Lawsuit Alleges Fraud by 3 High-Profile Charities : Inquiry: More than 95% of contributions went to organizers, investigators say. Officer denies wrongdoing.

In one of California’s largest charity fraud cases, the state on Thursday sued three Orange County groups that claimed to fight drug abuse, help homeless veterans and assist abused children but were allegedly funneling more than 95% of their $8.6 million in contributions into organizers’ hands.

The money that did go to the charities bankrolled a series of high-profile programs--anti-drug rallies, a Tustin homeless shelter endorsed by Ed McMahon, and teddy bears for troubled children given to dozens of police agencies.

But the suit filed in Orange County Superior Court by the attorney general’s office alleges that the charities--United Citizens Against Drugs, American Veterans Assistance Corp. and Stop the Pain--were set up by Irvine resident Mitchell Gold and his associates as fronts for an illegal fund-raising scheme.

Under Gold’s tutelage, the state alleges, the organizations spun out slick money-raising campaigns and earned the endorsements of notables such as Vice President Dan Quayle, actor Edward James Olmos, singer Pat Boone and former drug czar William Bennett.

The firms hired telemarketing companies to phone random households across the state to solicit donations. Once a telephone pledge was made, the state says, a driver would appear at the donor’s house within an hour to pick up the donation.

The charities also became part of the federal employee payroll-deduction program, meaning that the millions of federal workers and military personnel who participate in the program every year could give money by checking a box on a charity form.

“Mitchell Gold is after the almighty dollar,” said Shirley Flucus, a city of Los Angeles charity investigator who assisted the state with its inquiry. “He’s more concerned with the dollar than (with) homeless veterans or drug abuse.”

Reached by The Times at his Irvine offices, Gold vehemently denied wrongdoing, saying: “As far as fraud, they’re totally barking up a wrong tree. We have contracts with each charity. We live up to our contracts 100%.”

Gold, 35, said he is making a very modest profit off the fund-raising operation and indicated that the three charities are separate from his fund-raising company. That company, Orange County Charitable Services, contracted with the charities and explicitly told them that they would get 10% of what it collected, Gold said.

There is no state statute that determines what portion of charitable donations must go toward programs, but Deputy Atty. Gen. H. Chester Horn Jr. said it is against the law to misrepresent the figure.

He said the three charities claimed in their telephone pitches that more than 75% of the donations would fund charitable programs.

The National Charities Information Center, a watchdog group based in New York, said it recommends that charities use at least 60% of what they collect for charitable programs. Directing 10% of donations to the charity, spokesman Dan Langan said, “is a violation of the public trust.”

With the $402,400 the charities received over the past three years, they created numerous programs. The anti-drug group staffs an anti-drug hot line and gives coloring books to schools. Stop the Pain sponsors Project Cuddle, which hands out teddy bears to Southland law enforcement agencies for distribution to children. The veterans group runs the Ed McMahon Veterans Service Center in Tustin.

Carl Mick, 51, a Marine Corps veteran who has lived in the shelter with his wife and family since August, called the Americans Veterans Assistance Corp. a savior, not a scam.

“It’s been a lifesaver for us,” he said. “Otherwise we’d be out on the street.”

McMahon, who lent his name to the group at their request, said he was surprised by the allegations and would be upset if they are true.

“I’m a figurehead,” he said in an interview from Orlando, where he was taping a segment of “Star Search.” “They use my name to get attention. I’m very sympathetic to veterans’ programs. But if there are shenanigans, I want to find out about it.”

The state has accused Gold of setting up the three charities with the help of family members to generate money for his fund-raising company. Larry N. Silveira, who heads the veterans group, is Gold’s brother-in-law, the suit says. Gold’s father, Herb Gold, is another defendant.

Once the enterprise began to grow, Gold hired telemarketers from across the state to solicit money for his groups, the suit contends. More than 50 firms and individuals that Gold’s company allegedly hired to make telephone solicitations are named in the suit.

“The charities were created primarily to make money for Mitchell Gold and his associates, but, in order for him to make it work, he had to do some charitable programs,” Horn said.

The $7.8 million unaccounted for was apparently divided among the many defendants, the state contends. Horn said the attorney general has not been able to trace all of the money or establish how much Gold profited.

The lawsuit comes at a critical time of the year for charities, which receive up to 90% of their donations between Thanksgiving and Christmas. Area charity representatives said they feared that the suit would generate so much public suspicion that legitimate charities will suffer.

“If we say fraud like this is rampant and don’t focus on all the good guys, the public will stop giving, and this is a year when legitimate charities need help,” said Bonnie Gillman, who runs a Santa Ana-based charity watchdog group, Charities for Truth in Giving, and is pushing for a countywide ordinance to regulate charities.

Many charities rely on mail or telephone solicitations conducted by professional fund-raising firms.

The 165 commercial fund-raisers registered in the state collected $94 million for charitable purposes in 1990, with one-third going to the charities and the rest paying fund-raisers’ expenses, according to a report released in April by the attorney general’s office.

In the Orange County case, the state is attempting to dissolve the three charities and direct their assets to other charities. The state is also asking the numerous defendants to pay $8 million in damages--the amount collected for the charities--and $2,500 in civil penalties for each of the many alleged violations of state law.

To become a part of the federal employee donation program, the charities had to persuade Independent Charities of America that 75% of the money they take in goes for charitable work. The state accuses Gold and his accountant, Brian Brown, of altering the financial documents for United Citizens Against Drugs so the group appeared to meet that threshold.

After learning of the lawsuit, ICA’s board of directors decided Thursday to launch an investigation into the anti-drug group, to determine whether it ought to be included in next year’s state and federal deductions program, said Executive Director Patrick Maguire.

In another alleged scheme, the anti-drug group is also accused of purchasing “worthless” textbooks for less than $1,000 and redistributing them to charities and claiming their value at more than $800,000.

The books--outdated accounting and marketing texts--were shipped from a charity in Georgia to an Indian reservation in South Dakota, where they are today. The state says they have nothing to do with drug abuse and were shipped around the country only so Gold’s group could get credit for a charitable activity.

The states of Pennsylvania and Connecticut have filed suit against the anti-drug group in recent months for the textbook scheme.

State Alleges Charity Scam THE CHARGES The California attorney general’s office alleges that Orange County businessman Mitchell Gold and companies under his control raised funds that were supposed to have been used substantially for charitable purposes. The attorney general charges that funds mostly benefited Gold, his family and other defendants. Gold’s companies are also accused of filing false reports with the attorney general’s office. THE TARGETS * Mitchell Gold * Mitchell’s company, Orange County Charitable Services (OCCS) * Charitable organizations allegedly created by OCCS “for its own use” * More than 50 telemarketing firms What Attorney General Alleges Contributors were told that 75% to 80% of the money raised would go to charitable services. Amounts given to various charities since 1988, versus the amounts collected:

Charitable Organizations Allegedly Created Total For Actual by Gold Collected Services American Veterans Assistance Corp. $4,441,649 $206,299 Stop the Pain 504,801 26,132 United Citizens Against Drugs 3,701,304 169,969 Total public contributions $8,647,754 $402,400 for all three charities:

Source: California attorney general’s office

Times staff writers David Reyes and Jodi Wilgoren in Orange County contributed to this story.