million.

The charity also refused requests for help from people who were in need of a vehicle, including single mothers, college students and the elderly, the lawsuit alleges.

In 2003, Cars 4 Causes was sued by the California Department of Motor Vehicles and the attorney general's office, which alleged the organization was engaged in fraudulent and deceptive business practices. The court initially ruled in the organization's favor, but an appeals court later ruled that it engaged in deceptive advertising by claiming that vehicle towing was free. The towing was free to the donors but not to the charities, the appellate court said.

According to the other lawsuit filed Tuesday, People’s Choice Charities claimed that all the proceeds from the sale of donated cars would support the donors’ choice of charity. In reality, however, 97% of the donations was spent on administrative costs and advertising, leaving only 3% for the charities.

From 2007 to 2012, the organization reported to the IRS that it donated more than $732,000 to other nonprofit organizations, but actually donated only $185,000, the lawsuit alleges.

The organization also created a “cash back” program that offered donors cash in return for the donation of their car, in effect functioning as an unlicensed, illegally operating used-car dealership, the lawsuit alleges.

Gary Stone, the president of People’s Choice Charities, said he was not aware of the lawsuit but that his organization has been in contact with the attorney general’s office and had previously turned over financial documents. He declined to comment further.

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The lawsuit asks the court to shut down the organizations, force the release of financial documents and determine the extent of damages the firms should pay.

Daniel Borochoff, president of Charitywatch, a nonprofit watchdog group, said that the car donation charity industry is particularly ripe for abuse because donors are often less thoughtful about where the proceeds from their cars end up than where their donated cash goes.

Often, donors want to get rid of their cars without hassle, get a tax-deduction and move on, Borochoff said.

“This allows questionable actors to get involved because people aren’t being careful,” he said.

If no contract exists between those who solicit the vehicle donations and the charities that would receive the donation, there is little to no paper trail to make sure the funds were not diverted, Borochoff said.

For more Los Angeles civil court news, follow @sjceasar on Twitter.

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Copyright © 2016, Los Angeles Times

UPDATED

8:56 p.m.: This article was updated with reaction to the lawsuits.

This article was originally published at 11:49 a.m.

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