NY Sues Leukemia “Charity” For Allegedly Raising $10M Through Deception

Attorney General Eric T. Schneiderman today announced that his office has filed a court action to shutter the National Children’s Leukemia Foundation (NCLF), and to hold accountable its founder, its president, its vice president, who is the founder’s son, and its auditor.

The lawsuit comes after an investigation by the Attorney General’s Charities Bureau allegedly revealed that the NCLF, which touted itself as a leading organization in the fight against leukemia, did not conduct most of the programs advertised on its website and in its solicitations – including claims it operated a bone marrow registry and fulfilled the last wishes of dying children – flouted critical filing obligations required of it under New York law.

The court papers charge that, despite claims it had a board of directors and other significant financial and scientific controls, the two-decade-old organization was largely a one-man operration, run by founder Zvi Shor, 64, out of the basement of his Brooklyn home.

NCLF’s president and vice president are alleged to have breached their duties to the organization and to have aided and abetted Shor in running the organization; the auditor is accused of making false filings.

“Nothing is more shameful than pocketing millions of dollars donated by good-hearted people who just wanted to help children afflicted with a terminal illness,” said Attorney General Eric Schneiderman. “My office will continue to identify, investigate, and shutter so-called charities that use legitimate-sounding names to exploit the generosity of New
Yorkers and betray the public’s trust. Those charitable organizations that do help our most vulnerable citizens, and put donors’ money to its intended use, are an essential part of the fabric of our state. I urge New Yorkers to continue giving to the neediest among us, but to give wisely.”

The lawsuit alleges that between 2009 and 2013, the NCLF raised $9.7 million from donors across America by:

Repeatedly lying
about having a bone marrow registry, an umbilical cord blood banking
program, and its own cancer research center; and telling donors it had
filed a patent application for a new lifesaving treatment for leukemia
when it had not;

Lying when it told
potential donors that funds raised would be used to “fulfill wishes of
terminally sick children,” including sending these children to Disney
World, when NCLF had not done so in years;

Making false
official filings, including annual financial filings submitted to the
Attorney General’s Office, by reporting individuals as directors of
the organization without their knowledge, and falsely reporting a large
portion of fundraising expenses as public education about cancer;

Filing false audit
reports, when no audits were in fact conducted.

As the petition charges, between April 2009 and March 2013, NCLF collected approximately $9.7 million in revenue from thousands of donors across the country. Of that, $8.9 million was solicited by professional fundraisers hired by Shor, who were in turn paid approximately $7.5 million – or 83% – of the money raised. Of the remaining funds, according to the organization’s filings, the organization spent less than 1% percent – $57,541 – of its income on direct cash assistance to leukemia patients and transferred another 5% – $655,000 – to a shell organization in Israel run by Shor’s sister, allegedly for research purposes. Over the same time period, Shor was paid a salary of nearly $600,000, and awarded himself another $600,000 in deferred compensation.

The Attorney General’s investigation found that NCLF’s president, Yehuda Gutwein, 58, who lives in Brooklyn, was president in name only. Gutwein, a certified public accountant, took over the title in May 2010, when reports surfaced that Shor, who had been president since the organizations 1991 founding, was convicted of felony bank fraud in the Eastern District of New York in 1999. Shor’s son, Shlomo Shor, 43, also of Brooklyn, stepped in as a director and vice president, but did nothing other than sign checks and forms, as he was ordered to do by his father.

New York law requires that the board of directors of a charitable organization be true overseers of the organization, and that directors perform their fiduciary duties, including reviewing documents and overseeing management. It also requires that forms submitted to the Attorney General’s office be accurate and that charities comply with accounting rules in reporting their program expenses.

Investigators also found that an accountant hired by NCLF, Shlomo Donn, 35, of Lakewood, New Jersey, signed audit reports that were filed with the Attorney General’s Charities Bureau, but did not in fact conduct any audits. From 2009 to 2013 the respondents submitted audit reports and other official documents to the Attorney General’s Office and the New York State Department of Health containing material falsehoods that concealed NCLF’s numerous violations of New York’s charities laws. These false reports – signed variously by Shor, Gutwein, Shlomo Shor and Donn – misrepresented NCLF as an organization overseen by a 13- to 16-member board of directors and a separate medical advisory board, with a large and diverse array of programs that directly assist cancer-stricken children. NCLF’s financial statements also misreported millions of dollars in fundraising expenses as “education” or “awareness raising.” This false reporting made NCLF appear to spend more on programs than it did in fact.

The charges against the auditor signal an increased focus on accountants and auditors of not-for-profits by Attorney General Schneiderman’s Charities Bureau.

The petition filed in Kings County Supreme Court today seeks to recover the full amount of all funds raised through fraudulent representations.

The investigation into NCLF was initiated as a result of the Bureau’s “Pennies for Charities” report, which showed that a tiny fraction of donations raised by many professional fundraisers actually went to the charitable causes donors intended to support. The Bureau revoked NCLF’s registration in January 2014 as the investigation developed.

The case is being handled by Assistant Attorney General Yael Fuchs, with the support of Charities Bureau accountants David Nadel, Judith Welsh-Liebross, and Joseph Stoeffel, and Legal Assistants Carolyn Fleishman and Jacqueline Sanchez. Senior Investigator Edward Conlan also provided assistance. Sean Courtney is the Enforcement Section Chief of the Charities Bureau. James Sheehan is the Charities Bureau Chief. Alvin Bragg is Executive Deputy Attorney General for Social Justice.

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