My father-in-law, Joe, alerted me to a peculiar ad in the business section of the Sunday New York Times. Under the listing “Business Franchise Opportunities” were the words, “Charity Director Millionaire,” followed by a South Florida phone number. “This sounds pretty fishy,” Joe said. I agreed. And so I decided to pick up the phone and go fishing.
“Hello?” says the husky, male voice on the other end. No name. Just, “Hello?” It sounds like a personal cell phone.
“Yeah,” I say. “I’m calling about the ad in the New York Times. I’m wondering: How’s that all work?”
“Hold on!” And I can hear the guy shuffle off to a more private space.
He never does tell me his name, and I never tell him mine. He doesn’t ask me where I’m calling from or why I’m interested.
He starts right in with his pitch. “So for years I worked for a company that raised money for charity,” he says. “We did alright. More than alright. $60,000, $80,000 a week. Now we kept a lot of it and passed the rest on. I mean, we weren’t one of those outfits that kept 98% or anything! It was all on the up-and-up!
“So then I tell myself, ‘Why raise the money for another guy’s charity when I can raise it for my own?’ So I started this charity. It’s for handicapped kids. And I’m looking for people to run the franchise in different cities.”
Franchise?! I’m repelled. But I’m curious. “How’s it work?” I ask.
“So let’s say you become one of my people. You go out and get different businesses to contribute $5,000 each. In exchange they get a charitable deduction, plus I’ll shoot a t.v. ad for them – you see, I also have a video business. That in and of itself is a great deal for them, right? And then, well, depending on the volume, you personally keep 30% or 35% of what you raise for yourself. I can show you the numbers. I did this in Canada, and here, too – I have dual citizenship. You can make real money. I’m not kidding you.”
I can’t quite follow it all. I don’t really want to. I say, “So, the charity you’re creating: What’s it do?”
Short pause. “Well, we send sick kids to Disney World. Get them wheelchairs. That kind of stuff.”
He adds, “If you’re interested, the next step is to come down and meet me in Miami. We’d get to know each other. And I can set you up with my lawyer, and he’ll explain how this is all legal.” Yeah. All on the up-and-up, fella. You’re a great humanitarian.
End of call. I feel like I need a shower.
If this guy were the only one, it would be no big deal. But there are thousands of charity scam artists out there. Ken Stern, in his book With Charity for All, talks about “charities” that are nothing more than a P.O. Box, a phone bank, and names liberally littered with words like “children,” “cancer,” “veterans,” and “firefighter.”
You’ve probably fielded calls at home from these outfits. How do they get charitable status to begin with? Well, according to Stern, the I.R.S.’s Tax-Exempt Division is woefully understaffed. They aren’t able to do much more than give a sniff to new charitable entities – and so the I.R.S. approves over 99.5% of applications. And how many corrupt pseudo-charities do they subsequently shut down? Only about ten a year, nationally. In other words, it’s easy to get charitable status, and once you do, it’s almost impossible to lose it.
There are state charitable trust regulators as well. We have a very good unit in my state of New Hampshire, but I know that in some states there’s not much enforcement at all. And I’m pretty sure that none of these offices is deep with staff.
My would-be business partner in Miami and his ilk fleece donors and taxpayers (who subsidize their scams through the charitable tax deduction) and cast a dark shadow over the entire nonprofit sector. So what’s to be done? First, we should all do our best to turn the scoundrels in. In this case I did call the I.R.S. An agent there provided me with a form to send in, but without Mr. Miami’s name and address, I really couldn’t fill it out. Next time I’m in that situation, I will press for more information. And I urge you to do the same. We should also lobby for the I.R.S. and state regulators to get the resources they need to rein in a system that’s out of control.
Second, let’s publicly acknowledge that there are some people purporting to run charities who are bad guys, pure and simple. We shouldn’t ignore the specter of immoral and corrupt individuals who are using the charitable tax code for personal benefit. They’re a rotten bunch trying to scam the system. My sense is that a lot of folks – certainly the ones who keep sending money in response to shady phone solicitations – have no idea that some charities are rackets. The exploited donors need to understand what’s going on.
At the same time, the public needs to know that real nonprofits are very different: driven by mission and doing good work. Largely because of the scam artists, faith in the nonprofit sector has dropped in the last decade. It’s time to rebuild the sector’s image.
And if you’re wondering: no – I’m not going to Miami. Though given the weather this winter, it’s pretty tempting.
Copyright Alan Cantor 2014. All rights reserved.