In this feature you'll find the personalities behind the major charity scandals that inspire our work and illustrate the importance of a tough charity watchdog that is unafraid to challenge wrongdoing. The most important lesson to be learned from the following colorful stories of charity scoundrels is that regardless of how distinguished, well-connected and honored a charity leader is, he is only human and may be tempted to use the power and influence of his position to abuse the public's trust and thusly become the next member of the CharityWatch Hall of Shame.
CharityWatch Hall of Shame Members: Father Bruce Ritter (Covenant House); William Aramony (United Way of America); John Bennett, Jr.(Foundation for New Era Philanthropy); Lorraine Hale (Hale House); Roger Chapin (Help Hospitalized Veterans and Coalition to Salute America's Heroes); Larry Jones (Feed the Children); John Donald Cody (United States Navy Veterans Association); Greg Mortenson (Central Asia Institute); The Wingo Family (Angel Food Ministries); Somaly Mam (Somaly Mam Foundation); James Reynolds, Sr. (Cancer Fund of America); Zvi Shor (National Children's Leukemia Foundation); Kim Williams (Healing Arts Initiative); Brian Mullaney (WonderWork); and Lola Jean Amorin (The Arc in Hawaii).
Father Bruce Ritter
The late Father Bruce Ritter founded Covenant House (CH) in 1972 to create a safe shelter for homeless teenagers. The organization had its humble beginnings in Ritter's shabby New York apartment where he first began providing housing for homeless youth. CH quickly grew into one of the most well-regarded charities in the nation. Ritter was called an "unsung hero" by President Reagan and was applauded by the first President Bush and Mother Teresa, alike. But underneath all of this public acclaim, rumors had circulated for years of sexual relations between Ritter and residents of CH, according to a report commissioned by the charity.
Four men stepped forward between 1989 and 1990, according to Time magazine, accusing Ritter of having sexual relationships with them while they were under his care. Ritter allegedly diverted up to $25,000 in CH money to finance one of these affairs, according to Time. Although Ritter denied these allegations, he stepped down amidst the scandal. CH then launched its own investigation into the priest. The resulting report cited 15 cases of reported sexual contacts between Ritter and people sheltered or working at CH. The report concluded that evidence "that Father Ritter engaged in sexual activities with certain residents and made sexual advances towards certain members of the Faith Community is extensive."
The investigators also found what they described as minor financial irregularities at CH. According to the report, Ritter diverted CH funds to the Franciscan Charitable Trust, an organization he founded, and loaned charity money to two senior staff members who later resigned. The report also noted that CH had been structured so that Ritter had complete legal and operational control over its affairs, giving the board little authority or oversight powers.
William Aramony served for 22 years as president and CEO of United Way of America (UWA), the umbrella group for thousands of local United Way organizations that fund social and human service projects nationwide. In 1992, Aramony resigned amidst allegations that he siphoned money from UWA through spin-off companies he helped to create. Before the scandal broke, Aramony was widely respected as one of the most influential nonprofit leaders of his time. He even had a hand in creating many of the rules under which charities operate today. In 1995, Aramony and two conspirators, Thomas Merlo and Stephen Paulachak, were convicted of defrauding UWA. Aramony was convicted on 25 felony counts and sentenced to seven years in prison for fraudulently diverting $1.2 million of the charity's money to benefit himself and his friends.
This scandal is especially memorable given how Aramony chose to use some of the charity's funds. For instance, he used UWA cash to woo a girl, Lori Villasor, who was only 17 years old when they began dating; Aramony was 59. He met Villasor while dating her slightly older sister. Both young women were added to UWA's payroll. For his notoriously young girlfriend, Aramony spent $450,000 of the charity's money to purchase and lavishly furnish a New York condo; $78,000 to chauffeur her around New York City; and $4,800 to renovate her home in Florida. The couple vacationed in Egypt, London, Las Vegas, and Atlantic City. The New York Times reported on the testimony of Aramony's former aide, Rina Duncan, with whom he also had an affair. Duncan testified to falsifying Aramony's expense records for seven years so that he could charge the charity for things like champagne, flowers and plane tickets for Villasor.
Aramony was also known for treating female employees inappropriately. He offered some women financial benefits if they had sex with him and would transfer those who declined, according to the indictment. Aramony's lawyer claimed there were medical reasons for his client's behavior, arguing Aramony's ability to control impulses was impaired by brain atrophy.
When Aramony resigned amidst scandal in 1992, the organization's growth in contributions stalled for a few years. CharityWatch president, Daniel Borochoff, remarked in USA Today in 1995 as to how the scandal influenced public perception of charities, saying, "It created a climate where donors are more questioning. They want to know more about how an organization is governed and the ethics of its leaders."
John Bennett, Jr.
In 1989, philanthropist and entrepreneur John Bennett, Jr. founded the Foundation for New Era Philanthropy (New Era), an organization which boldly promised to double the investments of nonprofits. In reality, New Era was nothing more than a Ponzi scheme that, at the time of its collapse, was considered the biggest financial scandal in the history of American charities. Victims lost $135 million to New Era over its five and a half years of operation.
New Era's premise was simple: a nonprofit would deposit money with New Era for a period of time. At the end of the holding period, the deposit would be matched by an anonymous donor and the now doubled funds would be sent back to the nonprofit. In reality, New Era was paying its original investors with money from new investors. It covered any shortfalls with loans that eventually totaled $50 million. In 1995, New Era's loans were called in. Unable to repay them Bennett was forced to place New Era into bankruptcy and admit that his anonymous donors never existed.
In 1996, Bennett was charged in an 82 count indictment. Evidence showed that Bennett siphoned approximately $7 million from New Era for personal expenditures, including transferring charity funds to his own for-profit businesses. In 1995 he also used New Era funds to buy a Lexus and to pay himself an average of $26,785 per week in consulting fees. In 1998, Bennett was sentenced to twelve years in prison for his crimes.
Bennett was able to cover his tracks for so long by giving false information to both regulators and investors. For example, in correspondences with the IRS, Bennett misrepresented New Era's assets, listed fictitious board members, and submitted fabricated board meeting minutes. He also used his reputation as a leading Christian figure to disarm donor suspicions. Bennett was able to secure donations from prominent donors such as Laurance Rockefeller, the brother of David Rockefeller, and former Treasury Secretary William Simon; and investments from major nonprofits like American Red Cross, World Vision, and Nature Conservancy. The caliber of those associated with New Era helped attract others. As quoted by the Associated Press, CharityWatch President Daniel Borochoff commented that nonprofits "evidently saw New Era making money for a competitor and just played follow the leader, gambling away their individual donor contributions for snake oil."
Hale House (HH) was co-founded in 1969 by Clara Hale, a Depression era widow known for taking needy children into her home, earning her the affectionate title "Mother Hale." For decades, HH provided help for children touched by poverty, drug abuse, and AIDS. Sadly, Clara Hale's daughter and HH co-founder, Lorraine Hale, tarnished the legacy of her mother and the image of the venerable charity when she took over after her mother's death in 1992.
Extravagant spending by Lorraine Hale and her husband, Jesse DeVore, who was employed as HH's public relations director, was widely reported in the media. The New York Daily News exposed that Hale House Foundation (HHF), a separate fundraising arm of the charity, spent $444,953 on a bronze statue of Mother Hale in 1995. HHF also amassed an art collection valued at $440,133, according to the paper, most of which Lorraine Hale used to adorn her private office. The New York Times reported that HH employees overheard DeVore refer to the shelter's children as "cash cows."
In 2002, Hale and DeVore were criminally indicted by then New York Attorney General Eliot Spitzer for stealing over $700,000 from their charity. AG Spitzer also filed a civil suit against the two, seeking the recovery of over $1 million in charity funds that Hale used to pay her property taxes, install a jacuzzi in her home, pay her brother's legal expenses, and give $500,000 to her husband's failed theatrical production. That same year, Hale and DeVore pled guilty to stealing Hale House funds and falsifying business records.
Roger Chapin, a self-described "non-profit entrepreneur," has founded more than thirty charities and advocacy projects over the past forty-four years. His causes have ranged from curing Alzheimer's disease and cancer, to assisting veterans. Unfortunately, Chapin's track record often shows that he uses his charities to enrich himself and his friends while spending too little on funding the causes he touts. The U.S. House Committee on Oversight and Government Reform subpoenaed Chapin in 2007 when he refused to voluntarily testify at its hearing on rampant financial inefficiency at many of the nation's veterans charities. Chapin was later compelled to testify at a second hearing in early 2008.
Congress' investigation confirmed CharityWatch's previous findings that only about 25% of the $168 million raised between 2004 and 2006 by Chapin's veterans charities, Help Hospitalized Veterans (HHV) and Coalition to Salute America's Heroes (CSAH), went to veterans. During the same period Chapin and his wife received $1.5 million in compensation, plus $340,000 to cover restaurant, hotel and other expenses. $446,000 of charity funds were used to purchase a condo for use by Chapin and his wife, according to the investigation. Chapin hired his long-time friend and direct mail expert, Richard Viguerie, to conduct fundraising campaigns for HHV, paying Viguerie's company $14 million between 2000 and 2005.
Chapin was highly skilled at painting his charities in a favorable light for potential donors, often using celebrities to promote his nonprofit endeavors, or employing accounting tricks to inflate his charities' financial efficiency. For example, CSAH paid $100,000 to General Tommy Franks in exchange for his endorsement, the congressional investigation revealed. CharityWatch president, Daniel Borochoff, who was invited to provide advice and expert testimony at the hearing, alerted the Committee about unusual or inefficient financial transactions at Chapin's charities. In 2006 HHV and CSAH each counted the same donated "phone cards," valued by the charities at $18.7 million, as a contribution and program expense in their financial statements. These cards could not be used by soldiers overseas to call home, but rather to listen to sports scores and hear advertisements. Combined with $2 million in donated public service airtime, the cards accounted for 85% of CSAH's reported programs expense in 2006. This financial reporting made Chapin's charities appear to be highly efficient even though most of the charities' cash was not going to veterans.
When Chapin retired from HHV in 2009 he rewarded himself, with approval from his charity's board of directors, with a generous $1.9 million payout which HHV claimed was for "retirement." This payment was in addition to the years of annual, multiple six-figure salary and benefits he received while serving as president of the organization. Read more about Roger Chapin's extraordinary retirement payout from HHV and more CharityWatch articles about HHV. After retiring from HHV, Chapin continued as president of CSAH and a newer nonprofit he founded, Help Wounded Heroes.
Roger Chapin passed away in August of 2013 just as he and other directors of HHV had reached a settlement with the California Attorney General's office requiring them to resign from the charity and to pay a collective $2.5 million in restitution. Read about the details of the settlement in Leadership Booted at Dishonored Veterans Charity.
CharityWatch members are certain to be familiar with Larry Jones, whose antics as president of Feed the Children (FTC) earned the group the moniker "Most Outrageous Charity in America" from CharityWatch. Jones is also famous for appearing in FTC's television infomercials that featured malnourished children in impoverished areas around the world. During Jones' nearly three decades as president of the charity, FTC was plagued by financial impropriety and mismanagement. For example, in 1999 an investigation by television station WTVF revealed that local FTC executive staff in Nashville regularly took boxes of donated goods for themselves from the FTC warehouse. That same year The Daily Oklahoman reported that FTC allegedly attempted to pressure the newspaper into not reporting on Jones' son, Allen, who had filed for personal bankruptcy and revealed that he owed his father's charity $950,000. The paper's editor reported that Jones said he would give the newspaper a story "twice as good" if it did not publish its story. CharityWatch sounded the alarm bell when it came out that FTC's former chief financial director confessed to forging the signature of the accounting firm Arthur Andersen on FTC's 1997, 1998 and 1999 financial statements. Jones also had a history of making major decisions without board approval, including awarding a $40 million annual, no-bid television buying agreement to Affiliated Media Group, a company that employed Jones' son, Allen.
Despite the numerous scandals that took place under Jones' leadership, he remained at the charity for nearly three decades before FTC's board finally took action. The final straw was Jones' 2009 admission that he had authorized the wiretapping of FTC's offices in order to secretly record his conversations with his employees. FTC's board decided to put an end to his "freewheeling dominance" over the charity, demanding that Jones take a sabbatical for an indefinite period of time. Jones did not go away quietly. He attempted to install a new board who would be loyal to him. When that failed and he was fired, Jones responded with a wrongful termination suit.
The charity responded with a countersuit alleging that Jones took kickbacks from vendors, lied to FTC's board about giving himself and his wife unauthorized raises, misused charity funds, and had a large stash of pornography hidden in his private area at this Christian charity. In January 2011, Jones and FTC announced a resolution of the legal dispute. Jones is no longer associated with the charity he founded. Only as of its 2017 fiscal year has FTC started to improve upon its prior "F" and "D" ratings from CharityWatch.
John Donald Cody aka "Bobby Thompson"
A man who assumed the stolen identity of "Bobby Thompson" disappeared in June 2010, and went on the lam with a nationwide warrant for his arrest for crimes including corruption, theft, and money laundering associated with his sham charity, The United States Navy Veterans Association (USNVA). Thompson gained credibility for his organization, and donors' trust, by claiming that he and other charity officers were ex-military men, and that USNVA had been in operation since 1927 with dozens of local chapters throughout the U.S. The charity's website boasted of 66,000 "members," cited substantial contributions from nonexistent foundations, and featured thank-you notes from soldiers USNVA purported to have helped. An in-depth investigation conducted by the St. Petersburg Times exposed USNVA to be virtually a one-man operation run out of a Florida duplex by an unidentifiable man with no record of military service. By the time Thompson's deception was uncovered he had already succeeded in bilking donors out of nearly $100 million over a seven year period.
Thompson's con extended beyond charity fraud to influencing legislation. He hired a lobbyist to persuade Senator Patsy Ticer to sponsor a Virginia state law exempting certain veterans groups like USNVA from registration that discloses financial activities and other information for public scrutiny. Senator Ticer agreed to sponsor the bill, and by the time she became aware of the serious problems at USNVA it was too late to prevent it from becoming law. Thompson also contributed $67,500 to Virginia politicians. After the USNVA scandal broke all of them eventually agreed to donate those monies to other veterans charities.
Thompson disappeared just as several states began investigating USNVA, with Ohio's attorney general (AG) taking the lead. In October 2010, an Ohio grand jury indicted Thompson and Blanca Contreras-a former citrus processing plant employee who had signed USNVA registration papers in several states claiming to hold executive positions at the group. Contreras was arrested and pled guilty to charges including corruption, theft, and money laundering. She is currently serving a five-year sentence in Ohio. According to a press release from the Ohio AG, the state "won a default judgment for $3.7 million plus attorney fees" from USNVA, having "proved the organization had falsely claimed to raise money for US veterans' causes; in reality, very little money ever went to help veterans."
For more on the USNVA scandal, read Phantom Charity Takes Flight: Leaves Veterans Stranded.
2013 UPDATE: Bobby Thompson was captured by U.S. Marshals in Portland, Oregon after being on the run for close to two years. After his arrest authorities found numerous fraudulent ID's in his possession, as well as a suitcase with $980,000 worth of cash. Thompson later admitted that his real name is John Donald Cody. Mr. Cody has been described as a Harvard-educated lawyer and a former Army intelligence officer. In November 2013 an Ohio court convicted him on 23 counts including stealing, identity theft, money laundering and record tampering. He received a 28-year prison sentence and a $6 million fine. In an interview with Reuters, CharityWatch President Daniel Borochoff said "No one has ever made a bigger mockery of veterans, politicians and charity as Bobby Thompson did with his U.S. Navy Veterans Association."
Greg Mortenson, founder of the Central Asia Institute (CAI) and author of New York Times best selling books Three Cups of Tea and Stones into Schools, was the darling of philanthropic and literary communities until CharityWatch began investigating his charity in 2009. CharityWatch uncovered a serious lack of segregation between CAI's finances and Greg Mortenson's personal business interests. 2009 financials showed that the charity funded Mortenson's book promotion and speaking events, yet it received no revenue from book sales or advertising and little to none of the $25,000 to $30,000 per-event speaking fees Mortenson charged at speaking engagements.
After seeing CharityWatch's articles on the charity, 60 Minutes contacted us for insight into CAI's finances. CharityWatch president, Daniel Borochoff, was later interviewed by 60 Minutes correspondent Steve Kroft for a story that revealed the problems at CAI went well beyond financial mismanagement. 60 Minutes surveyed about thirty schools that CAI claimed to have built, finding that roughly half of them were empty, built by someone else, or not receiving funding from CAI. 60 Minutes also interviewed author and former donor to CAI, Jon Krakauer, who argued that many claims made in Mortenson's inaugural book were fictitious. Mortenson later admitted that events in his books were compressed, but insisted any literary license taken did not amount to lying.
CAI's board confirmed to 60 Minutes that CAI spent only 41% of its expenses on building or supporting schools in 2009, but argued that the funds it spent on speaking events at which Mortenson promoted his books should also be counted as a charitable program. That year CAI spent $1.7 million on book-related costs that included "Advertising, events, film and professional fees, publications (books & freight), and some travel," according to its audit. One attorney who examined CAI's financial activities advised Mortenson and the charity's board that "CAI's outlays for book advertising and travel expenses for Mortenson's speaking engagements appear to be in violation" of IRS rules, and that Mortenson could owe $7.2 million or more for "excessive benefits received during 2007, 2008, and 2009."
The charity's 2010 tax form revealed it continued to spend more on "awareness," including Mortenson's books, than funding schools that year. CharityWatch called for Mortenson's resignation earlier this year, arguing that CAI will be unable to recover from its tarnished reputation with him at the helm. The charity is also under inquiry by the Montana attorney general.
UPDATE: Montana Attorney General announced a settlement agreement requiring Greg Mortenson, author of Three Cups of Tea, to pay more than $1 million in restitution for financial wrongdoing at the charity he founded, Central Asia Institute.
The Wingo Family
Joe Wingo, his wife Linda Wingo, and their son Andy were the subjects of a 49-count federal indictment for the theft, fraud, kickbacks, and cover-ups that plagued their charity, Angel Food Ministries (AFM), a Georgia-based nonprofit.
Joe Wingo, who also served as a pastor at a church he founded, started AFM in 1994, a few years after he served a one-year prison sentence for extortion. The organization's stated purpose was to sell affordable food to the needy by purchasing food in bulk and distributing it through a network of volunteers and churches. It was partially funded by the USDA through an almost $7 million low interest loan issued in 2005.
In September 2011, the Wingos shut their charity down. Two months later federal investigators concluded a four-year investigation of AFM with an indictment that listed numerous alleged illegal activities. These included the use of charitable funds for extravagant personal spending (including cars, sporting goods, electronics, and a down payment on a jet aircraft which the Wingos then leased back to the charity), issuing millions of dollars in "bonus wages" to family members, who then paid the charity back the money in a scheme to cover up the Wingos' debts to the charity, setting up a complex system requiring vendors to pay kickbacks to the charity as a condition of doing business, using charity funds to support political campaigns, and attempting to hide and destroy evidence being sought by federal investigators.
According to the Middle District of Georgia U.S. Attorney's Office's release of August 2013, Joe Wingo had admitted to prosecutors that he used his position at AFM to make personal purchases with charity funds and then tried to hide these expenditures. Joe and Andy have each been sentenced to seven years in federal prison after pleading guilty to conspiracy to commit money laundering. Joe and Andy must forfeit about $1.5 million and $2.4 million, respectively, and Joe must pay a $15,000 fine. Linda has been sentenced to five years of probation and must pay a $25,000 fine after pleading guilty to misprision of a felony (having knowledge of a crime and concealing its commission).
Somaly Mam is known the world over as a champion for women and girls forced into the sex trafficking industry. She co-founded two nonprofit organizations, Agir Pour Les Femmes en Situation Précaire (AFESIP) and the Somaly Mam Foundation (SMF) to combat this issue. Mam is described as a courageous and beautiful activist whose rise to fame has hinged on her own claims of sexual slavery and torture and those of the women she has helped save, who she refers to as her "girls." Unfortunately, most of those claims have been called into question.
Mam has jet-setted around the world rallying influential people to her cause. She has secured millions in donations by telling her harrowing stories about rape, abuse and slavery. SMF reports having served thousands of women and girls.
In 2009 Mam was named one of Time’s 100 most influential people. Mam courted famous supporters including actresses Angelina Jolie and Susan Sarandon, plus Facebook Chief Operating Officer Sheryl Sandberg. Pulitzer-winning New York Times journalist Nicholas Kristof has also been a well known supporter, having written several glowing columns about her and having interviewed her “girls.” Behind these celebrity endorsements and honors, however, Mam appears to have another side.
Since 2012 questions have been raised about the truth of Mam’s history and those of her most visible "girls." In May 2014, Newsweek reporter Simon Marks wrote about many alleged discrepancies in Mam's stories. According to Marks, Mam is not in fact a victim of sex trafficking. Based on Marks' research, he alleges that a couple of her most heart rendering stories are at best misrepresented and at worst fiction. After the alleged discrepancies in Mam’s stories were reported, Kristof stopped his Mam boosterish and said, "I now wish I had never written about her."
Mam also risked humiliating the girls she had been trusted to protect by parading them in front of the media and donors, and coaching them to tell emotionally charged and exaggerated stories. For example, according to Newsweek, one of Mam’s "girls" confessed to fabricating her story under Mam’s instruction. Mam’s emotionally driven campaign to end sex trafficking is certainly an important and serious issue, but according to sex trafficking experts, the problem is misunderstood due in part to exaggerated and grisly stories, such as those told by Mam and her group. An important distinction that Mam has consistently ignored is that prostitution and sex trafficking are not the same thing and require different responses. Many of the programs AFESIP provides are geared towards sex trafficking victims, including vocational training for low wage jobs and informal education with a victim-centered approach. These programs would not necessarily appeal to or be appropriate for those who freely chose prostitution for its economic benefits.
SMF announced in October 2014 that it has permanently closed its doors. CharityWatch can only assume that SMF was unable to recover from the controversies surrounding Somaly Mam.
James Reynolds,Sr. & 24 Family Members
The James Reynolds, Sr. (Reynolds) web of shameful charities began almost 30 years ago when he started the Cancer Fund of America (CFA) in 1987 after being forced out of his job at the Knoxville County, Tennessee chapter of the American Cancer Society (ACS). To raise funds for CFA, Reynolds used the services of for-profit professional fundraisers, as well as a conveniently similar sounding name, post office box address, and timing of neighborhood door-to-door solicitation campaigns as ACS. (ACS is often nicknamed “the Cancer Fund.”) This fundraising strategy worked well for Reynolds, as CFA’s annual cash contributions eclipsed $10.5 million by just its fourth year of existence. But rather than spreading charitable good to cancer patients and their families as donors were misled to believe, CFA, under the control of Reynolds, has spun a web of allegedly deceitful charity operations that have done little else but profited professional fundraisers and enriched Reynolds and his extended family with unmerited salaries and personal benefits, all according to a complaint filed in federal court in May 2015.
CharityWatch has been giving the Cancer Fund of America an “F” rating since 1993 for its extremely low program spending and high fundraising costs. Apparently, however, operating just one disgraceful charity wasn’t enough for Reynolds and some of his family. Between 2002 and 2011, four additional charities, each with “cancer” in its name, have been started and run by either Reynolds or a Reynolds family member who had previously worked at CFA. Following in his father’s footsteps, James Reynolds, Jr. (Junior), who worked at CFA from the age of 16, started two of these charities, and he was a founding member, as well as president, of the board of directors of a third. Just like CFA, the four spin-off charities, Cancer Support Services (CSS), Children’s Cancer Fund of America (CCFOA), The Breast Cancer Society (BCS) and American Association for Cancer Support (AAFCS), receive “F” ratings from CharityWatch. In fact, these Reynolds family charities perform so poorly with regards to financial efficiency that CFA, consolidated with its “affiliate” CSS, has the “best” of the “F” grades with a 13% program services percentage and $80 cost to raise each $100 (based on CharityWatch’s most recent ratings for each CFA & CSS (rated together), CCFOA, BCS, and AAFCS, respectively).
A family connection among five charities that all have extremely low program spending and high fundraising costs is shameful in and of itself. CFA has even faced charges, some dating back to as early as 1989, from about 20 states for allegedly misleading donors, but it has paid fines and continued to operate. However, the disturbing claims in the May 2015 federal action against four of the Reynolds family charities, CFA, CSS, CCFOA and BCS, Reynolds, Junior, and Reynolds’ ex-wife, Rose Perkins (Perkins), have cinched Reynolds and his family a spot in the CharityWatch Hall of Shame.
The federal complaint alleges that CFA, CSS, CCFOA and BCS deceived donors with false claims to raise funds and “operated as personal fiefdoms characterized by rampant nepotism, flagrant conflicts of interest, and excessive insider compensation, with none of the financial and governance controls that any bona fide charity would have adopted.” According to the Federal Trade Commission (FTC), the four Reynolds family charities “bilked” donors for more than $187 million between 2008 and 2012, with donor dollars being used to enrich family members and friends with lucrative salaries and personal items including cars, trips, luxury cruises, college tuition, gym and dating site memberships, and sports and concert tickets. Twenty-two individual family members are or have been employed by Reynolds, Perkins and/or Junior at CFA, CCFOA and/or BCS, as described in the complaint. Also in common among CFA, CCFOA and BCS was the use of for-profit professional fundraisers that worked under contracts giving the professional fundraisers typically 80% or more of the cash contributions collected through solicitations — solicitations allegedly full of misrepresentations and false claims about the charities and their programs, according to the complaint. Additionally, the four Reynolds family charities are accused of using “an extensive scheme involving shipping GIK [gifts in-kind (or non-cash)] goods internationally” to mask unfavorably high administrative and fundraising costs. (As reflected by the history of “F” grades CharityWatch has given these charities, we weren’t fooled by their “extensive” international GIK “scheme” since we remove the value of GIK as part of our standard analysis. Such GIK “schemes,” however, have long been an industry-wide concern to CharityWatch.)
Reynolds, Perkins, Junior, and their charities, CFA, CSS, CCFOA and BCS, have the dubious honor of being the first defendants in an enforcement action alleging deceptive solicitations by charities to be filed jointly by the FTC, all 50 states, and the District of Columbia. CCFOA, BCS, Perkins and Junior have agreed to settlement terms, which include dissolving CCFOA and BCS plus prohibiting Perkins and Junior from fundraising, charity management, and the oversight of charitable assets. Monetary judgments totaling approximately $95.6 million combined also were entered against CCFOA, BCS, Perkins and Junior, reportedly based on the amounts donors contributed to the two charities from 2008-2012. The liquidation of the assets of CCFOA and BCS, respectively, will be used to partially satisfy the monetary judgments; the judgment against Perkins will be suspended based upon her inability to pay, and Junior’s will be suspended after he pays $75,000. CFA, CSS and Reynolds have not settled, and the case against them will continue to be litigated (as of June 2, 2015).
March 30, 2016 Update: CFA & CSS Shut Down and Reynolds Banned for Life Under Settlement Orders
Cancer Fund of America (CFA), Cancer Support Services (CSS), and their leader, James Reynolds, Sr., have agreed to settle charges related to the claims made in the May 2015 action alleging that CFA, CSS, CCFOA and BCS bilked donors out of more than $187 million. CFA and CSS allegedly were responsible for more than $75 million of the claimed amount. Under the settlement orders, CFA and CSS will be permanently dissolved, and Reynolds is permanently banned from managing, operating, fundraising, or otherwise working for a nonprofit organization.
The order imposes a monetary judgment against CFA, CSS, and Reynolds, jointly and severally, of $75,825,653, the amount consumers donated to CFA and CSS from 2008-2012. CFA's and CSS's judgment will be partially satisfied through liquidation of their assets. Reynolds' judgment will be suspended upon surrender of certain personal assets; the full judgment will become due immediately if he is found to have misrepresented his financial condition. The March 2016 settlement concludes the largest joint enforcement action ever undertaken by the FTC and state charity regulators.
Zvi Shor (aka “Steve Shor” and “Demetrie Bennett”)
Zvi Shor founded National Children’s Leukemia Foundation (NCLF) in 1991, reportedly in response to losing a son to leukemia. Shor served as NCLF’s president and leader, running the charity from the basement of his home in Brooklyn, NY. Over the years, NCLF solicited donations for impressive sounding programs that included having use of a bone marrow registry, banking umbilical cord blood, and operating its own cancer research center. Millions of dollars in funds were raised over more than 20 years for NCLF programs that never even existed. Furthermore, the falsehoods in NCLF’s solicitations were made with the approval or full awareness of Shor, who despite a criminal past, essentially was running a charity sham in the form of NCLF until finally being sued by the Office of the New York Attorney General (OAG) in 2015.
In addition to repeatedly lying to donors about the bone marrow registry, umbilical cord blood bank, and cancer research center programs, Shor approved fundraising scripts that touted that NCLF’s “research team” filed a patent application for a “new cure” or “lifesaving treatment” for leukemia when, in fact, there was no such patent application, nor even an NCLF research team. NCLF also heavily promoted a “Make A Dream Come True” program for terminally ill children that did little more over the past several years than pay for one laptop computer and one trip to Disney World. Shor’s transfer of about $655,000 in NCLF funds as alleged grants to a supposed research organization in Israel also is questionable given that Shor created the Israeli organization and his sister controlled it, plus the OAG was not provided with satisfactory proof to establish how much of the $655,000 was actually used for research purposes. Additionally, Shor likely knew that NCLF’s charitable program spending looked much better on paper than it actually was because NCLF was reporting its expenses in a way that minimized fundraising costs and did not follow relevant accounting rules, thereby further deceiving donors, according to the OAG.
By way of the OAG’s investigation and admissions by some of the defendants, we now know that Shor was able to create NCLF and control its operations with no oversight by any bona fide board of directors. NCLF filed years of falsified IRS and state filings that listed board members who had no involvement with the charity, some of which weren’t even aware that they were being listed. These bogus filings misrepresented NCLF as being overseen by a 13- to 16-member board of directors plus a separate medical advisory board. NCLF also falsely reported the existence of a compensation committee, and the charity filed purported independent financial audits that failed to meet even basic auditing standards. Remarkably, even Shor’s criminal bank fraud conviction in 1999 apparently had no impact on his position as president and leader of NCLF until his criminal past finally was publicized in 2010.
Even after Shor’s criminal conviction became public, Shor still was able to maintain his reign over NCLF. Shor did so by giving his president’s title to a “straw” man, according to the OAG, who was NCLF’s accountant, Yehuda Gutwein, in May 2010 while Shor himself continued to lead NCLF. Shor also enlisted his son to be NCLF’s vice president as of around 2009 merely for the purpose of signing official checks and contracts at his father’s behest. Shor even was able to secure himself a ten-year position as NCLF’s “Founder and Senior Advisor” under the terms of an “Employment & Compensation Agreement” in early 2011 after Shor no longer officially had the title of president. At Shor’s request, Gutwein signed the agreement on behalf of NCLF, discussing Shor’s compensation with no one but Shor. The agreement gave Shor a salary of $134,804 with a guaranteed 4% annual increase; a lifetime pension that amounted to more than $100,000 a year; medical insurance for life; and $612,844 allegedly owed to him for back-pay. Given that neither Gutwein nor Shor’s son had any real involvement in NCLF based on their own admissions, for all intents and purposes, NCLF remained firmly under Shor’s sole control up until it was finally shuttered by the OAG in December 2015.
Having admitted to the fundraising abuses and other misconduct alleged by the OAG, Shor has forfeited his claims to the over $600,000 in back-pay, as well as the lifetime pension and insurance benefits, under a settlement agreement. Shor and NCLF’s other former officers also are banned from soliciting funds on behalf of any charity and from serving as fiduciaries of any New York charity, with a nationwide charity ban for Shor and his son. In addition, per the settlement terms, the OAG will recover $380,000, most of which will be directed to charities helping children with leukemia. Unfortunately, the portion of the $380,000 that actually will be used for childhood leukemia programs is a mere drop in the bucket compared to the millions of dollars raised under false pretenses by NCLF at Shor’s direction.
Kim Williams, the former payroll manager / accountant for the Healing Arts Initiative (HAI) was accused of stealing more than $750,000 from the charity. While this theft from HAI is unfortunate, because of the frequency of similarly sized thefts from nonprofits, it alone would not merit membership in the CharityWatch Hall of Shame. Charges against Williams, however, also included assault, weapons possession and conspiracy in an apparent cover up attempt that is so heinous that it, along with what appears to be Williams’ role in HAI’s eventual shutdown, clearly befit the Hall of Shame.
Founded in 1969, HAI, which closed suddenly in May 2016, was a New York-based nonprofit with a mission to remove barriers to arts and culture and inspire healing, growth and learning through engagement with the arts. HAI hired Kim Williams as a payroll clerk in 2011, and prosecutors alleged that her embezzlement scheme took place from November 2012 to August 2015, according to The New York Times. Williams was accused of creating dozens of phantom employee bank accounts wherein she direct-deposited over $750,000 of HAI funds, with about $600,000 going to her own benefit and $150,000 to that of her best friend, Pia Louallen, who also was charged in the case. Williams reportedly seemed to live fairly well for someone with her salary, including driving a late-model Mercedes, having a second home in Florida, taking lavish vacations, and going on shopping sprees; although The New York Times noted, “Some of her income may have come from a side business she owned and ran from her office computer called Virago, Inc., which sold sex toys and offered online sex seminars.”
By 2015, it is reported that Kim Williams was effectively running the fiscal operations of HAI after the former chief financial officer (CFO) had been removed and not replaced. The HAI staff, however, began noticing an increase in financial irregularities, including bounced checks, declined credit cards, and debt that had ballooned even though cost cutting measures were being employed. A former longtime HAI board member expressed particular concern over the financial problems and reportedly urged fellow board members to investigate, but even after HAI hired a forensic accountant in January 2015, according to The New York Times, Williams’ alleged embezzlement scheme apparently went undetected, or at least unexposed. Williams’ luck started to run out in July 2015, though, when HAI hired a new, highly qualified executive director, the Reverend D. Alexandra Dyer.
As the new executive director, Reverend Dyer started looking into HAI’s financial shortfalls but got stonewalled by Kim Williams when she inquired about access to the accounting system, Dyer’s lawyer told The New York Times. Dyer eventually would introduce Williams to the new CFO she planned to hire to correct the imbalances in HAI’s finances, touting his expertise in fraud detection. In response, Williams reportedly left the office abruptly, feigning a toothache, and then later that same day, she purchased drain cleaner at a supermarket using her credit card, according to police. Claiming to have a dental appointment the next day, Williams did not show up for work, but she was captured on surveillance video early in the morning going to HAI and leaving the office with boxes of files, Dyer’s lawyer told The New York Times. The day after that, as Dyer was walking to her car after work, she stopped for a man saying he wanted to ask her a question, but before she could respond, the man threw a cup of drain cleaner in Dyer’s face and fled. Surveillance video from the scene shows the man, reportedly named Jerry Mohammed, getting into a Mercedes registered to Williams’ friend, Pia Louallen, and Williams herself is then seen on a different security camera recording later exiting the same Mercedes, all according to authorities.
The caustic drain cleaner burned Reverend Dyer’s face so severely that she spent two months in a hospital burn unit and has had to endure multiple reconstructive surgeries on her face since the August 2015 attack. Even from her hospital bed, Dyer continued to conduct HAI business by meeting with forensic accountants and taking calls from colleagues, Dyer’s lawyer told The New York Times. Then, adding insult to injury, in early May 2016 HAI’s board of directors fired both Dyer and the new CFO she had hired. The board said in a statement that the firings were for withholding “critical financial and other information,” but the now former CFO claimed that they were retaliatory in nature, according to The New York Times. The claimed retaliation is presumed to be for his and Dyer’s complaints to the New York State attorney general about the board’s stewardship and Dyer’s decision to sue the board on behalf of HAI. The lawsuit reportedly sought $750,000 from the board and their removal, claiming they were negligent and failed to prevent the thefts. The New York Times noted that a spokesman for the HAI board said that the lawsuit was not the reason for the terminations of Dyer and the CFO.
About one week after the firings, HAI suddenly shut down and was expected to declare bankruptcy, according to The New York Times. The curious circumstances and developments surrounding the exposure of Kim Williams’ alleged embezzlement scheme only seem to be raising more questions for CharityWatch, including the possibility of perhaps some level of board member knowledge of or involvement in the scheme.
Kim Williams, Pia Louallen and Jerry Mohammed reportedly have all proclaimed innocence through their lawyers in this case, but each of them respectively were facing multiple charges and a potentially lengthy prison sentence in connection with their alleged crimes. Williams was charged with two counts of first-degree assault, two counts of conspiracy, two counts of grand larceny, weapons possession, falsifying business records, and 48 counts of identity theft; as of late April 2016, she was being held without bail and faced up to 25 years in prison, according to The New York Times. While it is reprehensible for anyone to steal from a charity, it is even more horrendous to permanently disfigure the individual brought in to uncover the wrong doing.
“WonderWork presents a case study on how a dominant CEO, left unchecked by a passive and overly deferential Board of Directors, can damage a charity beyond repair" – Final Report of Examiner, In re WonderWork, Inc. (U.S. Bankruptcy Court)
One-time advertising executive, Brian Mullaney, co-founded the cleft-lip and palate charity SmileTrain in 1999 after having served for several years on the board of a charity with a similar mission, Operation Smile. As CEO of SmileTrain, Mullaney approved tens of millions in fundraising costs that helped the charity bring in up to $120 million in donations annually. With his heavy use of ad copy style semantics, Mullaney can be credited with popularizing the now thoroughly debunked charity fundraising tactic of claiming to donors that “100%” of donations go to programs. Internal feuding between Mullaney and SmileTrain’s other co-founder, Charles Wang, resulted in Mullaney’s termination as SmileTrain’s CEO in 2010, according to the Final Report of Examiner, as filed with the U.S. Bankruptcy Court in November of 2017. A series of legal battles between Mullaney, SmileTrain, and Wang followed. In one, SmileTrain UK won a summary judgment against Mullaney ordering him to repay the charity 633,000 GBP (over $1 million) related to unauthorized payments.
In 2011, Mullaney co-founded a new charity, WonderWork, which filed for bankruptcy in 2016 after losing a legal battle that resulted in a $16 million judgment against it. As part of the bankruptcy proceedings, the court-appointed Examiner analyzed the charity’s finances and governance, and in his Final Report stated, “WonderWork abused the public’s trust from its inception. Through fundraising campaigns designed to mislead donors as to how their contributions would be spent, and an accounting system which failed to properly record and track those contributions, WonderWork raised, and then misapplied and misused, millions of charitable dollars.”
Mullaney resigned from WonderWork in 2017 amid allegations of fraud and mismanagement. Among the Examiner’s findings were that Mullaney had instructed the charity’s CFO to maintain a separate ledger for his payroll, and to subtract in excess of $400,000 of personal and claimed business expenses from his compensation to avoid income tax reporting. Mullaney, who earned an annual base salary of $475,000, failed to report a total of $700,000 of bonus compensation to the IRS in WonderWork’s annual 2012 through 2015 tax filings. In the Final Report, the Examiner included an “Attorney General Referral” to the New York Attorney General’s office for investigation and potential further action against WonderWork, as well as possible claims against Mullaney for unjust enrichment, excess benefit transactions, breach of fiduciary duty, and duty of loyalty claims for improper compensation and expense arrangements made for Mullaney’s personal benefit.
SEE ALSO: WonderWork Co-Founder is No Mr. Wonderful (Posted 03/08/2018)
Lola Jean Amorin
In one of the largest white-collar crime cases in the state of Hawaii, Lola Jean Amorin was sentenced to 25 years in prison in August 2018 after pleading no contest to embezzling nearly $7 million from The Arc in Hawaii, a nonprofit that provides services for people with intellectual and developmental disabilities. (The national office of The Arc, The Arc of the United States, is currently Top-Rated by CharityWatch. The Arc in Hawaii, like all of the local-based affiliated chapters of The Arc, operates independently and does its own separate financial reporting. There is no overlap of governance or operations with the national office or among affiliates, apart from their common mission. CharityWatch does not rate The Arc in Hawaii.)
Amorin, 71 years-old at the time of her sentencing, was a Senior Accountant at The Arc in Hawaii (ARC) and had worked at the charity for more than 30 years before being accused of the misappropriation. The 18 criminal charges against her included first-degree theft, computer fraud, money laundering and tax evasion. In its fiscal 2017 tax filing, ARC reported becoming aware of a “significant diversion” of assets: “In March 2017, an impropriety was discovered involving a former employee. Following a detailed review of the financial records for the [fiscal] year ended June 30, 2017, management discovered a misappropriation approximating $343,000 for the fiscal year…”
Amorin reportedly ended up stealing what amounted to about $50,000 a month from ARC, which affected the charity’s ability to serve its mission. Hawaii News Now reports being told of several instances when ARC needed to borrow money from a board member to pay its bills. Moreover, CharityWatch noted that ARC reported a negative unrestricted fund balance at fiscal year-end over a six-year span from fiscal 2011-2016. At fiscal year-end 2017, ARC reported having a positive unrestricted balance, but it was only $135,492. ARC’s annual expenses have averaged about $8.6 million per year since fiscal 2011; it reports receiving the vast majority of its annual revenue from government grants, according to its annual tax filings.
The words of Circuit Judge Glenn Kim summarize why Amorin’s actions at the expense of ARC were so shameful: “The scope and the extent of the criminal activity in this case is just staggering. […] She forged some 628 checks over 19 years … It was breathtaking,” said Judge Kim, according to a report on Amorin’s sentencing by Hawaii News Now. In CharityWatch’s opinion, anyone who is as brazen and immoral as to forge more than 600 checks over a period of almost 20 years in order to steal nearly $7 million from her nonprofit employer is deserving of a spot in our Hall of Shame. Adding to the shamefulness, Amorin reportedly spent the millions she stole to fund a luxurious lifestyle, buying five homes and multiple cars and paying for lavish vacations and home renovations, according to prosecutors.
In addition to her prison sentence, Amorin was ordered to pay $6.96 million in restitution and $337,554 in unpaid taxes. Further, Amorin’s husband, Albert Amorin, was sentenced to five years probation after pleading no contest to evading taxes on about $3 million that his wife stole from ARC and he failed to report as income on joint tax returns. It is unclear how much of the misappropriated funds ARC will be able to recoup, according to Hawaii News Now, which in June 2018 reported that prosecutors said ARC will probably recover only about a quarter of the amount taken by Amorin.
Included in a statement published by KITV Channel 4 Island News reporting on the Oahu grand jury’s indictment of Amorin in September 2017, The Arc in Hawaii said: “… [W]e were shocked and saddened when we discovered a former employee had stolen money from The Arc. … We have implemented new procedures and financial controls we believe will prevent similar crimes from occurring in the future…” CharityWatch certainly hopes that is the case because while no organization deserves to be victimized in such a way, ARC needs to take some responsibility for its role in failing to catch on to Amorin’s embezzlement scheme before it spanned 19 years and reached nearly $7 million in lost funds. Sadly, it is those with intellectual and developmental disabilities who rely on the services of ARC that were harmed the most by Amorin’s shameful and criminal acts.