“Operation Bottomfeeder”: A Shield for Legitimate Nonprofits

NPQ received an infuriating press release from New York Attorney General Eric T. Schneiderman’s office on Friday. The release announced a $350,000 settlement with Dr. Yulius Poplyansky, president of the Breast Cancer Survivors Foundation (BCSF), who played a part in bilking donors to what they thought was a breast cancer charity out of millions. The infuriating part is that the alleged puppetmaster of the BCSF was a different man: Mark Gelvan, who not only has a long history of such activity but had 13 years ago been banned for life from such fundraising by the N.Y. AG’s office.

As readers may remember, Schneiderman has taken on some of the more challenging issues of New York’s nonprofit sector over the past few years, including an investigation of the Donald J. Trump Foundation. Doing so has been a big favor to New York’s nonprofits, as it draws a high-profile distinction for the public between legitimate and illegitimate activity in the sector. In this case, he has named his office’s attempt to pursue scam artists that make use of “shell” nonprofits “Operation Bottomfeeder,” rhetorically distancing bad actors from legitimate nonprofits.

Here is an excerpt from the statement we received:

Today’s settlement is part of the Attorney General’s Charities Bureau’s “Operation Bottomfeeder,” which targets a pervasive business model of shell charities that exploit popular causes, the professional fundraisers who take the lion’s share of donations and make misrepresentations, and other entities that facilitate the abuses. In August 2016, the Charities Bureau shut down the American Foundation for Disabled Children (AFDC), a shell charity that claimed to provide “resources to schools, shelters and other agencies providing long and short-term care to special children,” but in fact served mainly as a source of money for its fundraisers. In November 2016, the Attorney General announced a settlement with the National Vietnam Veteran’s Foundation and its founder and president, John T. Burch, which also resulted in that charity’s shuttering, the payment of damages, and the issuance by Burch of a public apology. Also as a result of the Attorney General’s exposure of Burch’s actions at the charity, Burch was recently indicted by the Department of Justice for wire fraud.

BCSF was founded in 2010 and began soliciting in New York shortly thereafter. By 2014, BCSF was raising on average $3 million a year nationwide from its telemarketing and direct mail campaigns.

The Attorney General’s investigation found that Dr. Poplyansky started BCSF at the encouragement of Mark Gelvan, a professional fundraiser and longtime family friend whose relationship with Poplyansky’s family dated back to the 1970s. Dr. Poplyansky had no training or experience in managing or leading any type of charitable enterprise. He and the other board members of BCSF allowed Mark Gelvan to run BCSF and turn it into a cash cow for Gelvan and his businesses. Mark Gelvan has been barred from the professional fundraising industry in New York since 2004, following litigation brought by the Attorney General.

As set forth in the findings in the settlement document, which Dr. Poplyansky admits are true, Mr. Gelvan suggested that Dr. Poplyansky start a breast cancer charity because it is a proven charitable moneymaker. Mr. Gelvan even provided Dr. Poplyansky with seed money to start the charity. Mr. Gelvan then used BCSF to fuel his own economic interests by ensuring that his fundraising companies and business associates were hired to provide services for BCSF.

Mr. Gelvan also controlled BCSF’s operations by inserting himself into nearly every aspect of the charity’s operations, despite having no official role in the charity. Gelvan oversaw financial reporting, attended board meetings and prepared board minutes, responded to media inquiries, and even organized and prepared the response to the Attorney General’s investigative subpoenas. Mr. Gelvan went so far as to tell BCSF’s outside accountants that Dr. Poplyansky “speaks very little English”—a completely false statement—so they would deal directly with him.

The investigation also found that Mr. Gelvan was instrumental in developing and authorizing BCFS’s charitable solicitations, which contained false and misleading statements about BCSF’s program activities. These solicitations contained fictional accounts of doctor and patient interactions, descriptions of nonexistent forums for breast cancer survivors, and international pharmaceutical programs—and left the donor with the distinct impression that BCSF was a medical facility providing medical services. In reality, BCSF had no medical staff, performed no medical services, had no real office, and provided no direct value to breast cancer patients or those at risk of developing breast cancer. BCSF made only a few modest grants to clinics; those grants were, on average, only 3.5 percent of the funds it raised in the last four years that BCSF reported to the Attorney General.

Dr. Poplyansky was not compensated for his role at BCSF. Nonetheless, he had legal responsibilities to BCSF, which he repeatedly failed to honor. Dr. Poplyansky has admitted to his wrongdoing and will cooperate with the Attorney General’s ongoing investigations into BCSF’s fundraisers and associated legal and accounting professionals. BCSF and Dr. Poplyansky have also agreed to dissolve BCSF under the Attorney General’s direction so that the charity can no longer be used as a shell company to direct monies to its fundraisers. Dr. Poplyansky will also be subject to a permanent nationwide bar on access to charitable assets or decision-making. On behalf of BCFS and himself, Dr. Poplyansky issued an apology to the donors of the Foundation and to the individuals and families that have been impacted by breast cancer.

BCSF and Dr. Poplyansky also admitted that BCSF had made false filings with the Charities Bureau, including failing to disclose the identity of the fundraisers that operated on its behalf in New York, and all fees associated with its fundraising activities.

NPQ has written before about the terrible persistence of some of these scam artists who specialize in fundraising on behalf of first responders, vets, children, and those with cancer—in other words, highly sympathetic subjects. For instance, from 2012 on we wrote about the Reynolds family, who built a multi-state empire on sham cancer charities. Those involved were finally brought to account in 2015 by a first-of-its-kind collaboration between charity regulators and the Federal Trade Commission (FTC). This egregious case was seen as an important development in creating a better system of national accountability.

The four cancer charities charged by the 50 states’ attorneys general and the Federal Trade Commission as a sham are all related. They are run by members of the same family—James Reynolds, Sr.; James Reynolds, Jr.; James Junior’s wife, Kristina Hixson; her mother, two sisters, and other near Hixson relations; Senior’s ex-wife Rose Perkins; and others. Two of the four charities are being dissolved due to the FTC complaint, and members of the family face fines in the tens of millions, though the structure of the proposed final order lets the Reynolds family off with much lower personal payments.

According to the FTC, the charities spent 97 percent of what they raised on fundraising and on the Reynolds family themselves, devoting only three percent to help cancer patients. All told, according to the government complaint, the charities walked off with as much as $187 million that should have been spent on cancer issues. The groups were “operated as personal fiefdoms characterized by rampant nepotism, flagrant conflicts of interest, and excessive insider compensation.”

“Bottomfeeders” is in some ways an apt term, but what these scam artists feed on is not trash but something much more valuable: people’s faith in the sector, and that harms the entire country and its confidence in nonprofits overall. Worst of all, it harms those who need legitimate charities to sustain over a difficult period.

Last year, we published an interview with Cindy Lott that discussed the shifting boundaries of nonprofit regulation enforcement. It described a strong movement toward more state-based activism in this realm across the country, even as the role of the IRS becomes more constrained.

Schneiderman is one of the country’s more activist attorneys general where charity regulation and enforcement are concerned, and we look forward to seeing if charges are now brought against Gelvan. But, in the long run, we appreciate the continued efforts from state charity offices in general and Schneiderman in particular—not just toward enforcement, but also toward informing the public that these kinds of bad actors are not at all the norm in this sector.