From the April/May 2007 Watchdog Report
Charity Raffles Become Gateway to Fraud Allegations
A St. Louis court ordered Gateway
to a Cure, a charity that funds spinal cord injury research,
to pay $2 million in restitution in what became a pricey raffle
ticket scandal. The scandal involved 5 failed raffles: Grand Giveaway-Kansas
City (GGKC), Grand Giveaway-St. Louis (GGSL), 7th Annual Dream Home
Giveaway, Dream Home National Raffle and the Scholarship Raffle.
According to the Missouri attorney general's
petition, the trouble started in October of 2003 with the debut
of two $1,000-ticket raffles, the GGKC and the GGSL. Each raffle
featured the grand prize of a million-dollar home and brand new
Bentley. Other prizes included a Maserati Spyder valued at $98,500
and 7 carat designer diamond necklace valued at $35,000.
Gateway limited the number of tickets
presumably to entice consumers: only 2,000 tickets available for
GGKC and 1,000 for the GGSL, according to the A. G's petition. For
those who could afford to drop $1,000, the odds of winning a luxury
prize looked good. The charity's web site touted the raffles as
a "non-conventional means" of raising funds that will
"place [the charity] outside the standards of fundraising set
for charities." It went on to state that in lieu of traditional
donations, Gateway relied on "unique raffles and giveaways
to meet the growing requests for funding."
But lagging ticket sales for all 5 raffles
belied Gateway's non-conventional fundraising efforts. The charity
did not even sell enough tickets to meet the breakeven point for
any of these raffles, according to the attorney general's petition.
Gateway only sold 1,409 of the 2,000 tickets available for the GGKC.
The GGSL ticket sales fared even worse: only 234 were sold out of
1,000 available tickets, far below the breakeven point of 900 tickets.
For the Dream Home National Raffle (Orlando) offering $25 tickets,
the petition notes that if the dismal sale rates continue, it will
take Gateway 28 years to reach a minimum breakeven point.
Rather than avert financial disaster,
Gateway prolonged it. According to the attorney general's petition,
over 6 months after the raffles began, Lou Sengheiser, the founder
of the charity, sent a letter to GGKC raffle participants announcing
a tentative drawing date of September/October 2004, nearly a year
later. But by August 2004, the charity had still not set a date.
Instead, Mary Bolling, Gateway's executive director, sent another
letter that month to participants claiming that:
Everyone is getting very anxious
for the drawing and we are very close to setting a date. At present,
we are in need of your support to complete the ticket sales for
our raffle. As you know, we are only selling 2, 000 tickets for
the chance to win, and we have sold well over half that number,
so we are SO CLOSE to completing our goal!!!
The drawing did not take place that fall,
nor the next winter, spring or even summer of 2005, according to
the petition. Mary Bolling sent yet another letter in January of
2005, claiming again that the charity was "so close" and
that "we ONLY need to sell approx 300 more..." On July
of 2005 Gateway's web site urged consumers to "Hurry! Less
than 150 tickets remain!" Eventually, Gateway set a drawing
date of September 23, 2005 but made the drawing contingent on a
minimum sale of 1800 tickets.
But the drawing did not take place then
either, according to the attorney general's petition. Instead, exactly
a week before the drawing date, Sengheiser sent yet another letter
that finally disclosed the truth: Gateway had not met its ticket
sales goals and needed to postpone the drawing. The drawing would
take place on February 14, 2006 regardless of the number of tickets
In January 2006, after more than two
years of stringing participants along, Gateway posted the following
disclosure to its website: "Insufficient sales (less than the
break-even number of tickets state [sic] on each raffle) on any
raffle will result in a 50/50 cash split to a single winner,"
according to the petition.
The GGKC raffle finally took place
on February 14. According to the Kansas City Star, 500 people crowded
the Metro North Shopping Center as the winners were announced. S.
Clark of Texaco, Illinois won the home and the Bentley but instead
chose a cash settlement, according to the petition. Had S. Clark
truly wanted the home, Gateway would not have been able to provide
it because the purchase contract for the home expired in April of
The petition also alleges that the winner
of the Maserati, S. Fitzgerald of New York City, did not claim the
prize and may not exist. Upon investigation, the A.G's office learned
that S. Fitzgerald did not live at the address Gateway provided
and has not lived there since January of 2003, long before Gateway
began the raffles in October of 2003. Not that it mattered because
Gateway did not purchase a Maserati and thus, had nothing to give
anyway. The same was true for the GGSL—the purchase contract on
that home expired in February of 2005.
The lagging ticket sales from the big
raffles did not deter Gateway from offering more of the same. In
May of 2005, according to the attorney general's petition, as ticket
holders from both Grand Giveaways eagerly awaited the drawing, Gateway
unveiled its 7th Annual Gateway to a Cure Great American Dream Home
Giveaway. Tickets cost $100 and the goal was to sell 4,000. And
in June of 2005, the charity offered a different raffle, the Dream
Home National Raffle at $25 per ticket.
A St. Louis Daily Record article quoted
Kelly Kress, attorney for Gateway, as stating that the charity got
in over its head. Kress also claimed that it was a challenge to
raise funds on behalf of a select portion of the population, people
with spinal cord injuries, according to the article.
But being overwhelmed would not explain
all the allegations against Gateway. The petition alleges that Gateway
sold duplicate tickets for the same ticket number, sold some $ 1000
tickets for less than that amount, and gave away tickets to settle
debts. Gateway also could not account for all the funds raised from
the GGKC raffle.
The petition also accuses Gateway of
bilking the winners if the raffles did not break even. In this case,
Gateway would split the proceeds 50/50 with the winner. But at least
two winners received checks for less than the amount that represented
the winner's share of the proceeds.
Bungling raffles and misleading consumers
were not the only wrongdoings the State of Missouri prosecution
alleged. Other allegations against Sengheiser include:
- Using telemarketing to sell household goods in
bulk by allegedly representing that some of the proceeds would
go to charity.
- Using the charity's tax-exempt status to purchase
autos for private individuals so that these individuals could
avoid paying state and local sales taxes. The private individuals
would then reimburse the charity.
- Using charitable funds to pay his mortgage and
personal credit card debt.
Gateway apparently failed to respond
to the attorney general's request for discovery, the legal term
for the fact-finding that takes place after a lawsuit is filed.
In its Judgement and Order, the court punished Gateway by entering
a default judgment against it, ordering it to pay civil penalties
of $1.6 million and set up a restitution fund of about $2 million
so that ticket purchasers may get some of their money back.
AIP strongly encourages donors to bypass
the flashy raffles and donate directly to a charity. Not only does
the charity realize greater benefits, donors do as well because
their donations are not covering expensive raffle promotion and
prize giving. But for those who want the thrill, the big lesson
of the Gateway fiasco is to select a trustworthy charity, verify
the time frame for the drawing and make sure the charity owns the
prizes outright before purchasing the ticket.