http://www.ocregister.com/ocregister/news/atoz/article_1036195.php
Sunday,
March 12, 2006
All
glitter, little good
Telemarketing
machine pulls in millions while its inventor does time in prison.
The
Orange County Register
Charity
was sweet for Mitch Gold.
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Mitch
Gold
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Before
prosecutors finally caught up with the king of Orange County
telemarketing, the 5-foot-11-inch, 264-pound Gold ate several times a week
at Ruth's Chris Steak House, drove a Jaguar (license plate "Sir
Gold") and kept a Ferrari Testarossa in the garage of his hilltop San
Juan Capistrano home.
Donations,
$25 or $35 at a time, harvested from hundreds of thousands of people,
helped pay for it all.
Charity
regulators around the country cheered in July 2002 when a federal judge
sentenced Gold to eight years in prison for fraud.
Before
his sentencing, Virginia regulator Jo Freeman gave the judge a list of
Gold's charities and solicitors. Her list filled eight single-spaced
pages.
Handing
Gold a long sentence, Freeman wrote, "will be sending a strong
message to the rest of his network."
She
was wrong.
In
the first four years since Gold fled the business in late 2000, an Orange
County Register investigation found former clients, employees and
subcontractors raised nearly $83 million in the name of charities such as
the American Deputy Sheriffs' Association, the Association for Disabled
Firefighters and the Junior Police Academy.
Total
kept by fundraisers and charity executives: $76.7 million.
Total
spent on good works: $5.7 million - 7 cents for every donated dollar.
Typical
charities spend 85 cents of every dollar raised on programs, according to
a Register analysis of more than 150,000 nonprofit tax returns nationwide.
Gold
and his students turned traditional charity upside down. They exploited a
legal vacuum that lets charitable solicitors say almost anything to raise
money for client charities that devote almost nothing to programs and
services.
Gold's
students are making more money than he did, spending even less on charity
and, with few exceptions, avoiding the official scrutiny that landed their
teacher in prison. Since the terrorist attacks on Sept. 11, 2001, the
federal government has stripped resources from investigations of
white-collar crime. That has opened the door for dubious charities to
raise more money than ever.
"They're
taking money away" from other charities, said Daniel Borochoff,
president of the American Institute of Philanthropy, a group that monitors
nonprofits.
This
is the story of Mitch Gold's network - how he built it and why it
continues to flourish without him. The Register pieced the story together
from nearly 10,000 pages of public documents and dozens of interviews with
regulators, victims and telemarketing insiders. Gold agreed to be
interviewed in prison and then canceled. Most of his former associates
declined to be interviewed.
CÔTE
DU FRAUD
Gold
founded his fundraising empire in Orange County in 1987 after he went
bankrupt franchising T-shirt shops.
At
the time Orange County was just beginning to earn a national reputation as
the "Côte du Fraud" (French for "Coast of Fraud") a
fetid Petri dish for crooked banks, phony investments and prize scams. The
county was notorious enough to earn the starring role in a 1990
congressional hearing on fraud.
It
would take charity cops years to figure out how to attack Gold. By the
time they did, he had built a money machine, reaping $10 million a year
through 84 subcontractors for two dozen charities in at least 28 states.
When
Gold went to prison, his money machine chugged along without him.
Ex-convict
Joe Shambaugh, one of Gold's legal advisers, set up shop as a charity
administrator. Until last summer, he managed four closely linked charities
from a rundown office in Santa Ana. The Shambaugh charities raised $16
million from 2001 through 2004. They spent about 1 cent on the dollar for
charitable projects.
Robert
M. Friend Jr., who had formed one of Gold's last big charity clients in
May 1999, spun off four charities that raised $8 million. Amount spent on
charitable works: 8 cents on the dollar.
Former
Gold clients David Dierks and Phil LeConte raised $26 million for three
police charities. They spent 13 cents on the dollar for programs. Dierks
and LeConte paid themselves $1.1 million.
Most
of the money donated to these charities actually went to the fundraisers,
many of whom once worked for Gold.
Take
Wisconsin fundraiser Duane Kolve, who wrote to Judge David O. Carter
vouching for Gold's good character. Kolve earned more than $8 million from
Shambaugh and other former Gold associates. Three years ago, Kolve raised
$118,000 for the Association for Firefighters & Paramedics, a Santa
Ana group run by former Gold associate Michael Gamboa. The charity's share
was 10 cents on the dollar.
"Maybe
he didn't have a seminar, 'How to Run a Charity Scam,'" said
Assistant U.S. Attorney Ellyn Lindsay, Gold's federal prosecutor. But
"he was teaching others."
THE
FORMULA
Gold's
fundraising students have flourished by sticking to a formula he
perfected. The first step is to find a small, struggling charity or create
one with an appealing name.
Next
fundraisers tie that name to one of a litany of causes, often ripped from
the day's headlines: wheelchairs for children, bulletproof vests for cops,
death benefits for widows.
And
when the money rolls in, the fundraisers send the charity just enough cash
to keep most regulators at bay.
Gold
was partial to charities with veterans,
firefighters, cops or children in their names. Of 24 charities that he
represented in the late 1990s, 22 traded on one of these causes. Among
them: American Veterans Network,
American Veterans Relief Fund and Help Hospitalized Veterans. His
followers have stuck to that strategy.
Former
aide Shambaugh managed the Association for Disabled Firefighters and the
Disabled Firefighters Fund. Former Gold client Friend runs the Disabled
Firefighters Foundation.
One
doesn't have to create a charity from scratch to get an appealing name.
It's easier to persuade an existing charity to simply register some
attractive business names.
In
May 2001, former Gold courier Adam Cohen signed a fundraising contract
with Emmanuel Outreach Ministries, a nondenominational church in
Fullerton. The contract listed a half-dozen business names for Emmanuel,
including Hospitalized Children Fund, Help for the Homeless Program and
Hear the Cry of the Children International.
Over
the next two years Cohen raised $1.1 million nationwide. Emmanuel, which
drew about 50 people to Sunday services, got $105,000, according to state
reports.
Shiloh
International Ministries, a former Gold client, had five business names,
including Adolescent AIDS Foundation, American Veterans Network and Help
Hospitalized Children Fund.
"The
names were fantastic," said William Borland, a retired Pebble Beach
stockbroker who sometimes got three calls a day from former Gold
associates representing children, veterans and firefighters. "It was
everything that touched the human heart."
ONE-SIDED
DEALS
Attractive
names make Gold-style charity telemarketing possible. One-sided contracts
make it lucrative.
A
typical Gold-style contract guarantees a charity a set amount or a fixed
percentage of the take - seldom more than 15 percent and sometimes far
less. On top of that, the fundraiser usually owns the donor list. This
practice, condemned by charity watchdogs and some commercial fundraisers,
effectively strips the charity of its independence. Without its own donor
list, the charity is at the mercy of the fundraiser.
The
formula is like a funhouse mirror version of traditional charity.
U.S.
charities spent about 85 percent of their money on programs and less than
2 percent on fundraising from 1999 through 2003, according to the
Register's data analysis of about 150,000 organizations provided by
Guide-Star, a nonprofit charity tracker.
A
tiny fraction of those charities - about 500 groups nationwide - spend
more than 75 percent of their money on fundraising, the analysis found.
Why
would any charity take such a one-sided deal?
"To
us it was a good thing because we weren't having to, I guess, literally do
anything," former American Deputy Sheriffs' Association president and
Gold client Larry Smith testified in 2001.
David
Tubbs, Shiloh's chief financial officer, said Gold's reputation didn't
stop the organization from doing business with him.
"Even
I knew that Mitch was a pretty bad character," Tubbs said. "But
we needed the money."
TOO
MANY PROMISES
Shiloh
illustrates the colossal mismatch between donors' expectations and
reality.
Based
in an old bungalow in La Verne, Shiloh has depended on telemarketing for
more than a decade. It solicited in 34 states in 2004. Its founder Wallace
Christensen was ordained in the Universal Life Church - the original
"mail-order ministry."
Between
1997 and 2004, Gold and his successors raised $6 million for Shiloh. The
solicitors took $4 million. Most of the rest went to overhead, including
stipends for Christensen, Tubbs and other officers. The charity spent 9
cents on the dollar for grants to hospitals and individuals.
It
delivered considerably less than the telemarketers' scripts suggested.
In
a 1999 deposition, Federal Trade Commission attorney Tracy Thorleifson
read portions of Shiloh's telemarketing scripts to Tubbs and asked him to
explain what they meant.
Thorleifson:
"'During the course of the year, as you know, we provide a number of
special outings for the kids, such as amusement parks and professional
baseball games.' In what way does Shiloh through Handicapped Children's
Services of America do these things?"
Tubbs:
"In late '97 we provided two baseball tickets that were provided from
Mitch's office to a Dodger game that we gave to the Foothill AIDS Project
that they used to send someone to a ball game."
Thorleifson:
"Two tickets?"
Tubbs:
"Two."
That
same year, Gold and other solicitors raised $356,000 in Shiloh's name. The
fundraisers kept two-thirds of the money.
Two
years ago, with Gold in prison, solicitors raised more than $500,000 for
Shiloh. Former Gold subcontractor Tom Buchman and other fundraisers kept
three-fourths of the money. Shiloh spent most of its share on overhead. It
reported spending 6 cents on the dollar in contributions and aid to
individuals.
'LIKE
SHARKS'
Repeat
donors are the mother lode of charity telemarketing, milled from thousands
of cold calls like gold ore from gravel beds. They are known in the trade
as "mooches."
Mildred
Rockey was a mooch. Sometime after 2000, the 90-year-old Palos Verdes
Estates widow suffered a series of small strokes. Her deterioration was so
gradual that her family at first did not notice. But telemarketers working
for former Gold associates Timothy Lyons, Jeff Atkins and Shambaugh
quickly realized they'd found an open checkbook.
After
her condition worsened, Rockey gave almost $45,000. She gave it $25 or $50
or $100 at a time, in checks slipped under her doormat for waiting
couriers.
Couriers
occupy the bottom rung in charity telemarketing. They appear at a donor's
doorstep within hours or even minutes of a call, before the donor can
change his or her mind.
Couriers
were visiting Rockey once or twice a day before she exhausted her bank
account. One even forged her signature on a check, misspelling her first
name as "Mildrid."
"These
guys are like sharks," her son John Rockey said. "They sense
weakness."
William
F. Borland outwardly has little in common with Mildred Rockey. He's a
retired stockbroker in Pebble Beach, someone intimately familiar with the
getting and keeping of money. But he, too, was a mooch - a "golden
mooch" who between 1999 and 2002 wrote $80,000 in checks to groups
controlled by Gabriel Sanchez and other Gold successors.
"When
I got three requests a day," Borland said, "I began to wonder.
I'm sure the word was out: 'Hey, we got one here.' They were damned good
at what they did."
'LIFE
AS PARTY'
University
of Tennessee sociologist Neal Shover has studied fraudulent telemarketers
for years. He thinks they're interested in one thing: "life as
party."
Shover
and Glenn S. Coffey of the University of Northern Florida interviewed 45
telemarketers convicted of federal crimes.
They
found people who earned $100,000 to $250,000 a year while working just 20
to 30 hours a week. That left plenty of time for "life as
party."
"One
subject said that they 'would go out to the casinos and blow two, three,
four, five thousand dollars a night,'" Shover and Coffey wrote.
"Asked how he spent the money he made in telemarketing, one subject
replied, 'houses, girls, just going out to nightclubs and lots of blow
[cocaine]... lots and lots of blow, enormous amounts.'"
Work
itself could be life as party. On the job, many solicitors dressed
casually, used drugs and alcohol and got a thrill as potent as any drug
from a successful call.
For
Mitch Gold, "life as party" required cool cars. His company paid
$657.47 a month for his Jaguar. The company also paid for his $85,000
vintage Ferrari Testarossa.
His
chief protégé, J.P. Cohen, who went to prison with Gold, was a serious
gambler. Tom Buchman, a former Gold subcontractor, said Cohen loved Pai
Gow, an Asian form of poker, and would drop $50,000 a night.
BRIEF
TRIUMPH
Mitch
Gold casually defied the law for a decade. Then he ran into a federal
prosecutor named Ellyn Marcus Lindsay and the County of Orange Boiler Room
Apprehension task force, a group of local and federal cops based in Santa
Ana.
Lindsay
and her COBRA team pinned felonies on Gold, J.P. Cohen and a handful of
other Orange County fundraisers.
Their
triumph was brief.
Gold
was indicted Sept. 5, 2001. Six days later, as jetliners struck the World
Trade Center and the Pentagon, COBRA shut its doors.
The
dismantling of COBRA was a small act in a sweeping nationwide
transformation of law enforcement that has left donors with few places to
turn for help.
The
FBI quickly shifted agents and money to terrorism. Scott Gicking, a COBRA
task force member, was among 300 FBI agents reassigned from white-collar
crime to terrorism.
In
August 2004, the Government Accountability Office reported that the FBI
referred 23 percent fewer white-collar cases to prosecutors in 2003 than
it had in 2001 and opened 32 percent fewer investigations. The GAO said
the data was inconclusive because other agencies such as the U.S. Postal
Inspection Service and the Internal Revenue Service had stepped up
investigations.
But
unpublished GAO research released to The Register and reports by the
Justice Department's inspector general suggest the shift in FBI priorities
could hamper investigations of all but the biggest frauds.
"Nobody
else can do the sophisticated, long-term white-collar crime investigations
that the FBI does," three top agents in the FBI Financial Crimes
Section told the GAO. "We have the largest number of white-collar
crime agents of any law enforcement agency. We have specialized
expertise."
A
September 2005 report by the U.S. Justice Department inspector general
warned of an "investigative gap" in federal efforts to combat
telemarketing fraud. The FBI slashed the number of agents working
telemarketing cases from 60 in 2000 to just 16 in 2004, the inspector
general said. No other agency filled the gap left by the FBI.
Charities
that willingly accept a few pennies on the dollar, and the fundraisers
they hire, have charged through this gap. The nation's 500 least-efficient
charities paid fundraisers a combined $276 million - 88 cents of every
dollar the charities spent - in 2003, the last year for which complete
records are available, according to The Register's analysis.
The
charities spent just 8 cents on the dollar for the causes that donors
thought they were supporting. The public gave these charities a combined
$429 million in 2003 - nearly $100 million more than the previous year.
Some
of these charities are run by former Gold associates and clients like
Robert Friend and Shiloh International Ministries.
But
there's also the Association for Police and Sheriffs, an Anaheim group
that raised almost $1 million and spent barely 2 cents on the dollar, to
help battered women. There's the Firefighters Charitable Foundation of
Westerly, R.I., which raised nearly $11 million while spending 12 cents on
the dollar to assist fire and disaster victims. There's the Children's
Charity Fund of Sarasota, Fla., which raised $1.2 million and spent 9
cents on the dollar assisting disabled children.
A
few of those charities may have just had a bad year. But 150 of them,
including the Association for Police and Sheriffs, spent most of their
money on fundraisers three straight years.
"It's
based on the market," said Lloyd Jones, president of the Association
for Police and Sheriffs, which gets 10 cents of every dollar raised in its
name. "The more you're established, the better the percentage."
But
charity expert Putnam Barber, editor of the Internet Nonprofit Center in
Seattle, said charities that consistently accept high-cost fundraising
"are the froth on top of this sewer."
The
courtroom war on dubious charities did not end Sept. 11, 2001. But the
federal cutbacks raised the stakes for regulators and ultimately for
donors.
Fewer
FBI agents on the white-collar beat, fewer open investigations and fewer
referrals to prosecutors boil down to this: Prosecutors must choose
charity cases more carefully. And they have to be prepared to run a legal
marathon.
It
took Lindsay and the remnants of her COBRA team until November 2003, about
five years, to nail onetime Gold client Gabriel Sanchez and his high
school pal Timothy Lyons for a one-man church scam in Orange County.
Two
other former Gold associates were charged in the past month after lengthy
investigations. Former Gold apprentice Joe Shambaugh was indicted on
federal fraud charges. He is now a fugitive. Onetime Gold subcontractor
Duane Kolve was accused of criminal racketeering by Wisconsin prosecutors.
"There
needs to be a more concerted effort to rein in and regulate charitable
solicitation fraud," said Eau Claire County, Wis., District Attorney
Richard White, who prosecuted Kolve. "If it's happening here, how
many other places is it happening, and at what level?"
Lindsay
had wanted to do more.
"I
tried to get any investigators I could find to work charitable fraud, and
I can't find an investigator," she said. "You have a willing
prosecutor and nobody to investigate the crime. It's depressing."
----------------------------
Copyright
2005 The Orange County Register
RELATED
LINKS:
Chronology:
http://www.ocregister.com/ocregister/news/atoz/article_1031486.php
Group's
promises mostly unmet: http://www.ocregister.com/ocregister/news/atoz/article_1036202.php
Pupil
surpassed his mentor: http://www.ocregister.com/ocregister/news/atoz/article_1038449.php
'88
Ruling ruling
shields charity solicitors from regulators:
http://www.ocregister.com/ocregister/news/atoz/article_1038448.php
U.S.
Supreme Court rulings on charity: http://www.ocregister.com/ocregister/news/atoz/article_1031482.php
Inside
a boiler room: http://www.ocregister.com/ocregister/news/atoz/article_1031490.php
Checking
up on charities: http://www.ocregister.com/ocregister/news/atoz/article_1031484.php
Charities
defend laws governing telemarketing:
http://www.ocregister.com/ocregister/news/atoz/article_1031483.php
Charts
explaining fundraising and management costs: http://www.ocregister.com/ocregister/sections/news/investigations/2006/deception/graphic1.php
Details
on various charities: http://www.ocregister.com/ocregister/sections/news/investigations/2006/deception/graphic2.php
--------------------
Sound-alike
charities: http://www.ocregister.com/ocregister/news/atoz/article_1031487.php
Sunday,
March 12, 2006
Sound-alike
charities
When
they hear the words "American veterans," many people reach for
their checkbooks. That helps explain why Mitch Gold and several associates
created charities whose names started with that magic phrase. Here are
some examples:
American
Veterans Assistance Council: A
Gold client from mid-1988 through the early '90s, it was formed by Gold's
business partner and headed by Gold's brother-in-law.
American
Veterans Assistance Foundation: A
business name for Emmanuel Outreach Ministries, created in 2000 when Adam
Cohen, a Gold subcontractor and older brother of Gold's top protégé,
J.P. Cohen, started telemarketing for the Fullerton ministry.
American
Veterans Coalition: Originally
a business name for the Abundant Life Foundation, a Gold client starting
in 1999; incorporated 2002 in Washington state. Headed by Gig Harbor,
Wash., charity entrepreneur Robert M. Friend Jr.
American
Veterans Council: A
business name beginning in 1999 for Timothy Lyons' Costa Mesa fundraising
business. Controlled by Gabriel Sanchez. Sanchez was a former Gold client,
and Lyons was a onetime Gold subcontractor. Both men are serving 15-year
prison sentences for fraud.
American
Veterans Help Fund: A
business name for Gabriel Sanchez's First Church of Life in Huntington
Beach, formed in 1994. Sanchez also controlled the U.S. Veterans League.
American
Veterans Network: A
business name since 1994 for Shiloh International Ministries in La Verne,
a longtime Gold client.
American
Veterans Relief Foundation:
Incorporated in 2001 in Santa Ana by Michael Kowalsky, a former Gold
client. Managed until mid-2005 by onetime Gold aide and ex-felon Joe
Shambaugh.
American
Veterans Relief Fund: A
Gold client in the late 1990s. Headed by Dallas resident Marvin Cherna,
who was later convicted of mail fraud for looting the charity.
American
War Veterans: A
business name of Regular American Veterans, a Gold client in the late
1990s.
Sources:
Internal Revenue Service, Federal Trade Commission v. Gold, U.S. v. Gold,
The Register
BOILER
ROOM:
A
police detective describes what he saw during a raid on a Mitch Gold
boiler room.
SCRIPT:
Telemarketers
typically read from a script like this one for Shiloh International
Ministries.
GOLD'S
FRIENDS:
A
Virginia regulator listed dozens of Mitch Gold’s associates.
NO
THANKS:
A
charity refused to take money from the Association for Disabled
Firefighters.
STERN
WORDS:
Judge David O. Carter denounced Mitch Gold’s tactics when he
sentenced him to prison.
PLEA
FOR MERCY:
Before
the sentencing, Gold’s family tried to stir sympathy with this unsigned
letter.
CHARITY
MANAGER:
Joe
Shambaugh signed incorporation papers for his charity management business,
SR-1 Financial Services. Shambaugh, who once worked for Mitch Gold, raised
millions for charity after Gold left the business. Charities got barely a
penny of each dollar Shambaugh raised.
INTERACTIVE:
A TANGELED WEB:
Connections
of nearly 80 fundraisers and charities to the king of telemarketing fraud.
[Bob's comment -- this is an
interesting example of how softward can be used to show linkages between
individuals involved in a criminal enterprise.]
http://www.ocregister.com/multimedia/gold/
MAP:
ENFORCEMENT ACTIONS:
Actions
taken in specific states.
http://www.ocregister.com/ocregister/sections/news/investigations/2006/deception/usmap.php
'RELOADING'
ONLINE:
Compare
two charities' Web sites and some of their similarities.
http://www.ocregister.com/ocregister/sections/news/investigations/2006/deception/websites.php
PROFILES:
Federal
prosecutor Ellyn Lindsay:
http://www.ocregister.com/ocregister/news/atoz/article_1031488.php
U.S.
District Court Judge David O. Carter:
http://www.ocregister.com/ocregister/news/atoz/article_1031489.php