The past five years have seen a major uptick in FTC enforcement against alleged charity fundraising scams, along with increased multi-state coordination in this space. Regular readers of this blog already know that, by having read this, this, this, and this. On September 15, 2020, the FTC filed a complaint in the U.S. District Court for the Southern District of New York against fundraiser Outreach Calling, its owner and principal Mark Gelvan, two other related organizations, and three additional individuals. The attorneys general of New York, New Jersey, Virginia, and Minnesota joined the FTC as plaintiffs in the lawsuit. Alongside their complaint, the FTC and states filed proposed stipulated orders against each of the defendants.
The FTC and states allege that the defendants engaged in deceptive telemarketing campaigns on behalf of numerous (and now defunct) “sham” charities. According to the complaint, the Outreach Calling entities induced tens of millions of dollars in charitable donations by telling donors that the recipient charities provided assistance to particularly vulnerable populations, such as disabled and homeless veterans, breast cancer patients, law enforcement officers, and children. In fact, say the plaintiffs, the recipient charities spent very little of the money raised – in some cases only 1 or 2 percent of gross donations – on charitable programs. Instead, approximately 90 percent of the funds raised were paid to the Outreach Calling fundraisers; most of the remaining money funded the personal expenses of the charities’ principals.
The FTC and states brought causes of action under Section 5 of the FTC Act, the Telemarketing Sales Rule, and state charity and anti-fraud laws. To resolve the litigation, the parties have agreed to enter into stipulated orders that permanently ban the defendants from charity fundraising and that impose a collective monetary judgment of approximately $58 million. As is typical in cases like this one, the monetary judgment will be suspended because of the defendants’ inability to pay it; however, each of them must surrender certain assets, and Mr. Gelvan will have to sell two homes and grant the FTC a lien and mortgage on three of his properties in order to secure his payment obligations under the proposed order.