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FTC: Family bilked $187 million through 'sham' cancer charities

By Amy R. Connolly

WASHINGTON, May 19 (UPI) -- A Tennessee man and his family are accused of bilking up to $187 million from donors through "sham" cancer charities, using the money to support a luxury lifestyle that included expensive cars and extravagant vacations.

In what is being called one of the biggest charity frauds in American history, the Federal Trade Commission and attorneys general from all 50 states and the District of Columbia allege James T. Reynolds Sr., his former wife, their son and close business associates misused funds through four charities: Cancer Fund of America, Cancer Support Services, The Breast Cancer Society and Children's Cancer Fund of America.

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The FTC said charities solicited donors through telemarketing, direct mail and websites, telling them the money goes to providing patients with pain medication, transportation to chemotherapy and hospice care. Instead, the charities "operated as personal fiefdoms characterized by rampant nepotism, flagrant conflicts of interest, and excessive insider compensation, with none of the financial and governance controls that any bona fide charity would have adopted."

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"Some charities send children to Disney World,'' South Carolina Secretary of State Mark Hammond said in news conference announcing the complaint. "These charities sent themselves to Disney World.''

The complaint says Reynolds devised the fundraising scheme in 1987 with the Cancer Fund of America and set up the other scam charities because Cancer Fund was "really top heavy" with executives. The FTC's findings reflect the activities from 2008 to 2013. During that period, less than three percent of donations were used on cancer patients.

According to the complaint, professional fundraisers were hired to raise money, often receiving 85 percent or more from every donation. The complaint also accuses the company of falsifying documents by reporting more than $223 million in in-kind donations for international recipients.

"By reporting the inflated "gift in kind" donations, the defendants created the illusion that they were larger and more efficient with donors' dollars than they actually were. Thirty-five states alleged that the defendants filed false and misleading financial statements with state charities regulators," the complaint said.

Among the allegations:

-- The elder Reynolds employed some 12 members of his extended family at Cancer Fund of America, no matter where they lived. When one of his sons moved to Montana, the charity opened a chapter there to keep him on the payroll. It later shut down.

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-- Reynolds' former wife, Rose Perkins, hired 11 friends and relatives to work at Children's Cancer Fund. Between 2008 and 2012, the employees were paid more than twice the amount provided to cancer patients. Twice a year, employees were given up to 10 percent bonuses, regardless of performance.

-- The younger Reynolds promoted his wife, Kristina, to be his "operations and public relations manager." She, in turn, hired several of her relatives, including her mother, a caterer who was employed to write grants.

"[The Breast Cancer Society] also allowed employees to use corporate credit cards for personal expenses, and did not require repayment until the end of each year, effectively providing them with interest-free loans," the complaint said. "BCS credit cards were used to purchase movie tickets, video games, food, gas, car washes, Jet Ski rentals, meals at Hooters, and purchases at Victoria's Secret."

The Breast Cancer Society and the Children's Cancer Fund of America entered into a settlement agreement and will be dissolved, the FTC said. The Breast Cancer Society posted a letter on its website, saying increased scrutiny of government regulators threatened the charity.

"Unfortunately, as our operations expanded – all with the goal of serving more patients – the threat of litigation from our government increased as well," said James T. Reynolds II, the charity's executive director and Reynolds' son. "While the organization, its officers and directors have not been found guilty of any allegations of wrong doing, and the government has not proven otherwise, our board of directors has decided that it does not help those who we seek to serve, and those who remain in need, for us to engage in a highly publicized, expensive, and distracting legal battle around our fundraising practices."

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Websites for the other charities appeared to be taken down Tuesday afternoon.

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