Telemarketers Who Lie Can Be Prosecuted

Telemarketers can be prosecuted for fraud if they deliberately mislead donors into wrongly believing most of their contribution will go to charity, the Supreme Court ruled Monday.

The 9-0 ruling makes it easier for states to go after private fund-raisers who solicit money for charity but keep most of it for themselves.

In the past, the high court had stressed that the soliciting is a form of free speech and cannot be tightly restricted by the government.

But the justices retreated somewhat from that view in Monday’s opinion and declared that “false and misleading representations” are not shielded by the 1st Amendment.

Lawyers on both sides of the case characterized the ruling as only a modest change in the law.

Charities had feared a ruling that would have declared as fraudulent any fund-raising operation that kept most of the money.

The decision revives a fraud charge in Illinois against a telemarketing firm that solicited money to help Vietnam veterans, but kept 85% of what was contributed.

VietNow, a charity whose mission is to help jobless, homeless or injured war vets, employed the for-profit firm Telemarketing Associates to solicit money, and it agreed that it would receive only 15% of the contributions.

State prosecutors said the charity spent only a small percentage of its receipts on direct aid to the veterans, so that only 3% of the donations went to their intended purpose.

But the fraud charge focused only on the telemarketer, not the charity.

The Illinois state courts threw out the fraud charge on free speech grounds, but the state’s attorney general appealed. The 1st Amendment should not be “transformed into a license for unscrupulous fund-raisers to defraud the public in the name of raising money for charity,” state prosecutors said.

The Supreme Court agreed Monday in Illinois vs. Telemarketing Associates.

“The 1st Amendment protects the right to engage in charitable solicitations, but it does not shield fraud,” Justice Ruth Bader Ginsburg said.

High fund-raising costs alone do not make for fraud, she said. Nor does the “bare failure to disclose” how much of the money will be kept by the solicitor amount to fraud, she said.

But solicitors can be prosecuted if they make “affirmative statements [that] are intentionally misleading,” she said.

For example, two donors in Illinois said they were told that “90% or more goes to the vets,” and there were no “labor expenses.”

These statements were “knowingly deceptive and false,” Illinois prosecutors maintained, and the justices agreed they can be the basis of a fraud charge.

“States may maintain fraud action when fund-raisers make false or misleading representations designed to deceive donors about how their donations will be used,” Ginsburg said.

In three rulings in the 1980s, the court had struck down strict state regulations that prohibited operations by charitable fund-raisers who kept more than 35% of the donations for themselves.

Monday’s decision preserves those earlier rulings, but nonetheless says fund-raisers can be prosecuted if they go one step further and falsely claim that all or most of the donations will go to charity.

In California, state officials said the ruling makes clear the government can prosecute deceptive fund-raising schemes.

“It’s a welcome decision because it reaffirms our ability to use antifraud laws in these cases,” said Tom Dresslar, a spokesman for state Atty. Gen. Bill Lockyer in Sacramento.

If asked, a commercial fund-raiser for a charity must tell potential donors how much of the money goes to the charity, he said. California law says fund-raisers must register with the state and disclose their revenues and expenses.

“It shall be unlawful for a commercial fund-raiser for charitable purposes to not disclose the percentage of total fund-raising expenses ... upon receiving a written or oral request for a person solicited,” the law says.

The disclosure should include the percentage of total revenues that will go to the charity, the state law says.

More information on the law in California is available on the state’s Web site at caag.state.ca.us/charities.