Fund-Raiser Is Undaunted by State, Federal Scrutiny

The telephone pitches were appeals to the heart: Firefighters disabled on the job needed help. So did young victims of fires, left with scars “that will haunt them for years to come.”

Telemarketers told donors to leave checks under their doormats for immediate pickup. Those who balked at the request were disparaged as unkind or uncaring. Some said they were even threatened by the solicitors, who identified themselves as police officers and firefighters.

“We are the police. We know where you live,” one phone operator told a man who refused to make a donation.

Such tactics, detailed in interviews and court papers, have long been the practice of Orange County-based fund-raising companies run by San Juan Capistrano businessman Mitchell Gold and his family, state and federal officials say.

Five states have sued Gold’s various companies over the aggressive sales pitches, and courts in California and three other states have prohibited his firms from raising funds there. Gold appealed the California judgment and continues to collect millions of dollars.

“I am not hiding under a rock. I believe what I am doing here is right, legal and moral,” said Gold, who has never been charged criminally in connection with the fund-raising activities.

Charities that contract with Gold’s firms received only a fraction of total donations, according to a Times analysis of financial reports filed with the California Registry of Charitable Trusts.

The records indicate that Gold’s companies collected $6.8 million between 1995 and 1997 on behalf of roughly a dozen charities, which received about 11% of the sum.

The Foundation for Disabled Firefighters, for example, received $26,000 out of $431,457 raised in its name in 1997. Another charity, American Deputy Sheriff’s Assn., received $55,500 out of $299,027.

By contrast, the state’s 112 commercial fund-raisers as a whole passed on nearly 44% of the $193 million they raised for charities in 1997. The law doesn’t limit how much fund-raisers can keep, and critics have long complained that the industry receives little government regulation and oversight.

FTC Sues Companies, Gold in Federal Court

The National Charities Information Bureau, a New York-based watchdog group, recommends that charities spend at least 60% of all money raised on causes or programs.

Now, the Federal Trade Commission is targeting Gold, his firms and several company officials with a civil lawsuit accusing his telephone operators and subcontractors of posing as police officers and firefighters.

The civil suit, filed in U.S. District Court in Santa Ana last November, also charges that some solicitors for Gold’s firms falsely told donors that the majority of money raised in the name of disabled firefighters and police officers, hospitalized children, veterans and others went to the charitable organizations.

The FTC cites dozens of examples of alleged misrepresentation in court papers, including one case when a solicitor promised donations would go to provide smoke detectors for children. Federal officials charge that the smoke detectors were never purchased.

The FTC allegations are similar to those raised in 1992, when the California attorney general’s office accused Gold, one of his companies and firm officials in a civil lawsuit of misleading donors. Officials also accused him of creating charities whose main purpose was to profit his telemarketing operation. An Orange County Superior Court judge eventually ordered Gold and his family-run company to cease fund-raising in California and to account for nearly $15 million the firm had raised between 1988 and 1993.

Gold appealed the judgment, changed the name of the company and continues to do business while the case is on appeal.

Gold strongly asserts he’s done nothing wrong, saying his legal problems are the result of a few rogue subcontractors and overzealous government officials who disapprove of commercial fund-raising.

He acknowledges that a relatively small percentage of the money his companies raise actually goes to the charities. But telephone fund-raising involves high overhead costs, Gold said, and most of the proceeds go to his subcontractors who make the calls. Most charities that contract with his firms are grateful for the proceeds they do receive, he added.

“Their survival depends on people like us,” he said. “It is an expensive process.”

He said some phone pitches may have gone too far but blames subcontractors for the problems.

Government attorneys disagree, saying Gold’s companies have a long history of deceptive fund-raising practices. The FTC lawsuit alleges that Gold knew about the questionable tactics of his fund-raisers and showed “deliberate indifference to the truth.”

Critics Call Oversight of Fund-Raisers Weak

To critics, the cases highlight the loose regulations and weak oversight of the $138-billion-a-year charity fund-raising industry.

States are prohibited by law from regulating solicitation pitches because such speech is protected by the 1st Amendment. Fund-raisers must report to the state what percentage of donations they give to charitable organizations, but there is no limit on the amount they can keep.

In addition, the sheer number of nonprofits and commercial fund-raisers makes close oversight difficult, officials said. There are 112 commercial fund-raisers and 140,000 charities and other nonprofit groups in California alone. Nationwide there are nearly 1.3 million nonprofits.

What sets Gold’s firms apart is “a pattern of deceit, and operations designed to be deceptive [and] successful because they are deceptive,” said California Deputy Atty. Gen. Chester Horn, who won the 1992 case against Gold. “It’s very frustrating.”

Besides California, Gold’s companies also have been named in lawsuits filed by authorities in Kansas, Oregon, Minnesota and New York for alleged misrepresentations. The cases have either been settled or ended by summary judgment in favor of the states.

In 1997, a Gold firm was banned from raising funds in Oregon for 10 years and fined $160,000. Kansas and New York also prohibited his companies from operating. Minnesota fined his firm, ordered restitution payments but allowed it to continue operating, according to court records.

Gold, 41, is a New York native who moved to California in 1982 and opened a chain of T-shirt stores. In the late 1980s, he said he moved into the fund-raising business after someone who used to solicit donations “enlightened” him about the industry.

His companies have gone by different names. He founded Orange County Charitable Services in the late 1980s. But after the company was sued by the state in 1992, he said he shut the firm down, and a family member formed U.S. Marketing Inc. Gold said he helped run that company before forming North American Charitable Services in 1997. Gold describes himself currently as a principal of North American.

Now, his company raises about $11 million annually nationwide for about a dozen nonprofits, he said. Officials describe his operation as one of the largest commercial fund-raising organizations in Southern California.

“I felt the combination to make some money and help some causes was very attractive,” he said.

Donors Contacted For All Charities

According to the FTC lawsuit, Gold ran a sophisticated operation that integrated aggressive telemarketing and a lineup of compelling causes.

Once people made donations, they were then targeted for all the charities on the fund-raising roster, according to court documents.

The allegations are nothing new to Orange County firefighters, who have long complained about telemarketers seeking solicitations on behalf of the Foundation for Disabled Firefighters. The organization has used Gold’s U.S. Marketing Inc. and North American Charitable Services for fund-raising since 1996. The foundation received less than 7% of the money those firms raised on its behalf in 1997, state records show.

“Firefighters are traditionally held in high regard by the public because of the deeds we do,” said Garden Grove Fire Capt. Bill Dumas, who has issued several warnings to the public about the foundation through the media. “It infuriates you when you hear of people taking advantage of that esteem and abusing it for purely monetary gain.”

Dumas and other firefighters have accused solicitors for the foundation of posing as firefighters, bullying potential donors and lying about connections with Orange County fire departments.

Still, many Orange County residents have dug deep into their pockets.

“Like most people, if I hear firemen or policemen, I instantly want to do something,” said one Newport Beach retiree, who said she recently gave $20 to the foundation but asked not to be identified. “It’s a trigger word. There’s an emotional reaction.”

According to several donors, the solicitors didn’t give out return phone numbers and usually sent around carriers to collect the checks, sometimes the same day. At times, the solicitors told donors to leave payments outside, just in case they weren’t home when the carrier arrived.

Carl Franks, a retired plasterer living in Anaheim, refused a request by one fund-raiser to put his checks under his mat, but he did give the $25 to a solicitor two years ago. Now he said he regrets giving that money as well as other donations.

“I still get calls,” he said. “I say that I don’t give [donations] over the phone anymore.”

Like Franks, many of the foundation’s donors are retirees.

“We want to help people and not be ripped off by someone who doesn’t help anyone,” said a 71-year-old Huntington Beach resident, who gave $25 to the firefighters foundation solicitors two years ago. “At least we’ve learned our lesson.”

Gold said he immediately fires any subcontractors if he finds out they are operating unethically. But he said he didn’t know how many subcontractors he’s dismissed and how many donor complaints he’s received.

Gold said that such misrepresentations are rare and that his operations receive relatively few complaints.

“They are independent contractors,” he said. “We have no control over them. It is not right to hold us responsible for that.”

To raise the millions of dollars for the dozen or so charities his company represents, telemarketers must make hundreds of thousands of calls, he said.

“Compare that to the percentage of complaints,” Gold said. “It is probably less than one-hundredth of 1 percent.”

But some of those who have worked with Gold’s firms say otherwise.

Lee Gatti, president of Fountain Valley-based Disabled Peace Officers Assn., said his charity terminated its contract with one of Gold’s fundraising companies two years ago over persistent complaints from donors about its operators.

“It was giving our organization a black eye,” Gatti said.

The leader of another charitable organization that contracted with a Gold firm found himself the subject of federal scrutiny.

Marvin Cherna pleaded guilty last year to mail fraud and was sentenced to five years in prison for spending donations raised for a veterans relief group on expensive meals for his family and other personal items.

Cherna alleged in court papers that Gold approached him about taking over the veterans charity, saying the people in charge of the group didn’t have time to manage the organization. Cherna eventually agreed to sign on as leader of the charity, court papers said.

Federal prosecutors didn’t investigate Gold in the Cherna case, but the FTC is using the allegations to bolster its misrepresentation claims against him.

Gold denied that he offered Cherna the veteran association job or that he knew Cherna was not a legitimate philanthropist.

“I always thought Cherna ran a clean charity,” he said.

All of the government actions against Gold’s firms have been civil in nature, with the maximum penalties being fines and prohibitions against doing business in the state.

In 1993, California Deputy Atty. Gen. Horn said he forwarded Gold’s case to Orange County and federal prosecutors but never heard back from them. Investigators handling telemarketing fraud cases in Orange County declined to say whether they ever looked into the practices of Gold’s firms.

The County of Orange Boiler Room Apprehension Task Force (COBRA) is a multi-agency federal task force created in 1997 to combat telemarketing and mail fraud. Officials said criminal cases have a difficult burden of proof, involving lengthy and costly investigations.

The unit has so far shut down about 25 local boiler rooms and arrested about 50 people. In one recent case, prosecutors charged three telemarketing outfits with bilking elderly victims out of $2.2 million with fraudulent pitches for sweepstakes prizes, trips, jewelry, investments or donations to charity.

Officials say most commercial fund-raisers and the charities they represent are reputable and give full disclosure to prospective donors. But it is estimated fraudulent operators around the country siphon off more than $1 billion every year.

Gold maintains he is a legitimate commercial fund-raiser and makes no apologies.

“This is a business, and it is competitive,” he said. “We are just a conduit between the charity and the fund-raisers. Explain to me why we should be sued.”

But the ability of Gold’s firms to continue raising money despite the efforts to shut him down continues to frustrate critics.

“It does seem a shame when you have a tiger by the tail that you can’t get any universal relief,” lamented Oregon Assistant Atty. Gen. James Prunty, who successfully litigated the state’s case against one of Gold’s firms. “This guy lives a judgment-proof lifestyle.”

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Charity--Who Benefits?

Between 1995 and 1997, fund-raising companies involving San Juan Capistrano businessman Mitchell Gold and his family have raised $6.8 million for various charities. About 11% of those funds went to charity organizations. Funds raised by U.S. Marketing Inc., unless noted.

Fund-Raising in 1995 for Gold-related Firms

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Amount Amount to Pct to Charitable Organization raised charity charity Police Olympic Journal $53,622 $12,511 23.3% Vietnam Veterans of America $165,564 $29,523 17.8% Am Vets $305,030 $47,000 15.4% California Amvets $141,195 $20,900 14.8% International Union of Police Assns. $8,640 $1,191 13.8% Disabled Peace Officers Assn. $394,147 $46,622 11.8% Help Hospitalized Children’s Fund $164,618 $16,462 11.8% Adolescent AIDS Foundation $153,899 $15,250 9.9% Fire Fighters Assn. of America $228,494 $22,000 9.6% Handicapped Children’s Services of America $278,165 $24,750 8.9% Regular Veterans Assn. $64,707 $5,177 8.0% American Veteran’s Relief Fund Inc. $111,197 $7,784 7.0% Totals $2,069,278 $249,170 12.0%

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Fund-Raising in 1996 for Gold-Related Firms

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Amount Amount to Pct to Charitable Organization raised charity charity Adolescent AIDS Foundation Shiloh Int. $109,265 $26,000 23.8% Regular American Veterans $161,425 $32,250 20.0% Foundation for Disabled Firefighters $5,946 $800 13.5% International Union of Police Assn. $69,161 $8,909 12.9% Vietnam Veterans of America Foundation $3,929 $471 12.0% Disabled Peace Officers Assn. $462,005 $54,615 11.8% Police Olympic Journal $775 $78 10.1% Police Conference Reporter $5,139 $514 10.0% California Amvets $260,653 $26,066 10.0% Help Hospitalized Children’s Fund $122,762 $12,276 10.0% Fire Fighters Assn. of America $402,468 $39,500 9.8% Handicapped Children’s Svcs of America $321,417 $26,000 8.1% American Veterans Relief Fund $190,313 $13,322 7.0% Totals $2,115,258 $240,801 11.2%

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Gold Family Fund-Raising in 1997

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Amount Amount to Pct to Charitable Organization raised charity charity American Deputy Sheriff’s Assn. $89,173 $22,000 24.7% Regular American Veterans $171,433 $37,500 21.9% Nation’s Missing Children Organization $45,324 $9,000 19.9% Adolescent AIDS Foundation $86,572 $14,800 17.1% International Union of Police Associates $46,898 $6,996 14.9% Help Hospitalized Children’s Fund $89,248 $8,925 10.0% Disabled Peace Officers Assn. $535,251 $39,231 7.3% American Veterans Relief Fund, Inc. $175,894 $12,313 7.0% Foundation For Disabled Firefighters $290,593 $18,000 6.2% Handicapped Children’s Svcs of America $242,706 $14,800 6.1% American Veterans Relief Fund, Inc.* $98,536 $6,898 7.0% International Union of Police Associates* $19,720 $2,958 15.0% Adolescent AIDS Foundation* $28,118 $5,600 19.9% American Deputy Sheriff’s Assn.* $209,854 $33,500 16.0% Regular American Veterans* $101,079 $16,000 15.8% Help Hospitalized Children’s Fund* $58,045 $5,805 10.0% Nation’s Missing Children Organization* $94,339 $8,809 9.3% Handicapped Children’s Svcs of America* $95,232 $5,600 5.9% Foundation For Disabled Firefighters* $140,864 $8,000 5.7% Totals $2,618,879 $276,735 10.6% Grand Totals $6,803,415 $766,706 11.1%

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* North American Charitable Services, Inc.

Source: California Attorney General’s Registry of Public Trusts

Researched by RAY HERNDON / Los Angeles Times