Nonprofit Abuse…Another Appalling Example

by Gary Snyder

The astonishing story of a Santa Ana (CA) charity – which claims to help burn victims after catastrophic fires--is all too typical. The Association for Firefighters & Paramedics was sued by the California attorney general in 2008, but was not shut down. Instead, it settled with the AG last year, paying the AG’s office $100,000 ($67,000 for the AG’s costs, and $33,000 for burn victims), and agreeing that the AG would monitor its fundraising and spending for four years. After settling with the AG the charity filed its tax returns for the previous year, showing that:

§  86 percent of its spending was on fundraising – $1.9 million out of total spending of $2.2 million (the experts like to see no more than 10 percent spent on fundraising);

§  while 11 percent was spent on management  – $228,837;

§  and the very smallest slice of the pie, 3 percent, went to programs that actually helped burn victims. That was a measly $65,280. (The experts like to see 75 percent spent on programs).

The Orange County Register asked the charity for a copy of its latest tax returns, by email, since its phone number has been disconnected. It also left a message with the CPA who prepared its last tax returns, saying it wanted to know how the oversight thing was working out. They have not heard back.

Its website and the “donate now” button – still appear to be in fine working order.

Since 2005, the Association for Firefighters & Paramedics has raised $15.2 million for charity, while spending just a fraction of that on the burn victims for whom it purportedly raised the money. 

The Orange County Register chronicled how Mitch Gold (the king of telemarketing fraud in Orange County) built a network of dubious charities that preyed on unsuspecting donors.  Gold did time behind bars, but his protégés (including the current President of The Association for Firefighters & Paramedics), subcontractors and former clients carried on, raising more money with less scrutiny than Gold ever did.

When Gold went to prison, his money machine chugged along without him.

• Ex-convict Joe Shambaugh, one of Gold's legal advisers, set up shop as a charity administrator. Until last summer, he managed four closely linked charities from a rundown office in Santa Ana. The Shambaugh charities raised $16 million from 2001 through 2004. They spent about 1 cent on the dollar for charitable projects.

• Robert M. Friend Jr., who had formed one of Gold's last big charity clients in May 1999, spun off four charities that raised $8 million. Amount spent on charitable works: 8 cents on the dollar.

• Former Gold clients David Dierks and Phil LeConte raised more than $27 million for three police charities. They spent 13 cents on the dollar for programs. Dierks and LeConte paid themselves $1.1 million.

Most of the money donated to these charities actually went to the fundraisers, many of whom once worked for Gold.

Gold was partial to charities with veterans, firefighters, cops or children in their names. Of 24 charities that he represented in the late 1990s, 22 traded on one of these causes. Among them: American Veterans Network, American Veterans Relief Fund and Help Hospitalized Veterans. His followers have stuck to that strategy.

Former aide Shambaugh managed the Association for Disabled Firefighters and the Disabled Firefighters Fund. Former Gold client Friend runs the Disabled Firefighters Foundation.

After 911 a sweeping nationwide transformation of law enforcement that has left donors with few places to turn for help. The FBI quickly shifted agents and money to terrorism. About 300 FBI agents were reassigned from white-collar crime to terrorism. 

Two other former Gold associates were charged after lengthy investigations. Former Gold apprentice Joe Shambaugh was indicted on federal fraud charges. He is now a fugitive. Onetime Gold subcontractor Duane Kolve was accused of criminal racketeering by Wisconsin prosecutors.

"There needs to be a more concerted effort to rein in and regulate charitable solicitation fraud," said Eau Claire County, Wis., District Attorney Richard White, who prosecuted Kolve. "If it's happening here, how many other places is it happening, and at what level?"

A prosecutor had wanted to do more. "I tried to get any investigators I could find to work charitable fraud, and I can't find an investigator," she said. "You have a willing prosecutor and nobody to investigate the crime. It's depressing."

Nonprofit Imperative gathers its information principally from public documents...some of which are directly quoted. Virtually all cited are in some phase of criminal proceedings; some have not been charged, however. Cites in various media: Featured in print, broadcast, and online media outlets, including: Vermont Public Radio, Miami Herald, National Public Radio, Huffington Post, The Sun News, Atlanta Journal Constitution, Wall Street Journal (Profile, News and Photos), FOX2, ABC Spotlight on the News, WWJ Radio, Ethics World, Aspen Philanthropy Newsletter, Harvard Business Review, Current Affairs, The Chronicle of Philanthropy, St. Petersburg Times, B, USA Today Topics, , Newsweek.com, Responsive Philanthropy Magazine, New York Times...and many more • Nonprofits: On the Brink (iUniverse, 2006)