Following my previous post, on the Jodi Arias Appeal Trust Fund, I have been doing some research regarding the legalities of fundraising in the USA.
Legalities of Fundraising in the USA
Forty states need registration to comply with legalities of fundraising before soliciting for public contributions. An organisation must be established for the purpose. If an organisation doesn’t register, it may face investigation by the IRS and may well have problems with donors.
Not only that but the organisation will be breaking the law, leaving itself open to prosecution and fines. Registration can be costly if an organisation needs to employ a professional such as an attorney.
In some states, some organisations may be exempt. But they would have to make an application for exemption as it is not automatic.
Furthermore, an organisation could face criminal charges for fraud if any of the fundraising activities are misleading.
Costs of Fundraising
It is easy to overlook the costs involved in managing a fundraising campaign. The costs are greater than the amount of funds raised. And it would not surprise me in the least if many worthy causes fail.
Where a trust is established it is likely that professional trustees and/or administrators will be appointed, such as attorneys. It would be unusual for them to work for free.
So their fees, together with establishment costs, would mean the organisation would be in debt before a cent is raised.
Add to that the social events that are associated with fundraising, such as dinners, auctions, raffles, walks etc. Plus the campaigns to attract high-profile public figures and celebrities which all have a cost factor.
Illegal Fundraising
The checks and balances required in order to avoid illegal fundraising are clearly laid out in the laws. So, there can be no excuse for error. As can be seen from this abstract, you can expect the authorities to be on the ball most of the time.
In 2015, the FTC and state partners sued and shut down four sham charities that harassed millions of people with more than 1.3 billion illegal robocalls about donating to charity. The FTC and 46 charity state regulators from 38 states and the District of Columbia are holding the fundraisers that made those illegal calls accountable in a lawsuit announced today.
According to the FTC, Associated Community Services (and some related companies and individuals) called more than 67 million people using illegal pre-recorded messages. Those messages falsely claimed the money would go to support breast cancer patients, the families of children with cancer, homeless veterans, and other people in need. In reality, the FTC says that almost none of the more than $110 million donated between 2016 and 2018 went to help those causes.
Federal Trade Council
Trust and Transparency
Even when the legalities of fundraising are adhered to, success is rarely achieved on any scale without a huge marketing drive. So the establishment of a trust fund to raise public money would need to be planned out very carefully.
Compliance is critically important for both the organisation and the donors, before the initial appeal for funds is launched. Twelve states require organisations to make a disclosure when dealing with donors that they have complied with state registration laws.
I would expect any reputable fundraising organisation to do this as a matter of course to build trust and encouragement to potential donors.
Final Thoughts
Any organisation that fails to register should be prepared to state the reasons why it has not done so. Otherwise, it can expect to be considered dubious and is unlikely to attract a meaningful number of donors.
Public trust and confidence will only be strengthened if transparency and sufficient information are provided. This will enable the public to make an informed decision whether or not to contribute.
Thank you Sandra. As usual, from you, very measured and reasoned comments. I am not sure why the Alexanders would bring a civil action that could cost them $$$$’s. JA is bankrupt therefore could offer no defence. They win and get nothing. PR blunder – definitely. I have always believed Nurmi to be insipid and less than convincing. I wouldn’t want him defending me that’s for sure. regards James.
Very interesting research, James. While an “irrevocable trust” can be a sound, protective measure, the emphasis on such seems to be putting the cart before the horse. Plus, at least to me, it gives the impression that the fear of what the Alexanders might win in a civil case is greater than their believe in Jodi’s need and legal right to collect donations for her appeal. It’s an unfortunate, but not fatal, public relations blunder, as I see it. However, I have also never believed any attorney worth his or her salt would take this case for a retainer, but would take it either gratis or for some type of future payment. Hopefully, the court is going to allow her to drop Nurmi, which I think is an excellent move. Jodi’s motion makes me believe she is very rational and very determined. I was glad to see it. Thanks for the research, James. I believe Jodi’s collective voices of support are getting stronger and stronger, no matter the differences in how that “support” is stated at times. She needs all of them. And so do others who have and will stand to suffer such egregious injustice in the future.