From the April 2004 Watchdog Report
How Easy It Is to Set Up Phony Charity
The Protection charities get under the First
Amendment has resulted in a nationwide plague of newly established
charities doing little good but considered legitimate.
Its far too easy for anybody to set up
a charity, get tax-exempt status with the IRS, do very little of
anything charitable and get away with it.
- Daniel Borochoff, AIP president, on the ABC News
The American Institute of Philanthropy worked with
ABC News on a yearlong investigation of the charity business. Rhonda
Schwartz, a producer for ABC News, went undercover to see how easy
it would be to set up a phony charity. She called around to people
in the telemarketing industry to get the word out that she wanted
to join others who make a lot of money in the charity business,
with little effort.
She first thought that she would try starting a childrens
wish charity since many people are so emotionally shaken by the
plight of a terminally ill child that they will automatically want
to contribute. But she was advised against it because then she would
have to go to the trouble of granting wishes, whereas if she set
up a different type of charity she could get away with a lot less
work. For instance, she could claim to be running an educational
program for a childrens charity by simply copying stuff off
of the Internet and mailing it to some random schools.
Ms. Schwartzs calls led her to Richard Troia,
who has a long history in the charity business. With the ABC News
hidden camera rolling, Troia gleefully describes his business, how
he can help her set up a phony charity and even says: Youll
be able to make a good living off it. He mentioned his success
with charities, including the Firefighters Charitable Foundation
(an AIP F-rated charity) that is raising six or seven
million a year. It didnt begin to take off yet. Its
just getting rolling, according to Troia. He also enthusiastically
spoke about a new charity, United Pet Way that would solicit people
to raise money to save pets from being put to sleep. Troia described
a carefully worded phone pitch for this charity and said, its
like a tear jerker.
Troia said that he had access to 10,000 phones
for a telemarketing operation that takes 90% of the money raised.
He said that it would be up to her to decide how to spend the remaining
10% but some of it would need to go to a charitable purpose. He
advised Schwartz that money should not be taken out early on because
in the beginning, they are gonna look at you. Troia
your biggest problem is, is gonna be how
to get rid of the money.
When Troia was shown the undercover tape he said he
was against the idea of setting up the charity from the beginning
because Schwartz was too greedy, even though he insisted
on keeping 90% of the money raised.
The program ended with Daniel Borochoff, AIPs
president, warning that anyone receiving phone solicitations should
think of this guy in your mind because it may be someone like
The program also discussed Kids Wish USA and its founder
Michael Manzer, who was recently sent to prison for mail fraud and
money laundering. This charity promised to grant the wishes of terminally
ill children yet it did not grant even one wish, according to federal
prosecutor Mike Snipes. The program pointed out that had Manzer
spent even a small amount of money to grant one wish, he might not
have been prosecuted and his charity might be considered legitimate.
A more savvy scammer is going to know that he has a far greater
chance of avoiding prosecution if he spends at least something on
the charitys stated purpose. This is why it is so important
for donors to learn what portion of funds is being spent on the
charitys stated purpose.
Paula Van Ness, the president of Make-A-Wish Foundation
(an AIP B-rated charity), said on the program: Its
got to be millions of dollars
that are going to organizations
that are pretending to be the Make-A-Wish Foundation. People see
it as an easy opportunity to make a buck.