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Three Santa Ana charity fundraisers settle charges with FTC

The Federal Trade Commission charged the groups 'were created almost entirely to provide profits for the individual defendants and the for-profit fundraisers they hired.'

May 21, 2009|David Colker

As part of a sweeping nationwide crackdown on "fake charities," the Federal Trade Commission and state officials took actions that forced dozens of groups to shut down or stop making false appeals in the name of police, firefighters and veterans.

Among the groups singled out by the FTC as sham nonprofit organizations were three fundraising groups from Santa Ana. The government said the groups raised $19 million from 2005 to 2008 but turned over only 5% of the money to legitimate charities.

Most of the money raised by the Santa Ana groups instead went to telemarketers contracted to make solicitation calls and into the pockets of company executives and staff members, the agency said, and for outings, such as trips to Hawaii and Las Vegas.

The groups -- the American Veterans Relief Foundation, the Coalition of Police and Sheriffs and the Disabled Firefighters Fund, all located at the same address -- agreed to a settlement in which they did not acknowledge wrongdoing. They were fined $19 million, but the FTC waived the penalty because of inability to pay.

The groups could not be reached for comment -- their phone numbers had been disconnected or were not taking messages.

The fundraisers' attorney, Robert Moest of Santa Monica, said the groups didn't pay more to charities because they incurred high costs.

"Telephone solicitors are just not a very effective mechanism for raising money," he said.

Moest said the groups settled because they didn't have the funds to mount a defense. "The organizations are being dissolved and the individuals won't be doing work with charities anymore," he said.

The crackdown, called Operation False Charity, involved a total of 76 actions taken by state and federal agencies against 32 fundraising companies, 22 nonprofits or purported nonprofits and 31 individuals.

The Santa Ana action was singled out at a Wednesday news conference during which the FTC also said more California actions would be forthcoming.

Charity telemarketing fraud has a long history, but the agency initiated the sweep now because "particularly in a time when giving is down, we feel the need to make sure that consumers are alerted," FTC Chairman Jon Leibowitz said.

"The actions we're announcing today demonstrate that federal and state partners will find charity scammers and we will stop them," he said.

The agency contended that the three Santa Ana groups "were created almost entirely to provide profits for the individual defendants and the for-profit fundraisers they hired."

The three groups had been in legal trouble in the past. They were founded around 2000 by Joseph Shambaugh of Santa Ana, who was indicted in 2006 for mail fraud and money laundering in connection with the fundraising operations. He fled and remains a fugitive, the FTC said.

Shambaugh had previously spent six years in prison for attempting to hire a hit man to kill his father and a former business associate.

The fundraising businesses were taken over by Jeffrey Duncan and William Rose, with Kathy Clinkenbeard overseeing the hiring of telemarketers, according to the FTC. The three of them were named in the civil complaint and settlement, which has yet to be ratified by a federal judge.

The American Veterans Relief group "falsely claimed that the money they were raising would support the families of soldiers fighting overseas," the FTC said. The group sometimes said it was raising money for Operation Homefront, a legitimate charity that provides support to service members and their families, according to court documents.

All three groups had received the lowest possible rating -- zero stars -- from the nonprofit Charity Navigator, which has rated more than 5,000 charities.

"The vast majority of charities spend about 75% to programs with only 25% going to overhead," said Charity Navigator spokeswoman Sandra Miniutti. "These groups had it completely backward."

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david.colker@latimes.com

Times staff writer Jerry Hirsch contributed to this report.

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