U.S. Supreme Court's Unanimous Ruling in Telemarketing Case a 'Victory for Accountability and Truth in Fundraising,' Says NCRP

5/5/2003

From: Sloan C. Wiesen of the National Committee for Responsive Philanthropy, 202-387-9177 e-mail: sloan@ncrp.org; Web: http://www.ncrp.org

WASHINGTON, May 5 -- The National Committee for Responsive Philanthropy (NCRP) hailed as a "victory for accountability and truth in fundraising" today's unanimous U.S. Supreme Court ruling that states can protect donors from charitable telemarketing fraud without violating the First Amendment.

As a watchdog group working to improve philanthropic effectiveness with an eye toward social justice, NCRP welcomed the decision as a triumph for American families, charities and the entire nonprofit sector.

"Fraud is not free speech," said NCRP Executive Director Rick Cohen. "Today, in a wise decision, the Supreme Court unanimously ruled that states can crack down on charitable telemarketing fraud while still protecting the First Amendment. This is a victory for accountability and truth in fundraising -- and a decision that will ultimately benefit donors, charities and the vulnerable American families they serve."

The Illinois attorney general brought the case against Telemarketing Associates, a for-profit firm which had contracted to fundraise over the phone for VietNow -- a charity whose mission is to help Vietnam-era Veterans. Despite what donors were led to believe by the telemarketing firm, most of their contributions -- a stunning 85 percent -- went to the telemarketer and not to the charitable purposes the donors were told they would be funding.

"Public trust is central to philanthropic effectiveness -- and it has been weakened of late," noted Cohen. "In this particular case, donors were actively being misled to believe that most or all of their donations were going directly to a charity -- when in fact the for-profit telemarketer was pocketing nearly all of their money. Especially in the current climate when accountability is more salient than ever, America's charities should know better than to defend fraud in the guise of protecting free speech."

While the Supreme Court clarified that excessively high fundraising costs could not in and of themselves constitute fraud, they could be used to justify such a charge in combination with other factors -- such as misrepresentation, as was found to be a factor in the present case.

"Our prior decisions do not rule out, as supportive of a fraud claim against fundraisers, any and all reliance on the percentage of charitable donations fundraisers retain for themselves," Justice Ruth Bader Ginsburg wrote in the Court's unanimous opinion. "While bare failure to disclose that information directly to potential donors does not suffice to establish fraud, when nondisclosure is accompanied by intentionally misleading statements designed to deceive the listener, the First Amendment leaves room for a fraud claim."

The opinion came in the case of "Madigan v. Telemarketing Associates". The case was formerly known as "Ryan v. Telemarketing Associates", when the previous Illinois attorney general originally filed the suit.

"High fundraising costs, without more, do not establish fraud. ... And mere failure to volunteer the fundraiser's fee when contacting a potential donee, without more, is insufficient to state a claim for fraud," Ginsburg concluded. "But these limitations do not disarm (s)tates from assuring that their residents are positioned to make informed choices about their charitable giving. Consistent with our precedent and the First Amendment, (s)tates may maintain fraud actions when fundraisers make false or misleading representations designed to deceive donors about how their donations will be used."

NCRP's Cohen added, "The overwhelming majority of charities don't behave like Telemarketing Associates and VietNow and certainly don't try to cloak charitable fraud behind the mantle of free speech. Nonetheless, in light of the unfortunate spate of problems with inadequate accountability and transparency among a tiny number of charities, including problems with fundraising intermediaries such as the United Way of the National Capital Area and foundations such as the King Foundation in Texas and the Irvine Foundation in California, the Supreme Court's decision is a significant statement in favor of the importance of nonprofit probity, public accountability and telling the truth to American donors and taxpayers."

Founded in 1976, the National Committee for Responsive Philanthropy is dedicated to helping the philanthropic community advance the traditional values of social and economic justice for all Americans. Committed to helping funders more effectively serve the most disadvantaged Americans, NCRP is a national watchdog, research and advocacy organization that promotes public accountability and accessibility among foundations, corporate grantmakers, individual donors and workplace giving programs. For more information on NCRP or to join, please visit http://www.ncrp.org or call 202-387-9177.