Wednesday, June 29, 2011
In an absolutely explosive case harkening back to United Cancer Council, the NY Attorney General filed suit against the Coalition Against Breast Cancer, Inc. and several insiders alleging that the exempt organization is "a sham charity that has diverted nearly all of the millions of dollars raised in the name of breast cancer to its officers, directors and fundraisers. Get the full complaint here. For media reports click LATimes, Reuters, and USA Today. The complaint's first twelve paragraphs are set out below and, if true, the insiders have a lot more to worry about than just a state law action.
1. CABC is a sham charity that has diverted nearly all of the millions of dollars raised in the name of breast cancer to its officers, directors and fundraisers. Falsely claiming research affiliations with hospitals such as Memorial Sloan-Kettering and using other lies and exaggerations, Defendants deceive donors into believing that their donations will help eradicate breast cancer through research, mammogram screening and other programs. In reality, CABC spends none of its funds on eradicating breast cancer, nor does CABC have any research affiliation whatsoever with Memorial Sloan-Kettering or any other hospital nor does it conduct or fund any research on breast cancer or any other cancer. Nor does CABC perform any mamograms or other breast cancer screening nor is it affiliated with any mammography screening facilities and, as its own records show, CABC spends virtually nothing on breast cancer prevention.
2. Instead, in the last five years alone-a period that has witnessed 200,000 women die from breast cancer and millions more fighting to survive it-CABC has squandered and misused virtually all of the $9.1 million it raised in the name of breast cancer. By its own records, during this period, CABC spent less than 4 percent of the donations it received on any purported charitable programs, and almost none of the donations - less than one-half of one percent - went for charitable purposes authorized under its certificate of incorporation. In 2008, a year in which CABC raised over $1.4 million from the public, it spent a mere $374 for mammograms. In the last three years, despite raising over $4 million, CABC funded mammograms for only 11 women.
3. In short, Defendants have misused and wasted millions of charitable dollars that could have been used to treat and potentially save an untold number of breast cancer victims across this state and country.
4. Andrew Smith and Garrett Morgan, longtime friends and business associates, launched the CABC fundraising operation in 1995 to exploit the breast cancer nlovement for their personal financial benefit, at a time when both were in need of cash. Smith was emerging from personal bankruptcy and Morgan was being investigated for his role in a fraudulent meals-on-wheels charity, which was later ordered permanently shut down.
5. Smith and Morgan launched CABC despite having no connection to the breast cancer cause. From its inception, CABC has served as a cash machine for Morgan, Smith and other insiders. Defendant Snlith best summarized CABC's raison d'etre in a February 2010 email he sent to Morgan following a sharply critical press article that questioned CABC's legitimacy:
We are in a bad place. You need the money and so do I.
6. The CABC business model is straightforward: pick a sympathetic cause; lie and mislead donors about how donations will be used; provide a veneer of legitimacy by creating a website to exaggerate the organization's mission; spend a token amount on charitable programming; divert nearly all of the funds raised to the founders and other insiders; and ensure that there is no board oversight.
7. From CABC's inception, Smith has handpicked the board, appointing his family and friends, including his former wife, Lori Smith, and then later, his girlfriend, Debra Koppelman, and her friend Patricia Scott, none of whom had any experience in the breast cancer cause or non-profit management, much less the capacity to fulfill their fiduciary responsibilities as directors. As a result, CABC has operated without any financial oversight and without any controls preventing self-dealing and conflicts of interests, allowing it to run as a convenient piggy bank for CABC's directors and Morgan.
8. Were CABC a bona fide charity and were its board providing even the most basic oversight, it would have been apparent that CABC's mission was not being carried out, given that even after 15 years of operation, virtually none of the money raised in CABC's name went to legitimate charitable purposes. But CABC has no functioning board, with directors serving in nanle only. They perform no oversight, exercise no fiduciary responsibilities, and are simply content to continue the CABC fundraising operation led by Morgan, so long as they are paid their unjustified salaries and benefits.
9. Indeed, CABC's directors-Smith, Koppelman and Scott-have completely abdicated their fiduciary oversight responsibilities by ceding control over CABC's fundraising operations and strategy to Morgan and his for-profit telemarketing company, the Campaign Center. With no oversight, Campaign Center has gone unchecked and engaged in fraudulent fundraising tactics on CABC's behalf, including lying or grossly exaggerating the scope of CABC's charitable activities and mailing phony pledge invoices.
10. Smith, Koppelman and Scott have failed to exercise any diligence concerning whether the amount paid to Canlpaign Center is reasonable. Year after year, they renew the Campaign Center's contract without ever attempting to negotiate more favorable terms with the Campaign Center, or reaching out to other fundraisers not connected to Morgan to obtain a better deal for CABC. Instead, last year, CABC actually increased Campaign Center's cut from 80% to 85% even though there had been no change or inlprovement in the services provided. They even gave Campaign Center the exclusive right as "broker" to select other fundraisers for CABC.
11. Smith, Koppelman and Scott, who are all employed elsewhere, have used the charitable funds raised by Morgan to inlproperly pay themselves salaries, retirement benefits, dental, medical and other benefits-even free BlackBerry phones-despite providing no services' warranting these benefits.
12. Smith and Koppelman have also engaged in substantial insider transactions in violation of the Not-for-Profit Corporation Law, including $105,000 in loans to Smith, a $50,000 loan to Koppelman, and a risky stock sale by Smith to CABC.