The New York State Attorney General's Office has won a $25 million settlement (44 pages, PDF) stemming from an investigation of fundraising abuses by the Disabled Veterans National Foundation and its direct-mail vendors, the Chronicle of Philanthropy reports.
The settlement — nearly $10 million of which will be directed to support programs serving disabled veterans — is believed to be the largest ever obtained in the U.S. for deceptive fundraising practices. Under the settlement, DVNF will replace its founding board members, while Quadriga Art, the charity's New York City-based direct-mail vendor, will pay $9.7 million in damages, forgive $13.8 million owed by the charity, and pay $800,000 to New York State for costs and fees. In addition, Convergence Direct Marketing, which advised the DVNF on its fundraising strategy, will pay $300,000 in damages.
"Taking advantage of a popular cause and what was an unsophisticated charity," said attorney general Eric Schneiderman in a statement, "these direct-mail companies used cleverly designed but misleading mailers to raise tens of millions in donations from generous Americans, nearly all of which went to the fundraisers and their agents and left the charity nearly $14 million in debt."
DVNF and Quadriga Art had been the subjects of CNN exposés which found that very little of the money they raised was being used to pay for programs to help veterans. Established in 2007 with the help of Quadriga Art, which fronted costs for printing, packaging, and mailing fundraising letters, the charity fell into debt while trying to reimburse those costs. The investigation by Schneiderman's office also found that the parties made false claims about DVNF's services and the veterans it helped, and had several conflicts of interest. For example, a Quadriga Art-commissioned sales agent also served as a consultant to the charity, which then hired his daughter as chief administrative officer.
Under the settlement, the two vendors will be required to reform their business practices, including fully disclosing all potential conflicts of interest, refraining from dealing with any start-up charity that does not have its own legal counsel, and performing "due diligence" to ensure that the fundraising appeals they create are accurate. The companies also must provide more information to charities about the costs involved in a fundraising campaign when they cover the up-front expenses of such efforts. For its part, DVNF must create a committee to reexamine its business model, refrain from using Quadriga or Convergence for three years, and discontinue all misleading fundraising appeals, as well as terminate its relationship with Charity Services International, a group that it paid to obtain donated goods for veterans that in some cases, according to the attorney general's office, did "not have any useful purpose."
Joseph VanFonda, who became chief executive of DVNF in late 2013, said in a statement that he welcomed the settlement, which will "enable us to improve the services we deliver and increase transparency with our loyal donors."