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From the April 2004 Watchdog Report

Undercover Investigation Reveals
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.”

“It’s 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 program, Primetime

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 children’s 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 children’s charity by simply copying stuff off of the Internet and mailing it to some random schools.

Ms. Schwartz’s 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: “You’ll 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 didn’t begin to take off yet. It’s 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, “it’s 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 warned that “…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, AIP’s president, warning that anyone receiving phone solicitations should “think of this guy in your mind because it may be someone like him.”

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 charity’s stated purpose. This is why it is so important for donors to learn what portion of funds is being spent on the charity’s stated purpose.

Paula Van Ness, the president of Make-A-Wish Foundation (an AIP “B”-rated charity), said on the program: “It’s 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.”

 
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