In Giving to Charity, Let the Donor Beware

Con men and aggressive businessmen are taking advantage of the fact that charities in the United States are protected under the First Amendment and the laws regulating what has to happen to the money, ABCNEWS found as part of a yearlong investigation.

At a rodeo in Dillon, Mont., a 4-year-old boy named Aaron who is suffering from sickle cell anemia got his wish to be a cowboy for a day. Aaron received the 50,000th wish granted by the Make-a-Wish Foundation, which has raised millions of dollars to give sick and dying children a day where they don't have to think about being sick. Yet, because of the Make-A-Wish Foundation's success at raising money and doing good, it is now attracting the inevitable copycats and con men.

"It's got to be millions of dollars, millions of dollars that are going to organizations that are pretending to be the Make-A-Wish foundation," said Paula Van Ness, the foundation's president and CEO. "People see it as an easy opportunity to make a buck. And to make a buck off a child with a serious illness is unconscionable to me."

Kid Wish USA was one such foundation that was "promising they're granting the last wishes of terminally ill children and they're not granting any," said federal prosecutor Mike Snipes.

Snipes calls it one of the most callous — but easily done — frauds he's ever seen.

"They just would take pictures of children from other brochures from legitimate charities," said Snipes, "[and] put them in their brochures."

But not one wish was granted to one child. Instead, prosecutors found millions of dollars in donations went to Michael Manzer, 65, and his cohorts, who set up the charity in New York and other states.

When ABCNEWS tried to talk with Manzer, the people who came to court with him were hardly charitable. Instead, ABCNEWS correspondent Brian Ross was greeted with a right to the jaw, and a double head slam against the wall, knocking him dizzy and bloodying his nose.

Manzer was convicted on mail fraud and money laundering charges and was sent to prison. But it is one of the few questionable charities to result in criminal charges, prosecutors say.

In the Name of Charity

Under the law, if Manzer had used just a little of the money to grant one child one wish, he might never have been prosecuted or convicted and the charity might have been considered legitimate. Manzer's group had made small donations to hospitals and other organizations but had never granted a wish to a sick child, which was the stated purpose of the organization.

Prosecutors across the United States told ABCNEWS that the real scandal with charities is not what's illegal, but what's legal — and what people can get away with in the name of charity.

"They can get away with giving 1 percent to the cause," said Daniel Borochoff, head of the American Institute of Philanthropy.

Borochoff said the protection charities get under the First Amendment has resulted in a nationwide plague of newly established charities, doing little good but considered legitimate.

Under the First Amendment, charitable solicitations are protected as speech because a significant component of these appeals is "persuasive, informative or political in nature," according to the Charity Navigator, a watchdog organization.

"It's far too easy for anybody to set up a charity, get tax-exempt status with the IRS, do very little of anything charitable and get away with it," Borochoff told ABCNEWS.

It’s Easy to Do

Last year alone, there were more than 50,000 newly established charities, according to the Internal Revenue Service. As ABCNEWS discovered during a yearlong undercover investigation designed to see just how easy it is to set up a charity where most of the money would benefit the organizers and fund-raisers, it was easy.

Operating out of the ABCNEWS offices in New York, producer Rhonda Schwartz put out word to the telemarketing industry via telephone, Web sites and at marketing conventions that she wanted to join those cashing in on the charity business.

"We told them we wanted to start a charity from scratch, we wanted to make plenty of money doing it, plenty of money, for us," said Schwartz.

After several weeks, ABCNEWS was led, with undercover cameras rolling, to a longtime, behind-the-scenes player in the charity business, Richard Troia. A self-described charity broker, he told ABCNEWS he had "access to 10,000 phones," i.e., phones available for telephone fund-raising.

His fund-raising operation, including a network of telemarketers, takes 90 percent — $9 out of $10 — of all the money raised.

As Troia told Schwartz at an Atlanta hotel, charity operators would get only what's left: one dollar out of 10. And it would be up to them to decide how much of that one dollar out of 10 would actually be used for charity, although he did confirm that some of that one dollar out of 10 would have to go to the charitable cause.

‘You Can Make Good Money’

Troia showed Schwartz how to create a worthy-sounding charity and make money — a rare insight into the charity business.

"And you can make good money," he was captured saying on a hidden camera. "You'll be able to make a good living off it."

Troia now runs his operation out of a waterfront home in Deerfield Beach, Fla., but he made his money in Chicago, where he was the frequent subject of newspaper and television stories about his operation and repeated but unsuccessful efforts by then-Illinois Attorney General Jim Ryan to shut him down.

"The donors think they're giving to these charities and instead what they're really doing is lining [Troia's] pockets," said Ryan.

Troia's telemarketers are responsible for a lot of fund-raising phone calls and he regaled the ABCNEWS undercover team with stories of his repertoire of charities, from kids to veterans and even pets.

"United Pet Way for animals," he said referring to one of the charities for which he provides fund-raising services. "And I am gonna be the first guy out there that's gonna be doing it. But I got a feeling, it's gonna kill."

With a carefully crafted telemarketing pitch to get kindhearted Americans to part with their money, to save dogs from being put to sleep, "it's like a tear jerker," Troia said.

In ABCNEWS' conversations with him, Troia was careful to outline the do's and don'ts of the charity business. He advised giving some money for the charitable cause and not to take too much out of it at first.

"In the beginning, you shouldn't take money out of it," Troia told the undercover team. "You should let it stay, just for a little while, 'cause it, in the beginning, they are gonna look at you.

"When there is enough money in there then you're gonna have to spend it, anyways," he said. "When the money starts coming in, your biggest problem is, is gonna be how to get rid of the money."

Troia told ABCNEWS about success he's had with other charities, including the Firefighters Charitable Foundation.

"I mean, the Firefighters Charitable Foundation now, is doing about 6, 7 million [dollars] a year," he said. "It didn't even begin to take off yet. It's just getting rolling."

Former Attorney General: ‘Despicable’

When ABCNEWS checked with charity watchdog groups, the Firefighters Charitable Foundation and another one Troia's connected to for veterans, VietNow, received failing grades based on how much money went to Troia and the fund-raisers — as much as 85 percent.

"If [the donor] really knew what he was doing, they would never agree to give him their money," said Borochoff.

When ABCNEWS showed the undercover tape of Troia explaining what was needed to start a charity to the former Illinois attorney general, Ryan, he called it "despicable."

"It sounds to me like he's trying to tell your producer how to get around the law and still make a lot of money," he told ABCNEWS' Ross.

Troia's lawyer says he is protected by the First Amendment because he helps small startup charities get going.

When Ross approached Troia and showed him the tape of his undercover meeting with the ABCNEWS producer, Troia said he was against the idea of starting the charity from the start, saying Schwartz had been "too greedy."

Yet during the investigation, Troia said 90 percent of all the money coming in for the new charity would cover the cost of the fund-raising.

"That is not an acceptable percentage for any charity that's legitimate," said Van Ness. "He's the enemy of the people who put their hard-earned dollars out there for charitable purposes and it is not going there."

Borochoff warned that people receiving solicitations for money should "think of this guy, in your mind, because it may be somebody like him."

This report aired on July 17 on World News Tonight and Primetime.