Feds, States Shut Down Charity Telefunding Fraud
The Federal Trade Commission (FTC), along with 46 agencies from 38 states and the District of Columbia D.C., stopped a massive telefunding operation that hit 67 million consumers with 1.3 billion allegedly deceptive charitable fundraising calls. Most of the calls were illegal robocalls.
The defendants collected more than $110 million using their deceptive solicitations.
Associated Community Services (ACS) and related defendants have agreed to settle charges by the FTC and state agencies that they duped donors into giving to charities that failed to provide the services they promised. The complaint names ACS and its sister companies Central Processing Services and Community Services Appeal; their owners, Dick Cole, Bill Burland, Barbara Cole, and Amy Burland; and ACS senior managers Nikole Gilstorf, Tony Lia, John Lucidi, and Scot Stepek. In addition, the complaint names two fundraising companies allegedly operated by Gilstorf and Lia as spin-offs of ACS, Directele, and The Dale Corporation.
“Deceptive fundraising can be big business for scammers, especially when they use illegal robocalls,” said Daniel Kaufman, acting director of the FTC’s Bureau of Consumer Protection. “The FTC and our state partners are prepared to hold fraudsters accountable when they target generous consumers with lies.”
“Robocall technology, such as soundboards, allows users to reach a significant target population, and when utilized for deceptive or misleading practices – especially in charitable solicitations, it unfortunately means a significant number of potential victims,” Michigan Attorney General Dana Nessel said via a statement. “We must take swift action to hold accountable those who are unlawfully using this technology to serve their own agendas and preying on unsuspecting, hardworking people.”
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According to Florida Attorney General Ashley Moody: “The number of deceptive robocalls made by this operation is truly shocking. For these defendants to automate billions of calls on behalf of charities only to line their own pockets is utterly disgraceful.”
According to the complaint, the defendants knew that the organizations for which they were fundraising spent little or no money on the charitable causes they claimed to support — in some cases as little as one-tenth of one percent. The defendants kept as much as 90 cents of every dollar they solicited from generous donors on behalf of the charities, according to data from the FTC.
The complaint alleges that the defendants made their deceptive pitches since at least 2008 on behalf of numerous organizations that claimed to support homeless veterans, victims of house fires, breast cancer patients, children with autism, and other causes that well-meaning Americans were enticed to support through the defendants’ high-pressure tactics. ACS was also the major fundraiser for the sham Cancer Fund charities that were shut down by the FTC and states in 2015.
In many instances, the complaint alleges, ACS and later Directele knowingly violated the Telemarketing Sales Rule (TSR) by using soundboard technology in telemarketing calls. With that technology, an operator plays pre-recorded messages to consumers instead of speaking with them naturally. Use of such pre-recorded messages in calls to first-time donors violates the TSR. Use of the technology in calls to prior donors also violates the TSR unless call recipients are affirmatively told about their ability to opt out of all future calls and provided a mechanism to do so; the defendants did not make that disclosure. Most of Directele’s soundboard calls originated from call centers in the Philippines and India.
The complaint also charges ACS with making harassing calls, noting that ACS called more than 1.3 million phone numbers more than 10 times in a single week and 7.8 million numbers more than twice in an hour. More than 500 phone numbers were even called 5,000 times or more.
The ACS defendants were the subject of 20 prior law enforcement actions for their fundraising practices. The ACS defendants stopped operating in September 2019. Gilstorf purchased Directele and The Dale Corporation in October 2019 and, with Lia, the Directele defendants allegedly continued the deceptive fundraising and illegal telemarketing practices. The complaint alleges the defendants violated the FTC Act, the TSR, and numerous state laws.
You can read more about the terms of the settlements with the defendants, which are now pending court approval, here.
The funds being surrendered by the defendants will be paid to an escrow fund held by the State of Florida and, following a motion by the participating states and approval by the court, be contributed to one or more legitimate charities that support causes similar to those for which the defendants solicited.
The commission vote authorizing the staff to file the complaint and stipulated final orders was 5-0. The FTC filed the complaint and final orders in the U.S. District Court for the Eastern District of Michigan.
This article first ran at The NonProfit Times. It is reprinted with permission.