Telemarketer’s Funds Did Not Reach Charities

A Burbank-based telemarketing firm that took in $500,000 in charitable contributions last year has cashed checks made out either to charities that do not exist or real charities that never received the money, a Times investigation has found.

Valley Fundraisers, a business whose telephone solicitors call households across the Los Angeles area, also sought and received donations for charities it does not legally represent.

Local and state laws prohibit commercial fund-raisers from misrepresenting what will be done with the donor’s money or soliciting for an organization without authorization.

Thomas Galambos, president of Valley Fundraisers, which is among the top third of all commercial fund-raisers in California, acknowledged in an interview recently that “mistakes” have been made, blaming overzealous employees who had acted without his knowledge perhaps “twice in a thousand times.” When confronted with evidence of at least 90 such checks, Galambos said the company had administrative problems that have now been remedied.

A spokesman for the state attorney general’s Registry of Charitable Trusts said the agency has investigated Valley Fundraisers, but declined to divulge any details because no action was taken against the firm.

The Times analyzed records of thousands of checks received by Valley Fundraisers over nine months in 1992 and 1993 and interviewed dozens of donors. Among the practices found:

* Some donors told The Times they wrote the checks on the understanding that their money would be used to grant wishes to dying children, operate a veterans shelter, provide Thanksgiving baskets to homeless veterans and support veterans wheelchair competitions. In fact, officials of the three charities the firm is authorized to represent said they do not provide such programs for veterans or children.

* Couriers for Valley Fundraisers--checks are collected immediately by runners, not mailed--picked up checks for well-known national charities including Easter Seals, March of Dimes and the American Kidney Fund without authorization. Officials of those organizations said they had never heard of Valley Fundraisers and received no money from it.

* Valley Fundraisers continued to accept thousands of dollars in checks payable to two organizations--Missing Children’s Report and American Wheelchair Veterans’ Assn.--that had canceled their contracts with the firm. Officials of both organizations said they received no payments from Valley Fundraisers after the contracts ended.

* Donors said they were instructed to make out checks to an alphabet soup of children’s, medical and veterans causes, sometimes under initials such as AACP, CES and CHC and at other times to non-specific names such as Crippled Children, Vets Shelter and Cancer Foundation.

One name appearing frequently on checks deposited by Valley Fundraisers is the Children’s Hospice Center.

The IRS has no registration for Children’s Hospice Center, according to Daniel Langan, spokesman for the National Charities Information Bureau in New York, a philanthropic watchdog organization.

Galambos acknowledged that his firm does not represent any children’s hospice. He said that deposit of any check in that name was a mistake and that if he knew about it he would refund it.

*

Valley Fundraisers occupies a little-known niche of the philanthropic world in which telephone solicitors act as independent contractors taking a commission of up to one-third on each donation. The couriers also receive a share and Galambos earns a profit, leaving a small percentage for the charity.

Authorities consider fraud to be a widespread problem in California’s $88-million commercial fund-raising industry, but find it hard to prosecute because of the difficulty of linking individual donors to improper solicitations, especially because the donors often do not realize they have been cheated.

Once filed, cases are complicated and costly to put together, said state Deputy Atty. Gen. Chet Horn. Horn said he could not recall any criminal cases filed against charitable fund-raising firms by his office.

In one of the largest charity fraud cases in California, and one of only a handful brought against a telemarketing firm, Orange County Charitable Services was accused in a 1992 civil complaint of raising money for shell charities that were run by its own principals. Trial is scheduled for August.

Valley Fundraisers has reported receiving more than $2.6 million in the past four years, according to records on file with the Registry of Charitable Trusts.

The firm has contracts to solicit donations for three charitable organizations. According to its own reports filed with state authorities, it keeps more than 87% of the money it raises to cover its expenses and profits.

Under Supreme Court rulings protecting commercial fund raising as an exercise of free speech rights, no laws may require that Valley Fundraisers pass on a specific percentage of its take to the charities.

Galambos defends his enterprise as a source of employment for dozens of down-and-out people and a source of funds for charities having a hard time getting off the ground.

The practice of commission-based solicitation is considered unethical by the two leading professional societies of fund-raisers, the National Society of Fund-Raising Executives and the American Assn. of Fund-Raising Counsel, even when it is conducted legally.

*

Interviews with Valley Fundraisers’ donors showed that they often responded to repeated appeals, writing checks to numerous names and causes without realizing that all were being collected by the same firm.

None of the donors interviewed by The Times remembered being told they were being solicited by Valley Fundraisers. State law requires commercial fund-raising firms to identify themselves as such at the beginning of the solicitation.

The donors were often well-educated and well-off. Among them were a television producer, a retired aerospace manager and a journalism professor. Most asked that their names not be used. The majority gave from one to four times before deciding to say no.

Some particularly soft-touch donors--known in telemarketing jargon as “taps”--have made thousands of dollars in donations, paying from $25 to more than $250 at a time to various charities, including those that Valley Fundraisers is authorized to represent. Many still give regularly.

Many “taps” say they were treated rudely and continued to receive calls from Valley Fundraisers or other commercial solicitors even after asking to be left alone.

“They really play on your softness,” said one. “They really know how to get things out of you. Some of them are so rude when I finally say no.”

“I’d jump off the roof to get them to stop calling,” said Arne Rubenstein, a Westside school principal who said she receives so many calls from charity solicitors that she cannot differentiate one appeal from another.

Several frequent donors said they have become suspicious of the calls after recognizing the same voice pitching different groups or because the solicitors refused to give them an address to which checks could be mailed, insisting that a courier pick up the donation, a practice of several charitable solicitation agencies. However, the donors said they continued to turn over money because the causes sounded so worthy.

Several donors whose checks were deposited by Valley Fundraisers recalled that solicitors described in elaborate detail how their money would be spent, even though the explanations bore no connection to the activities of Valley Fundraisers’ three client charities.

“They’d say they were AIDS, homeless vets, whatever was essential at the time, post-earthquake, post-fire,” said Gail Gordon. “I give to the AIDS foundation. . . . It was for a hospice center they were going to build by the VA.”

Eric Gilliland, a writer for the “Roseanne” television show, said he wrote a check to Veterans Olympics after being told, “We’re sending our guys to the big games somewhere in Spain. The guys did really well thanks to your donation in the past games. Now they’re going to the world championship.

“I specifically asked them if they’re 501c3,” Gilliland said, using the IRS code for a charity with tax-exempt donation status. “They said, ‘Yes.’ Every dollar goes to this? It’s all volunteer, correct? They say, ‘Yes.’ ”

One appeal was for “a man who hadn’t seen his daughter for a few years and he was close to the line,” donor Ruth Tolbert recalled of the telephone call that induced her to write a $100 check to the Children’s Wish Foundation.

“They let me know afterward that he did go meet his daughter. They met and spent a couple days together. Just to let me know that my money had gone toward a good thing.”

According to financial reports Valley Fundraisers filed with the California attorney general as required by the state’s commercial solicitation law, the firm did not have a contract to raise funds for the Children’s Wish Foundation. The solicitation firm did not report receiving any donations for that group.

An organization with a nearly identical name, Children’s Wish Fund of Carson, was dissolved by a 1992 Sacramento Superior Court order and its officers enjoined from soliciting funds.

Arthur Stein, president of Children’s Wish Foundation International of Atlanta, Ga., said Valley Fundraisers was not authorized to collect funds on its behalf.

He said that if he could obtain canceled checks made out to his organization, he would “prosecute these people to the fullest extent of the law.”

*

The state Business and Professions Code imposes a fine of $2,500 per violation for making “any statement . . . which is untrue or misleading” in a charitable solicitation. That code also imposes a fiduciary duty on solicitors to ensure that the funds they collect are used for the stated purposes. The Los Angeles Municipal Code prohibits charitable solicitations without the “written authorization” of the intended beneficiary and makes any violations punishable by a maximum of six months in jail or a $1,000 fine.

Galambos said his solicitors are authorized only to ask for donations under the names of the three IRS-registered charity organizations with which he has contracts. He suggested that checks made out to initials that do not match those could reflect writing errors by the donor, who may have been told to write ACRF for AIDS and Cancer Research Foundation, one of the three.

“Sometimes the writer doesn’t abbreviate properly,” he said.

When he sees such a check, Galambos said, he will ask the sales agent which of the three agencies it was intended for and credit the funds to that account. The other two are Helping Hands for the Blind of Chatsworth and the Brotherhood Rally of All Veterans Organizations (BRAVO) of Calabasas.

In the case of the checks made out to Children’s Hospice Center or Veteran’s Shelter, he said, the solicitor must have been at fault.

“He shouldn’t pitch that in the first place,” Galambos said.

In fact, Valley Fundraisers has deposited checks made payable to at least 30 names. Among them are the initials AACE, AACP, AAFF, ACF, CCC, CE, CLC, HRF, RAV, OC and VO. Full names appearing on checks include Crippled Children, Abused Children’s Assn., Abused Child Report, Disabled Children, Save A Child, Children’s Cancer Fund, Operation Teddy Bear, American War Veterans, Disabled American Veterans, Paralyzed War Veterans, The Veterans, California Veterans Special Projects, Cal Vets, Veterans Toys for Tots, Vet Shelter and Marine Corps Veterans.

Galambos offered no explanation for those checks except to say they could not have been received and deposited in his presence. He said that he cannot always be present to supervise the solicitors working in his Burbank phone room and that others work out of their homes.

“I have no control,” the 57-year-old Hungarian native said. “If the solicitor doesn’t tell the truth, I don’t know how much I am responsible for it.”

Galambos said his procedures have improved markedly since he closed his Santa Monica phone room about eight months ago. Some solicitors there were crack cocaine addicts who would not adhere to his rules, he said.

He said that over the years he has refunded hundreds of checks when he learned of errors. One donor said he received several hundred dollars back after threatening legal action.

“We are learning from our mistakes,” Galambos said. “Every mistake that we make is costing us money, so therefore we have to clean it up.”

He did not deny that his firm had deposited the checks made out to unconnected or apparently nonexistent charities, but disclaimed personal responsibility. He can only personally deposit about half the checks and relies on others who have proven less conscientious than himself to handle the rest, he said.

Galambos said he cannot account today for the distribution of any funds his firm received and deposited made out to organizations with which it has no contracts.

He said he cannot afford to pay an accountant to keep records of individual checks.

The state Government Code requires commercial fund-raising firms to make “a detailed, itemized accounting of funds solicited for charitable purposes.”

Deputy Atty. Gen. Horn said the proliferation of charity names is common in fraudulent fund raising because solicitors move from one organization to another, taking their familiar pitches with them, and because donors are more likely to keep giving if the causes change.

As one of California’s 121 licensed commercial fund-raising companies, Valley Fundraisers can legitimately solicit funds for tax-exempt organizations registered with the IRS.

In its financial statement for 1993, Valley Fundraisers reported to the California attorney general that it raised $511,911 and, after deducting its expenses and profit, distributed $63,294 to the three organizations, or about 12.4% of the total donations.

In 1992, the Simi Valley Police Department conducted a search of Valley Fundraisers’ Burbank office after receiving complaints that the firm was asking for donations to the Simi Valley Police Officers Assn. No charges were filed because the search yielded no evidence connecting a specific person to any of the solicitations, Detective Steve Delamater said.

The primary obstacle to prosecuting fraudulent charitable solicitation is the difficulty of tying a victim’s check to a misrepresentation made over the telephone.

Indeed, many victims interviewed by The Times said the dozens of calls they received seemed to blend together in their minds.

“I don’t know if it was housing,” one donor said, trying to recall her check to Children’s Hospice Center. “They might have told me it was Special Olympics.”