New York AG Files Fraud Suit Against Brooklyn Children’s Charity

As reported by The New York Times, a charity fraud case in the New York court is a great teaching case reminiscent in part of United Cancer Council, except this case involves potentially both private benefit and private inurement.  The National Children’s Leukemia Foundation, based in Brooklyn, is accused of paying more than 80% of the $9.75 million it raised from 2009 to 2013 in telemarketing and direct-mail fundraising campaigns.  In contrast, the Foundation only expended $57,451 in “direct cash assistance to leukemia patients” in the same time period.  The Foundation’s “Make A Dream Come True” program, which arranged family trips and celebrity introductions to children with cancer, was primarily a phantom effort, with only $7,866 paid out prior to 2009 and nothing thereafter.  The Foundation’s claims of maintaining a bone marrow registry and “banking stem cells” were admitted to be mostly false.

Reeking of private inurement, the Foundation was essentially a one-person operation, operated from the founder’s basement.  The founder extracted a $595,000 salary and $600,000 deferred compensation from 2009 to 2013, along with a future pension.  The court petition also accuses the founder of using Foundation funds for personal expenses, including house renovations.  A lack of board oversight and internal accounting controls appear to have contributed to the founder’s ability to control both operations and raised funds.  In addition, the Foundation transferred $655,000 to an Israeli research foundation created by the Foundation’s founder.

Nicholas Mirkay