Avoiding Trouble While Serving Your Community: The Attorney General's Role in the Regulation of Charitable Organizations and Solicitation of Charitable Assets

Belinda Johns

California AGO

Elizabeth Grant

Oregon AGO

Overview of Topics

1. Introduction

2. The State Attorney General’s Role in the Supervision of

Charities and Funds Raised for Charitable Purposes

3. State Charitable Registration Requirements

4. The advantages of transparency and the pitfalls of

noncompliance

5. Who is Subject to Registration Requirements

6. Application of Registration/Fundraising Requirements to

Social Media

7. Deception in Social Media Context

8. Questions?

Attorney General’s Powers

• Attorney General Mandate: to Protect Charitable

Assets for Intended Beneficiaries

• Represents the public beneficiaries of charity

• Supervises charities and the fundraisers who act on

their behalf

• Under State consumer fraud and charitable

solicitation laws:

• Aggressively pursue fraudulent solicitations and

other deceptive practices.

• Maintains Registry of charitable entities and

fundraising professionals

Overview of Charitable Registration Laws

In General:

• 39 States and DC have registration/reporting requirements but system not uniform.

• Registration requirements vary: • required for charitable entities or individuals register if holding

property in the state and all fundraising professionals soliciting in the state;

• “charitable organization” defined quite broadly.

• required only if soliciting in the state; and

• only apply to fundraising professionals.

Purposes and Benefits of Registration

• Helps donors make informed choices

• Enables oversight by government, media, and public

• Increases confidence in sector

• Deters abuses without discouraging legitimate

activities

• Benefits your organization by ensuring information is

available (but make sure you are communicating

effectively).

• Noncompliance often a symptom of other problems

Types Of Fundraising Professionals

1. Professional fundraiser/solicitor – any person or entity who, for compensation, contracts with a charitable entity for the purpose of soliciting funds.

• usually does not include bona fide employee of the charity who receives regular compensation, i.e. salaried development directors

2. Fundraising Consultant – for compensation, plans, manages, advises, counsels, consults or prepares materials for solicitation purposes, but does not solicit, receive or control funds or assets and does not employ anyone who does. In several states, a fundraising consultant must submit copies of contracts; in others, they might only need to register if they have custody or control of funds from solicitations and provide contracts upon request.

Definitions vary by state but concepts are similar

Are You a Solicitor or Consultant?

• Definitions of paid solicitor and professional fundraising consultant vary state-by-state, but the IRS Glossary definition “Professional Fundraising Services” is helpful in interpreting whether someone is a PS, PFC, or simply a vendor. • Services performed for the organization requiring the exercise of

professional judgment or discretion consisting of planning, management, preparation of materials (such as direct mail solicitation packages), provision of advice and consulting regarding solicitation of contributions, and direct solicitation of contributions, such as soliciting restricted or unrestricted grants to provide services to the general public. However, professional fundraising does not include purely ministerial tasks, such as printing, mailing services, or receiving and depositing contributions to a charity, such as services provided by a bank or caging service.

When Can The Attorney General Act?

• A state (and its AG) have jurisdiction if the organization

has minimum contacts with the state, and

purposefully avails itself of the privilege of conducting

activities within that forum state, thus invoking the

benefits and protections of its laws.”

• The Zippo test (952 F. Supp. 1119 (W.D. Pa. 1997)).

• If a Web site is passive and merely posts information, there is

no jurisdiction.

• If a Web site is interactive, there may be jurisdiction

• If “clearly doing business” online, there is jurisdiction.

• Accepting donations could be “doing business.”

• 15 years after Zippo, very few websites are “passive.”

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Determining if a Charity Needs to Register

• Where is the charity domiciled?

• Where is the charitable trustee soliciting?

• Does the charity solicit and if so, in which states?

• Examples:

• Direct mail, telemarketing, honor boxes

• Charitable gaming – bingo, raffles, casino nights

• Sale of goods or services

Determining When Internet

Solicitation Requires Registration?

• Existing statutes apply to internet solicitation

• So registration required if state court could

constitutionally assert jurisdiction to enforce

requirement

• That is: if the charity intends to direct activities into

a certain state.

• Also called “purposeful availment”

• Calder v. Jones 465 U.S. 783, 789 (1984)

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The Charleston Principles and State Jurisdiction

• Jurisdiction to require registration is based on “purposeful availment” and “intent to direct”

• Principles are guidelines for regulators

• Registration required: 1. In state where organization is domiciled

2. In other states if:

A. Specifically target persons physically located in the state for solicitation, or

B. Receive contributions from the state on a repeated and ongoing or substantial basis

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The Charleston Principles in 2011

•What does “specifically target” mean?

• Posts on Twitter, Facebook, etc.

• Website platform, i.e. First Giving, Crowdrise,

changingthepresent.org

• Platform (aka conduit)

• Those who use platform • Various entities may come together on one website, each with different roles.

Registration requirements may depend on role.

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Who is Soliciting?

• “Solicitation” may be broader than people realize:

• Oregon defines solicitation as any request for a contribution, including

any offer to sell any property or services, in connection with which the

name of a nonprofit is used as an inducement for making the

contribution or which implies that a part of the contribution will be

donated to any nonprofit organization

• But who is soliciting if via social media?

• Just because you’re online, does not mean you’re making the ask.

• Previous example: First Giving, may or may not be “asking”

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Is doGoodr.com soliciting?

• Answer: probably not

1. Not compensated by the nonprofits listed on the site

2. Content is supplied by nonprofits, not doGoodr.com

3. Donation button goes to nonprofit’s website

• http://www.youtube.com/watch?v=SjAPDb0LjeQ&feature=player_embe

dded

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Is Changingthepresent.org Soliciting?

• Answer: It could be

1. Website includes “cart” for donations

2. Website fees are based on amount donated

• Above and beyond credit card fees

3. Website creates its own content

4. Website operator gives impression that have

independently reviewed and vetted

organization

• Combination of factors could lead to conclusion

that being compensated to solicit contributions

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When Is A Platform A Professional Fundraiser?

• Example1: The platform that appears to endorse

• Many sites provide online platform for charities to build online

presence.

• Example: First Giving

• A platform could be considered a professional fundraiser if:

• Places nonprofit into an issue portfolio, higher search rank, “featured”

nonprofit – all for higher fee (or a fee)

• All original content that requests funds, for a fee

• see definition of pro fundraiser

• Any content created by the site for a fee comes closer to definition of a

professional fundraiser.

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Is Will Ferrell A Professional Fundraiser?

• Crowdrise Example:

1. Will Ferrell: not compensated but is making the “ask”

2. Crowdrise: compensated but may or may not be making the “ask”

3. Cancer for College: receives the donated funds but not making the “ask”

• May not even know it is listed…

• But see many state laws that require charity’s written consent to fundraise on its behalf

• If directing volunteers or aware of effort, could be a different analysis

4. Network for Good: acting as a (c)(3) donor advised fund.

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Charitable Sales Promotion/ Cause Marketing

• Cause Marketing – an advertising or sales

campaign with proceeds benefiting charity

• For-profit entity may be a “commercial

coventurer”

• May trigger registration requirement for charity

• Most states have laws applicable to commercial

coventurers, including disclosure and record

keeping requirements

Cause Marketing Considerations

• Want to avoid any misleading advertising using a

charitable pitch, e.g., an undisclosed cap on contributions.

• BBB Standard 19 re: Cause Marketing. Clearly disclose

how the charity benefits from the sale of products or

services:

• Actual or anticipated percent of sales to charity

• Duration of the campaign

• Any maximum or guaranteed minimum contribution

Social Media – What Could Go Wrong and Who Would Be

Responsible? • Deceptive Solicitations

• Organization sounds charitable, but isn’t

• Organization may have 501(c)(3) status, but donations used for

personal benefit.

• Example: Ripoff Foundation creates a page on an otherwise

legitimate online platform and collects $50,000 by claiming to help

lemurs, but use funds for Mr. Scam’s Corvette.

• Fraudulent schemes not new, but speed of Social Media is

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Social Media – What Could Go Wrong and Who Would Be

Responsible? • Charities have less – or no – control

• Message and tools

• Misleading or false claims may be made by others

• Others soliciting for restricted purposes that are not

consistent with charity’s goals

• Who owns the donor list?

• Who assures the charity gets the donations?

• May also trigger registration requirements – Let’s have a

competition among college students in Oregon to raise

money for X Charity

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Who Is Responsible For Deceptive Acts?

• Actual knowledge of fraudulent misuse

• FTC v. Neovi: defendant engaged in an

unfair practice thru its online services

when it "engaged in a practice that

facilitated and provided substantial

assistance to a multitude of deceptive

schemes.“ 604 F. 3d 1150

• Software allowed anyone to create a check, woefully insufficient

safeguards

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Avoiding Deceptive Acts

•Both the charity and the site must be proactive

• The specific acts necessary to prevent deceptive content can be summarized as follows:

• You need a system that: 1. Stops basic misuse automatically

• Ex: (c)(3) verification

2. Detects more sophisticated attempts at fraud

3. Requires some active effort to detect fraud. Legal standard is generally “knew or should have known”

• no head in the sand

4. Fixes flaws as they become known

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Deceptive and Unfair Practices in Social Media Context

• “Reasonable consumer” standard

• Issues of concern to regulators:

1. Failure to adequately disclose ALL fees

• Stating 100% goes to nonprofit when PayPal gets 3% is a misrepresentation

2. Not turning over money to organization or cause in a timely manner

3. Nonprofits that do not exercise due diligence before choosing online

partners.

4. Platforms that endorse or vet without doing due diligence

5. Fake testimonials/recommendations/paid endorsements

6. Profile “hi-jacking” on platforms and other forms of ID theft

• Platforms should aggressively watch for this

7. Charging unnecessary fees

• Saw one website that listed nonprofits then demanded joining fee to tweak

address information.

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Social Media – Policy Considerations

• Moves very rapidly/globally/reactively

• Makes traditional educational messages about research

and proactive giving difficult

• Makes enforcement efforts more difficult

• Focus on Causes/Not Organizations

• Need Infrastructure to Solve Problems

• Destabilizing Focus on Short Term Strategies/Latest

Trends?

• Most popular causes attract the most fraud (disaster

relief)

Social Media – Policy Considerations

• Makes Control of Messaging More Difficult

• Charity may not even be aware of solicitations

• Creates impression of micro-donor control/lack of administrative costs

• Demand for constant "new" information

• May Lead to Less Transparency/Accountability

• More people involved in fundraising/more access to donor data

• Blurring of sector makes it difficult for pubic to distinguish between types of entities/types of solicitations/solicitation overload

Wait, There’s More…

•The Communications Decency Act

•Older statutes that are still good law

•Privacy issues (the sleeping giant)

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The Communications Decency Act

• Some providers of interactive computer services have

immunity from some state law claims under Section 230 of

the Communications Decency Act (CDA), 47 U.S.C. § 230(e)(3)

• The immunity is provided to service providers but not content

providers. • A service provider is completely passive and displays content that is wholly

provided by third-parties while a content provider displays content for which it is

wholly or partly responsible.

• A website can be both • Can be immune for some content on its website and not immune for other

content.

• Could have immunity as long as the website isn’t

encouraging or facilitating unlawful conduct.

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Communications Decency Act Case Examples

1. Roommates.com ran a website designed to match

people renting out spare rooms with people

looking for a place to live. Then it asked about

gender, sexual orientation, and children.

• Sued for Fair Housing Act violations, 521 F.3d 1157 (9th Cir. 2008).

• Not immune because CDA provides immunity only if the interactive computer

service does not ‘create or develop the information in whole or in part.

• By mandating information in violation of the FHA, Roommates.com was

‘developing’ that information rather than just passively allowing it to be

posted.

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Communications Decency Act Case Examples

2. Carafano v. Metrosplash.com, Inc., 339 F.3d 1119

(9th Cir. 2003).

• Anonymous person created a profile for

Carafano, an actress, on an internet dating

site.

• Website was immune because the libelous

content was created “entirely by the user

without prompting or help from the website”

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Older Statutes That Are Still Good Law

• Laws created for good purposes years ago

• not in every state but you need to be aware of these issues and

respond to them

• Some states require written permission from the

nonprofit before soliciting on its behalf.

• Some states require that funds solicited be placed into

a bank account controlled by the nonprofit.

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Privacy Issues

• Well beyond the scope of this presentation

• Will be important in the coming years

• Some general concepts:

• Must protect data against theft

• Also, must disclose when will use or sell data • Data is an asset - donor lists, etc.

• Remember what your donors and constituents

expectations are. • If they believe you violated their privacy they won’t give and will

tell their friends

• Even if you violated no laws

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Resources

• Internal Revenue Service “Stay Exempt” Training - www.stayexempt.org

• Federal Trade Commission - www.ftc.gov

• NASCO – www.nasconet.org

• BBB for Charities and Donors - www.bbb.org/us/charity

• Independent Sector - www.independentsector.org

• National Council of Nonprofits - www.councilofnonprofits.org

• Council on Foundations - www.cof.org

• Urban Institute - http://www.urban.org

• Multi-State Filer Project - www.multistatefiling.org

Contact Information

Belinda Johns, Senior Assistant Attorney General

California Attorney General’s Office

455 Golden Gate Ave., Suite 11000

San Francisco, CA 94102

belinda.johns@doj.ca.gov

Elizabeth Grant, Senior Assistant Attorney General

Oregon Department of Justice

1515 SW 5th Ave., #410

Portland, OR 97201

elizabeth.grant@state.or.us

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