Are you surprised by the scandal surrounding Husakov? And James Reynolds turned a fund for cancer patients in the US into a family business empire with millions in profits. The story of a high-profile charity scam

Clone charity

In the mid-1970s, former military medic James Reynolds, without a college degree, got a job at one of the most respected nonprofit organizations in the United States, the American Cancer Society. He quickly rose from an ordinary employee to the head of the Knox County, Tennessee, branch.

But in 1984, the management gave Reynolds a choice: either he would quietly resign voluntarily or be fired with a scandal. Reynolds was accused of accounting fraud with donations. But the last straw was the incident when he embezzled a car that was supposed to be put up for auction for charity.

Reynolds wrote his resignation letter, but he did not intend to leave the charitable sphere. Over the years, he figured out how to take advantage of tax breaks for charitable organizations to launch a profitable business. That same year, in 1984, he founded his own charitable organization, the goals and name of which almost coincided with his previous employer, the American Cancer Society.

In fact, his volunteers went to collect donations in Tennessee around the same time that the American Cancer Society reported its meetings. And Reynolds even rented a mailbox at the same address in Atlanta, where the American Cancer Society headquarters were located.

In its first year alone, the American Cancer Society raised nearly $7.7 million. All the complaints from the original organization that Reynoldsʼ foundation was misleading donors under its name and reputation went no further than the local newspapers.

Business boom

To promote his foundation, Reynolds began hiring commercial fundraisers who would squeeze out lucrative grants. Advertisers who organized fundraising campaigns for the foundation received a lot of money. But the most profitable item turned out to be telemarketing. Reynolds had entire call centers working for him, whose operators assured him that “every cent of your donation will go to help cancer patients”.

Reynolds had to spend a lot of money to hire a bunch of lawyers. Already in 1989, a class action lawsuit was filed against the Reynolds Foundation and several other dubious charities by 12 states. They were accused of conducting fictitious charity lotteries, where winners were promised thousands of dollars, but in return were paid pennies.

Reynolds calmly participated in paying a fine of $ 2.1 million. He put all the blame on unscrupulous marketers and promised to terminate contracts with them. But instead he hired even more advertisers.

Reynolds used this tactic for decades to come: blaming hired marketers and calmly writing a check to cover the fines. To him, these were small expenses. A case in point was in 2007. Then the state of Georgia accused Reynolds’ foundation of advertising to provide chemotherapy to cancer patients when it actually did not.

The case ended with a plea agreement that did not require an admission of guilt. All the Cancer Foundation had to do was write a check for $50 000 to a charity of the plaintiff’s choosing. Reynolds’ foundation raised nearly $9 million that year.

Family empire

From the very beginning, Reynolds involved relatives and close friends in the charity business. In the early 2000s, the scheme worked so successfully that his relatives began to launch franchises based on a similar business model. This led to the emergence of four more charities in different states: Cancer Support Services, the American Childhood Cancer Foundation, the Breast Cancer Society, and the American Cancer Society.

Each of them was headed by a relative or business partner of Reynolds. The founder of the Cancer Foundation himself publicly stated that he had no connection to any of these four organizations. However, as it turned out during further investigation, it was Reynoldsʼ foundation that helped all the franchises with start-up capital, and then was the main grantor.

Some of the relatives combined work in several organizations. For example, Reynoldsʼ son James Reynolds Jr. officially worked for his fatherʼs foundation in Tennessee and at the same time headed the Breast Cancer Society in Arizona.

Reynolds replied to all the accusations that he could not forbid his employees to volunteer in other charitable organizations. However, Reynolds Jr. did not work for free. In 2011 alone, he officially earned almost $300 thousand.

The Reynolds family has been constantly refining tax avoidance schemes under the guise of charity. For example, in 2002, Reynoldsʼ ex-wife Rose Perkins founded the Cancer Support Service right out of the Michigan Cancer Foundationʼs call center office to exempt its employees from paying taxes.

Over nearly 30 years, the Reynolds family business empire has raised an estimated $180 million in donations. Almost everything left after paying advertisers and lawyers was spent on the familyʼs lavish lifestyle — cars, mansions, apartments, cruises, even family trips to Disneyland. At best, 2% of the funds raised went to actual cancer relief.

Fake help

American charities that provide real aid typically spend no more than 35 cents of every dollar they receive on their own needs. The Reynolds Foundation was the exact opposite — they spent less than 10 cents on cancer patients.

On paper, everything looked perfect, of course, due to various machinations and schemes. Reynolds came up with the first one at the very beginning. He agreed with many companies and firms to send him their surplus goods or products for charity.

Usually these were small things, such as paper dishes and napkins, toothbrushes, disposable gloves, plush toys, the cheapest vitamins. All this was repackaged in Reynoldsʼ warehouses and sent to cancer patients under the guise of expensive help. Later, some lucky people received unsold DVDs with various films.

Reynoldsʼs foundationʼs tax returns showed donations to dozens of hospices and other cancer care organizations across the United States. But it turned out that not only did they receive nothing, they had never even heard of the American Cancer Society. Reynolds even went so far as to declare a $50 000 fine he paid in 2007 as charitable contributions.

The End of Reynoldsʼ Empire

In 2013, the Tampa Bay Times and other journalists published an investigation into Americaʼs worst charities, including Reynoldsʼ charitable business. But even after that, the IRS didnʼt take action.

Then the US Federal Trade Commission stepped in. In May 2015, it filed a joint civil lawsuit with all 50 states against the Reynolds family charities, calling the case “one of the largest and most egregious frauds in history”.

The hearings concluded in March 2016. The results of the trial were the dissolution of all charities, and Reynolds and his inner circle were banned from doing charity work for life. However, since the lawsuit was civil, no one received any prison time.

The money left over from the organizations was ordered to be used first to reimburse legal costs, and the rest to be transferred to real charities. However, both judges and prosecutors honestly admitted that there would be few, if any, assets that could be recovered from Reynolds’ funds.