The National Children's Leukemia Foundation (NCLF), a children's cancer charity based in New York City, has been accused of defrauding donors and pocketing almost $10 million, according to a petition filed by the state attorney general's office. It alleges that only 1% of the funds raised went to leukemia patients.
Attorney General Eric T. Schneiderman announced that his office has filed a court action to close down the NCLF and to hold the founder, president, vice president (who is the founder's son), and auditor accountable for the alleged actions.
According to the allegations, the NCLF fraudulently raised $9.7 million from 2009 to 2013, but less than 1% of the money — $57,541 — went to assist leukemia patients.
The 41-page petition, which was filed in Kings County Supreme Court, seeks to recover the full amount of all funds that were raised through fraudulent representations.
Despite claims that the organization had a board of directors and other significant financial and scientific controls, the court papers charge that the NCLF was largely a one-man operation. Founder Zvi Shor, who has a felony bank fraud conviction on his record, was basically running the show out of the basement of his Brooklyn home.
In addition, the president and vice president are alleged to have breached their duties to the organization and "to have aided and abetted Shor in running the organization; the auditor is accused of making false filings," according to a press release issued by the attorney general's office.
Schneiderman shared news of the petition in a series of tweets on July 21, and reiterated his commitment to shut down fraudulent charities:
Nothing is more shameful than pocketing millions donated by individuals who wanted to help children afflicted with a terminal illness
The group promised to fulfill wishes of sick children & claimed to send them to Disney World, yet we charge they had not done this in years
It is also alleged that the charity submitted false financial filings, and lied about the makeup and structure of the organization
My office will continue to investigate & shutter so-called charities that use legitimate-sounding names to exploit the generosity of NY'ers
The impetus for the lawsuit was an investigation by the Attorney General's Charities Bureau, which allegedly revealed that the NCLF did not actually conduct most of the programs advertised on its website and in its solicitations.
Specifically, the lawsuit alleges that from 2009 to 2013, the NCLF raised nearly $10 million from donors by repeatedly lying about having a bone marrow registry, an umbilical cord blood banking program, and their own cancer research center; telling donors that the NCLF had filed a patent application for a new lifesaving treatment for leukemia when in fact they had not; lying when potential donors were told that the funds they were raising would be used to "fulfill wishes of terminally sick children," including sending them to places like Disney World, when the NCLF had not done so in years; creating false official filings, including annual financial reports submitted to the attorney general's office, reporting individuals as directors of the organization without their knowledge, and falsely reporting that a large portion of fundraising expenses were used for public education about cancer; and filing false audit reports when no audits were conducted.
Where Did the Money Go?
For the most part, Shor has denied the allegations, according to a report published on the CNN website.
In an email to the news organization, Shor said that "our small organization helped many families over the past 20 years."
"I launched NCLF after the death of my teenage son to leukemia," he wrote. "I personally took no salary for over 8 years. I wanted to help as many families as I could who had children suffering from cancer."
He said that they felt that they were being used as an "example" because of the telemarketing fundraising laws and fundraising market, over which they have no control. "Our fundraising contracts were all filed with the attorney general who has long known their terms," he added. "We expect to be vindicated in court when the full story is explained."
Of the nearly $10 million collected from donors, $8.9 million was solicited by professional fundraisers who were hired by Shor. The fundraisers, in turn, were paid about $7.5 million, or 83% of the money that was raised.
The bulk of the remaining funds did not go to help leukemia patients, according to the petition. About 5%, or $655,000, was transferred to a shell organization in Israel that was run by Shor's sister, supposedly for research purposes. During the period in question, Shor was paid a salary of nearly $600,000 and awarded himself another $600,000 in deferred compensation.
The remaining 1% of the money went to help children with leukemia.
The plot thickened when it was discovered that the person identified as president of the organization, Yehuda Gutwein, was apparently president in name only. Gutwein took over the title in May 2010, when reports surfaced that Shor, who had been president since the organization was founded in 1991, had been convicted of felony bank fraud in 1999. Shor's son then stepped in as a director and vice president, but his job consisted of signing checks and forms, according to the allegations.
New York State law requires that the board of directors of a charitable organization be true overseers of the organization, and it requires that charities comply with accounting rules when reporting program expenses.
But in this case, the investigation revealed that an accountant hired by the NCLF did not conduct any audits but did sign audit reports.
From 2009 to 2013, audit reports and other official documents submitted to the attorney general's office and the New York State Department of Health contained false material and misrepresented the NCLF as an organization that was overseen by a 13- to 16-member board of directors and a separate medical advisory board.
CNN reports that the organization's telephones have been disconnected, and the NCLF website appears to be down.
Tarnishing the Image of Charities
News like this can be disturbing to reputable charities because it could make people think twice about making donations.
This investigation is "certainly a concern and something that we will take into consideration," said Gillian Kocher, a spokesperson for Alex's Lemonade Stand Foundation, which is devoted to curing childhood cancers.
"We do urge donors who are looking for causes to support to visit Charity Navigator, a national service seeking to help as many givers as possible, regardless of where they live or what kind of charity they wish to support," she explained.
Kocher noted that the NCLF "is part of a donor advisory on the Charity Navigator website."
The Leukemia & Lymphoma Society (LLS) expressed regret about this situation, releasing a statement saying that the organization was "disappointed to learn about recent fraud accusations against various cancer charities claiming to support cancer patients and their families."
"However, given the unsettling news about charities claiming to support cancer patients, we want to assure our patient community, donors, volunteers, researchers, grantees, and corporate partners that LLS is transparent, financially stable, and a responsible steward of the funds we raise and invest in our mission," the statement explained. "Our expense allocation complies with generally accepted accounting principles, and are well within the guidelines set by Charity Navigator, the largest independent charity evaluator in the United States."
Both the LLS and Alex's Lemonade Stand Foundation have received four stars — the highest rating — from Charity Navigator for accountability and transparency.
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Cite this: Children's Leukemia Charity Sued by NY Attorney General - Medscape - Aug 07, 2015.