Tuesday, July 1, 2014

Smoke, mirrors and candy?

"Quadriga Arts is a global leader in direct marketing and creative services.  We offer nonprofit organizations, fundraising agencies and commercial brands innovative direct marketing campaign solutions that produce extraordinary results."

The New York City based company Quadriga of 70 years, has reached a settlement with New York State's Attorney General Eric Schneiderman to end a six month investigation it had been conducting.  The $24.6 million dollar settlement is believed to be the largest settlement obtained for a charge of deceptive charitable fundraising.  This may end the investigation by New York State but Quadriga is still being investigated by the Senate in  regards to several other organizations they have done fundraising for.

New York's investigation involved Quadriga and it's fundraising for the Disabled Veteren's National Foundation and their campaign involved the story of Arnie.  Quadriga created Arnie who they claimed in their mailings, was a disabled National Guard vet who had been on a downward spiral since suffering a brain injury from an IED in Afghanistan.  The mailing described how he was despondent and living in his car at the moment and how the DVNF was trying to get him into a VA hospital.  It is a heart-wrenching story but it is also completely false, since Arnie only exists in  the mind of the mailing designers.

The bulk of the money for the settlement will be paid by Quadriga.  They will pay a fine of $9.7 million, forgive $13.8 million in outstanding bills they have with DVNF and pay $800,000 to the AG in New York.  Convergence Direct Marketing, a Bethesda MD based company will pay $300,000 for it's part in designing the direct mailings.  Quadriga will pay $6.7 million of the fine now and then make quarterly payments of $500,000 until April 2016.  Convergence will make three payments broken down to $75,000 by July 15, $100,000 by July 2015 and a final $125,000 by July 2016.

The $10 million in damages will not just be shoved into someone's bank account.  The AG's office has stated that the money will go to support federal funding for programs that benefit and improve veteran's lives. One million dollars of the money will go to support cutting edge spinal-cord injury research being conducted at James J Peters VA Medical Center in the Bronx, NY.  Another $1.25 million will go to support research into mental health issues and $750,000 will support research into medical issues faced by disabled female veterans.

"We deeply apologize for our actions and for adverse impact they may have had on our industry," stated Quadriga president and CEO Mark Schulhof.

Schulhof is going to need more than apologies to dig his company out the tar-pit of investigations he now finds himself in.  CNN has been investigating the business practices of Quadriga since 2010 and it;s dealings with the DVNF as well as SPCA International and the St Bonaventure Indian Mission and School.  The Tampa Bay Times did an in depth investigation of the charity for it's article "America's Worst Charities" and the U S Senate Finance Committee began it's own investigation in May of this year.

Quadriga and it's subsidiary, Brickmill Marketing Services, practice what they call a "funded model" for new charities.  This means that they will pay all the start-up costs and beginning fundraising costs up front for the charity, hoping to find a profit for themselves in the future.  What has been revealed is that they have made a very good business of making a large profit for themselves while leaving next to nothing for the charities.Almost every charity listed in the investigations has seen little or no profit for their own work and still owes millions to Quadriga for the work it has done for them.

The settlement announced today only applies to Quadriga and it's dealings with the Washington based charity DVNF.  It does find that DVNF needs to change it's structure as well as bringing the business practices of Quadriga to light.  The investigation reveals that Quadriga has never been fined in the 70 years it has been in business and it never made a profit for DVNF since it began it's relationship in 2007.  In 2011, it raised about $20 million but only gave about $344,000 to groups that assist groups that help veterans with their rent or mortgages.

The scheme that has been uncovered is not too difficult to understand but it does show how there are several intertwined "companies," some of which almost seem as though they are shells for Quadriga.  In 2007, DVNF signed a contract with Brickmill and under that contract, Brickmill would act as their fundraising counsel.  They would advance DVNF the funds needed to start a direct-mail operation, pay for the state registration costs, design and manage the campaigns and offer data management services.  The contract also offers PEP Direct to process the payments that would be rolling in.  Oddly, PEP Direct is another subsidiary of Quadriga, so the money gets to stay pretty much in the same nest.  The contract doesn't mention that they will offer expensive gifts with their mailings such as calculators and fleece blankets as incentives to donate.

The DVNF paid Charity Services International to acquire items that would be donated, place a value on them and ship them.  They did not know that Convergence was receiving a comission from CSI based on the value that had been placed on the donated items.  Unfortunately, most of the items were candy, chefs hats, coats and leftover shoes that no one wanted................... basically worthless items for the groups they were planning to help.

The St Bonaventure Indian Mission and School reportedly made $9 million but very little of that was used by the mission.  They do however owe about $5 million to Quadriga for services rendered, which they state they did not even know about until the 2012 CNN investigation.  The SPCA International has a 10 year contract that runs through 2016 and reports that in 2010, it had expenses of almost $16 million and liabilities of about $8.7 million, both of which were owed to Quadriga and Brickmill.  Another client of Quadriga, Los Angeles based Help the Children, tried to cancel his contract with them after one year.  Of the 800,000 that was raised for the charity by them, they were only able to keep $32,000 and still owed Quadriga $285,000.

It looks like Quadriga is still in hot water over their business practices but DVNF was also told in this settlement that they have to make serious changes to the structure of their charity and how it does business as .  This settlement should be a cautionary tale for those who wish to raise money for a favorite charity......... read the contracts carefully and then, review them again and again.  The money that people donate should be going to the help that is advertized, not to line the pockets of triple dipping companies.







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