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$25 million settlement in N.Y. veterans charity case

Jul. 1, 2014 - 08:21AM   |  
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NEW YORK — A direct-mail fundraising company that sent solicitations on behalf of a disabled veterans’ charity but took in most of the money raised will pay $9.7 million in damages and the charity will re-organize its board and reform its practices as part of a $24.6 million settlement, the state attorney general’s office said.

Attorney General Eric Schneiderman was expected to discuss the agreement among his office, the Disabled Veterans National Foundation charity, the Quadriga Art direct-mail company and another company, Convergence Direct Marketing, on Tuesday.

Besides the damages, the settlement calls for Quadriga to forgive $13.8 million still owed to it by the charity and pay $800,000 to the state for costs and fees. Convergence, which Schneiderman’s office said also played a role in the fundraising, will pay $300,000 in damages. The $10 million in damages from the two direct-mail vendors is slated to go to efforts to help disabled veterans including spinal cord research.

Quadriga and Convergence designed direct-mail fundraising appeals for the charity, which was founded in late 2007, and raised more than $116 million, Schneiderman’s office said. The mailings included material that was false or misleading, such as stories about veterans the charity hadn’t helped, the office said.

The direct-mail vendors had an agreement with the Washington, D.C.-based charity in which the vendors assumed the cost of the donation campaigns and were paid by the money that came in.

Schneiderman’s investigation found that the charity’s board had little experience with direct-mail fundraising and performed very little oversight of Quadriga’s and Convergence’s operations, including the relationships and financial arrangements among various company executives and board members.

Schneiderman said the investigation showcased “some of the most troublesome features” of direct-mail fundraising.

“Taking advantage of a popular cause and what was an unsophisticated start-up charity, these direct-mail companies used cleverly designed but misleading mailers to raise tens of millions of dollars 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,” he said.

None of the parties admitted any wrongdoing. As the charity’s part of the settlement, its board members will step down and new ones will be brought on, and it has to stop using false or misleading fundraising materials and create an independent audit committee.

The charity, which in recent months appointed a new chief executive officer, said it “welcomed” the agreement.

“This is a very significant and positive step for the Disabled Veterans National Foundation that will enable us to improve the services we deliver and increase transparency with our loyal donors,” CEO Joseph VanFonda said.

Quadriga CEO Mark Schulhof said his company “made mistakes” in using “a fundraising strategy that outpaced the charity’s programs and services.”

“We mailed too much, and too quickly, for a young charity,” he said.

The company said it is instituting practices including presenting the risks and costs of any campaigns to a charity’s board and providing an annual report of a campaign’s performance.

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