The Supreme Court ruled unanimously yesterday that charities that
misrepresent their fundraising costs can be charged with fraud.  Now the
trick is to catch Heritage for the Blind in a false statement so they can
be held accountable for the fraudsters that they are.

Kelly





    The New York Times

    May 6, 2003

    Supreme Court Rules Charity May Be Charged With Fraud

By LINDA GREENHOUSE

    WASHINGTON, May 5 - Charitable solicitations that include deliberate
misrepresentations about what proportion of the money raised will go to
the beneficiaries can be prosecuted as consumer fraud, the Supreme Court
ruled unanimously today.

    The decision, awaited anxiously by charities and state regulators,
came in a long-running case that the Illinois attorney general brought
against a telemarketer that raised $7 million ostensibly on behalf of a
charity for Vietnam veterans while keeping $6 million for itself under
the terms of its contract.

    The Illinois Supreme Court had dismissed the attorney general's
complaint on the ground that the First Amendment's guarantee of free
speech prevented the government from deeming any particular level of
fund-raising expenses to be unacceptable.

    In overturning that dismissal, the court today agreed with the
Illinois court that wrongdoing could not be inferred from high
fund-raising costs alone.

    "But the First Amendment does not shield fraud," Justice Ruth Bader
Ginsburg wrote for the court. "States may maintain fraud actions when
fund-raisers make false or misleading representations designed to
deceive donors about how their donations will be used."

    In limiting its focus to "misleading affirmative representations,"
the court issued a rather narrow ruling that avoided the more difficult
constitutional questions posed by solicitations that are merely
suggestive without being flatly misleading.

    By her careful approach, Justice Ginsburg managed to extract
unanimity from a court that appeared far from unanimous when the case,
Illinois v. Telemarketing Associations Inc., No. 01-1806, was argued two
months ago.

    The decision set a high burden that states must meet to prove fraud
in charitable solicitations. A false statement, standing alone, does not
amount to fraud, Justice Ginsburg said. Rather, the state must show that
the solicitor deliberately made a false statement "with the intent to
mislead the listener, and succeeded in doing so." As an "additional
safeguard," she said, appellate courts may make their own independent
review of the trial court's findings, as the Supreme Court has required
in certain libel cases.

    These safeguards were required by the First Amendment, Justice
Ginsburg said. Then she added, "What the First Amendment and our case
law emphatically do not require, however, is a blanket exemption from
fraud liability for a fund-raiser who intentionally misleads in calls
for donations."

    By not addressing subtler forms of misleading come-ons and sales
pitches, the decision was unlikely to allay fully the public concerns
about aggressive fund-raising tactics. But it was likely to strengthen
the hand of state regulators by making clear that three decisions the
court issued in the 1980's to protect charities from intrusive
regulation should not be understood by state courts as a bar against
attacking outright fraud.

    Those rulings invalidated state laws that prohibited charitable
solicitations that did not return a certain percentage of receipts to
the charities.

    The Supreme Court's decision to hear the Illinois attorney general's
appeal in this case alarmed the charitable sector by raising the
prospect that the justices might revisit those precedents and treat
certain percentages as presumptively unreasonable.

    The attorney general had attacked the contract between a charity
called VietNow and its fund-raiser, Telemarketing Associates Inc., which
provided that 15 percent of receipts would go to the charity. In briefs
to the Supreme Court, charities argued that expenses that sometimes
seemed unreasonably high could be necessary to start a charity or build
public awareness of an issue.

    The decision today put the initial fears to rest. Pat Reed, a vice
president of Independent Sector, a national coalition representing
22,000 charities, said the group was pleased with the decision because
in limiting itself to "real fraud," the court had not retreated from its
position that high costs alone could not be treated as fraud.

    "Fraud hurts all of us," Ms. Reed said. "How you deal with cases of
real fraud without infringing on the rights of charities and nonprofits
to reach out to the public is a tough line to draw, and the court did an
excellent job at getting us closer to it."

    One state regulator, Assistant Attorney General William Josephson of
New York, called the decision "a warning shot to the professional
fund-raising industry that they can't simply assume a blanket
exculpation under the First Amendment."

    New York State has never considered any particular fund-raising
percentage to indicate fraud, Mr. Josephson said, relying instead on
disclosure to alert consumers how their charitable dollars are used.

    The figures posted annually on the attorney general's Web site show
that on average, 30 percent of the money raised for charity in New York
actually goes to the charities.

    The National Committee for Responsive Philanthropy, which describes
itself as a national watchdog group, called the decision a "victory for
accountability and truth in fund-raising."

    Illinois filed its complaint against Telemarketing Associates in
1991 and will now be able to take its case to trial. The state's
complaint included affidavits from one woman who said she was told that
90 percent of her contribution "goes to the vets" and from another who
said she was told that none of her donation would be used for "labor
expenses."

    But the state's allegations of fraud remain to be proved. When the
case was argued in March, the telemarketing company's lawyer, Eric
Copilevitz, told the justices that under its contract, the company spent
some of the money it retained on educational activities on the charity's
behalf.

    Justices Antonin Scalia and Clarence Thomas filed a concurring
opinion. They said that donors could be presumed to understand that
expenses, even high ones, will be deducted from their contributions.

    But this case concerned "a solid core of misrepresentations" that
placed it in a different category, they said.


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