The New York Attorney General’s Office announced that its Charities Bureau’s investigation into alleged direct mail fundraising abuses resulted in a $24.6 million settlement with two companies that sent misleading mailings on behalf of the Disabled Veterans National Foundation (DVNF).
Attorney General Eric Schneiderman called the alleged abuses “some of the most troublesome features” of direct mail fundraising.
The two direct-mail companies, Quadriga Art and Convergence Direct Mailing, sent fundraising appeals for the charity and raised more than $116 million, Schneiderman’s office said.
The mailings allegedly included material that was false or misleading, such as stories about veterans the charity hadn’t helped. In other instances, the mailings claimed that for every dollar donated, the DVNF would be able to deliver $10 in goods and services to disabled veterans, when in reality over 90 cents of every dollar went to cover DVNF’s direct mail costs.
Under the settlement, Quadriga, which produced and sent out the mailing and played the dominant role in running DVNF’s fundraising efforts, will pay $9.7 million in damages for its alleged abuses and forgive DVNF the $13.8 million it owes the company. Quadriga will also pay an additional $800,000 to the state of New York for costs and fees.
The second company, Convergence, which designed the solicitations and provide other advice for DVNF, will pay $300,000 in damages.
The $9.7 million penalty to Quadriga and the $300,000 from Convergence will be combined into a $10 million fund to help support and improve the lives of disabled American veterans.
The AG’s investigation found that Quadriga allegedly took advantage of DVNF board’s lack of fundraising experience to sign the charity up for a “funded model” direct mail solicitation campaign far larger in scale than the board imagined.
The model stipulated that the fundraiser assumes the up-front printing, packaging and mailing costs of the direct mail campaign, and is paid only out of the revenues brought in by the campaign. In exchange, the fundraiser obtains effective control over the charity’s donated revenues, as well as a lien on the charity’s donor list.
The investigation found that DVNF’s board was not fully aware of the scope of the arrangement, and did not ask about many critical elements of the campaign. Additionally, it was discovered that several conflicts of interest were present between DVFN and the two companies.
Both companies must adopt a number of significant reforms to improve transparency and set a higher ethical bar for the direct mail charitable solicitations industry.
For its part DVNF is required to reorganize its board, including replacing all of its founding directors. It must appoint a committee to re-examine its business model and terminate its relationship with Quadriga and Convergence.
A.G. Schneiderman Announces $25 Million Settlement With National Veterans Charity And Its Direct Mail Fundraisers [New York Attorney General Eric Schneiderman]