Federal regulatory officials Tuesday accused a Tennessee family of spending more than $187 million collected for cancer charities on cars, gym memberships, cruise vacations, and college tuition.
The Federal Trade Commission, in a federal lawsuit joined by all 50 states and the District of Columbia, said that James T. Reynolds Sr., his ex-wife and son raised the money through their various charities: The Cancer Fund of America in Knoxville, Tennessee, and its affiliated Cancer Support Services; The Breast Cancer Society in Mesa, Arizona; and the Children's Cancer Fund of America in Powell, Tennessee.
The charities hired telemarketers to collect $20 donations from people across the country, telling consumers that they provided financial aid and other support to cancer patients, including pain medication, transportation to chemotherapy visits and hospice care.
But little money made it to cancer patients, as the groups "operated as personal fiefdoms characterized by rampant nepotism, flagrant conflicts of interest, and excessive insider compensation" with none of the controls used by bona fide charities, the FTC said Tuesday.
Jessica Rich, director of the FTC's Bureau of Consumer Protection, declined to say whether authorities were pursuing a separate criminal investigation against the Reynolds family, saying only that the agency did not have the authority to do so.
Settlement agreements have already been reached with Reynolds's son James II, who oversaw The Breast Cancer Society; Reynolds Sr.'s ex-wife Rose Perkins, who ran the Children's Cancer Fund of America; and Kyle Effler, a longtime associate of the Reynolds family and the former President and CFO of Cancer Support Services. The agreement bans the three from fundraising and shuttered their organizations.
Litigation is still pending against James T. Reynolds Sr., the Cancer Fund of America, and Cancer Support Services.
Anyone who donated money to these groups shouldn't expect a refund anytime soon, as the settlement agreements note that much of the money has already been spent.
"The money is mostly gone," Rich said Tuesday.
The Breast Cancer Society, posted a lengthy statement online Tuesday attributed to James T. Reynolds II that blamed increased government scrutiny for the charity's downfall.
"While the organization, its officers and directors have not been found guilty of any allegations of wrongdoing, 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," according to the statement.
The Cancer Fund of America website previously identified Reynolds Sr. as its president and said he served in the U.S. Army Medical Corps for 12 years and attended Brigham Young University. The website went down Tuesday ahead of the FTC announcement.
According to the complaint, the organizations hid their high administration costs from donors and regulators. The groups filed public financial documents saying they had taken in more than $223 million "gifts in kind," which would be distributed to international recipients. Investigators say that number was inflated and helped to create the illusion that the groups were being more efficient with donated money than they actually were. According to the FTC, 36 states alleged that the defendants filed "false and misleading" financial statements with state charities.
The settlement agreement imposed hefty judgments based on the amount of money donated to the charities between 2008 and 2012. But because of Perkins' "inability to pay," her $30 million judgment would be suspended entirely. The $65.5 million judgment against Reynolds II would be suspended after he pays $75,000.
Effler faced a $41 million judgment that would be forgiven after paying $60,000.
Officials on Tuesday said that any money recouped under the settlements would go to state authorities, which will have the ability to distribute the money to legitimate charities. Officials cited complexities of the case to explain why the charities were allowed to continue operating even after media outlets flagged them as potentially fraudulent.
Late Wednesday, the Knoxville News-Sentinel reported that lawsuits had been filed against the Cancer Fund of America as far back as 1989. The paper reported that the elder Reynolds said in 2010 that he had been sued 23 times, deciding to settle every claim not because he was in the wrong, but because "it's so much cheaper than going to court."
The FTC recommends that when considering a donation, look for a long-standing charity with a good reputation and avoid any group that uses high-pressure tactics or is reluctant to provide detailed documentation on how the money is spent.
The Associated Press contributed to this report.