September 16, 2020; Center for Public Integrity

For some time, NPQ has been writing about the role of telemarketing companies in scamming the public out of millions of dollars. Often contracted by so-called charities, these firms run phone banks that call the public for donations. Proliferating in fields with an emotional hook, and often targeting elderly givers in particular, the telemarketers pass along pennies on the dollars to the charity, which passes along even fewer pennies on the dollar to those meant to benefit. Often, these scams use veterans, first responders, or cancer sufferers as their lure, and that means that not only is the money given through these schemes largely—sometimes wholly—wasted, but legitimate charities in the same realm may end up tainted in the eyes of donors.

When enforcement in this area succeeds, it’s through the efforts of state attorneys general and the Federal Trade Commission. Often, the telemarketer is left open for business. But now, the FTC and the AGs from New York, Minnesota, Virginia, and New Jersey have shut down one of these operations through a settlement that bans the defendants from further fundraising and fines them—though nowhere near enough.

The targeted enterprise is Outreach Calling, led by New Jersey businessman Mark Gelvan. In 2017, the Center for Public Integrity (CPI) began an investigation into the firm’s work with almost 25 “sham” charities and political action committees. It found that the enterprise raised in excess of $118 million between 2011 and 2015 even after Gelvan had been banned from further fundraising in New York in 2004 for running a phone bank where callers were impersonating police officers. Of that, $106 million never left the hands of Outreach Calling.

“This action puts fundraisers on notice: The FTC will not only shut down sham charities, it will aggressively pursue their fundraisers who participate in the deception,” Andrew Smith, director of the FTC’s Bureau of Consumer Protection, says in a news release. This can be viewed as a major shift in the enforcement of laws meant to protect the public from such breaches of faith.

“You’ve got to work your way up,” Jim Sheehan, the head of the charities bureau for the office of the New York Attorney General, told [CPI] in 2017 when asked why Gelvan wasn’t sanctioned after some of his nonprofit clients had been shut down. “You don’t use sharks to catch minnows.”

CPI started its investigation of Outreach Calling just as it started to expand into political fundraising—specifically for a political action committee that purportedly represented veterans’ causes. The company raised $1.5 million and kept $1.3 million of it.

Take note of the nascent alliance between the FTC and states attorneys general as the regulatory mechanism for the sector; generally, this is how nonprofits are regulated now, with the IRS coming in only late, if ever. That, of course, creates a certain spottiness, as some states are more invested in regulating the sector than others, which leaves many worthwhile nonprofits tainted in donors’ eyes.—Ruth McCambridge