Existing law requires an individual or entity who for compensation solicits funds or property for charitable purposes to disclose that the solicitation is being conducted by a commercial fundraiser for a charitable purpose and the registered name of the commercial fundraiser.

This bill would require the disclosures, if printed or if presented electronically, to be in at least 12-point type, and be clear and conspicuous.

Existing law, the Supervision of Trustees and Fundraisers for Charitable Purposes Act, generally regulates charitable corporations, trustees, and other legal entities holding property for charitable purposes, commercial fundraisers for charitable purposes, and fundraising counsel for charitable purposes, among others, over which the state or the Attorney General has enforcement or supervisory powers. Existing law defines a commercial fundraiser for charitable purposes to mean any individual, corporation, unincorporated association, or other legal entity who, for compensation, engages in specified activities, including, among other things, soliciting funds, assets, or property in this state for charitable purposes. Existing law defines a fundraising counsel for charitable purposes to mean any individual, corporation, unincorporated association, or other legal entity who, for compensation, engages in specified activities including, among other things, planning, managing, or preparing material for the solicitation of funds, but who does not engage in specified activities, including, among other things, soliciting funds, assets, or property for charitable purposes. Existing law requires the Attorney General to establish and maintain a register of charitable corporations, unincorporated associations, and trustees subject to these provisions and of the particular trust or other relationship under which they hold property for charitable purposes. Existing law authorizes the Attorney General to bring any action against trustees or against any charitable corporation or director or officer thereof, to enforce a charitable trust, to impress property with a trust for charitable purposes, or to recover property or the proceeds thereof at any time within 10 years after the cause of action accrued.

This bill would expand the definition of a commercial fundraiser for charitable purposes to include any individual, corporation, unincorporated association, or other legal entity that plans, manages, advises, counsels, consults, or prepares material for, or with respect to, the solicitation in this state of funds, assets, or property for charitable purposes, as specified. The bill would exclude from the definition of a commercial fundraiser for charitable purposes, a trustee, a charitable corporation, specified financial institutions, or an escrow agent or caging company, as defined, that receives or controls funds as a result of a solicitation for charitable purposes. The bill would list conditions in which a fundraising counsel for charitable purposes is deemed to receive or control funds, assets, or property. The bill would require an individual, corporation, unincorporated association, or other legal entity that does not meet the qualifications of fundraising counsel for charitable purposes to be deemed a commercial fundraiser for charitable purposes.

This bill would authorize the Attorney General to bring an action for a violation of these provisions at any time within 10 years after the cause of action accrued. The bill would also authorize the Attorney General to bring an action for civil liability against a person who aids or abets a violation of these provisions at any time within 10 years after the cause of action accrued.

Existing law provides that one who wrongfully detains a thing is an involuntary trustee thereof for the benefit of the owner, and that one who gains a thing by fraud, or other wrongful act is an involuntary trustee of the thing gained for the benefit of the owner.

This bill would authorize the Attorney General to bring an action for a violation of these provisions at any time within 10 years after the cause of action accrued.

This bill would also authorize the Attorney General to bring an action for civil liability against a person who aids or abets a violation of these provisions at any time within 10 years after the cause of action accrued.

Existing law, the Nonprofit Corporation Law, sets forth standards of conduct for directors and officers of nonprofit public benefit corporations and provides that it is a crime for any director or officer of any corporation among other things, to knowingly engage in specified acts relating to fraud, to make materially false reports, to receive or acquire possession of the property of the corporation, or to falsify the books or accounts of the corporation.

This bill would authorize the Attorney General to bring an action for a violation of these provisions at any time within 10 years after the cause of action accrued. The bill would also authorize the Attorney General to bring an action for civil liability against a person who aids or abets a violation of the standards of conduct for directors and officers of nonprofit public benefit corporations at any time within 10 years after the cause of action accrued.

Existing law requires an individual or entity who for compensation solicits funds or property for charitable purposes to disclose that the solicitation is being conducted by a commercial fundraiser for a charitable purpose and the registered name of the commercial fundraiser.

This bill would require the disclosures, if printed or if presented electronically, to be in at least 12-point type, and be clear and conspicuous.

Existing law, the Supervision of Trustees and Fundraisers for Charitable Purposes Act, generally regulates charitable corporations, trustees, and other legal entities holding property for charitable purposes, commercial fundraisers for charitable purposes, and fundraising counsel for charitable purposes, among others, over which the state or the Attorney General has enforcement or supervisory powers. Existing law defines a commercial fundraiser for charitable purposes to mean any individual, corporation, unincorporated association, or other legal entity who, for compensation, engages in specified activities, including, among other things, soliciting funds, assets, or property in this state for charitable purposes. Existing law defines a fundraising counsel for charitable purposes to mean any individual, corporation, unincorporated association, or other legal entity who, for compensation, engages in specified activities including, among other things, planning, managing, or preparing material for the solicitation of funds, but who does not engage in specified activities, including, among other things, soliciting funds, assets, or property for charitable purposes. Existing law requires the Attorney General to establish and maintain a register of charitable corporations, unincorporated associations, and trustees subject to these provisions and of the particular trust or other relationship under which they hold property for charitable purposes. Existing law authorizes the Attorney General to bring any action against trustees or against any charitable corporation or director or officer thereof, to enforce a charitable trust, to impress property with a trust for charitable purposes, or to recover property or the proceeds thereof at any time within 10 years after the cause of action accrued.

This bill would expand the definition of a commercial fundraiser for charitable purposes to include any individual, corporation, unincorporated association, or other legal entity that plans, manages, advises, counsels, consults, or prepares material for, or with respect to, the solicitation in this state of funds, assets, or property for charitable purposes, as specified. The bill would exclude from the definition of a commercial fundraiser for charitable purposes, a trustee, a charitable corporation, specified financial institutions, or an escrow agent or caging company, as defined, that receives or controls funds as a result of a solicitation for charitable purposes. The bill would list conditions in which a fundraising counsel for charitable purposes is deemed to receive or control funds, assets, or property. The bill would require an individual, corporation, unincorporated association, or other legal entity that does not meet the qualifications of fundraising counsel for charitable purposes to be deemed a commercial fundraiser for charitable purposes.

This bill would authorize the Attorney General to bring an action for a violation of these provisions at any time within 10 years after the cause of action accrued. The bill would also authorize the Attorney General to bring an action for civil liability against a person who aids or abets a violation of these provisions at any time within 10 years after the cause of action accrued.

Existing law provides that one who wrongfully detains a thing is an involuntary trustee thereof for the benefit of the owner, and that one who gains a thing by fraud, or other wrongful act is an involuntary trustee of the thing gained for the benefit of the owner.

This bill would authorize the Attorney General to bring an action for a violation of these provisions at any time within 10 years after the cause of action accrued.

This bill would also authorize the Attorney General to bring an action for civil liability against a person who aids or abets a violation of these provisions at any time within 10 years after the cause of action accrued.

Existing law, the Nonprofit Corporation Law, sets forth standards of conduct for directors and officers of nonprofit public benefit corporations and provides that it is a crime for any director or officer of any corporation among other things, to knowingly engage in specified acts relating to fraud, to make materially false reports, to receive or acquire possession of the property of the corporation, or to falsify the books or accounts of the corporation.

This bill would authorize the Attorney General to bring an action for a violation of these provisions at any time within 10 years after the cause of action accrued. The bill would also authorize the Attorney General to bring an action for civil liability against a person who aids or abets a violation of the standards of conduct for directors and officers of nonprofit public benefit corporations at any time within 10 years after the cause of action accrued.

Existing law requires an individual or entity who for compensation solicits funds or property for charitable purposes to disclose that the solicitation is being conducted by a commercial fundraiser for a charitable purpose and the registered name of the commercial fundraiser.

This bill would require the disclosures, if printed or if presented electronically, to be in at least 12-point type, and be clear and conspicuous.

Existing law, the Supervision of Trustees and Fundraisers for Charitable Purposes Act, generally regulates charitable corporations, trustees, and other legal entities holding property for charitable purposes, commercial fundraisers for charitable purposes, and fundraising counsel for charitable purposes, among others, over which the state or the Attorney General has enforcement or supervisory powers. Existing law defines a commercial fundraiser for charitable purposes to mean any individual, corporation, unincorporated association, or other legal entity who, for compensation, engages in specified activities, including, among other things, soliciting funds, assets, or property in this state for charitable purposes. Existing law defines a fundraising counsel for charitable purposes to mean any individual, corporation, unincorporated association, or other legal entity who, for compensation, engages in specified activities including, among other things, planning, managing, or preparing material for the solicitation of funds, but who does not engage in specified activities, including, among other things, soliciting funds, assets, or property for charitable purposes. Existing law requires the Attorney General to establish and maintain a register of charitable corporations, unincorporated associations, and trustees subject to these provisions and of the particular trust or other relationship under which they hold property for charitable purposes. Existing law authorizes the Attorney General to bring any action against trustees or against any charitable corporation or director or officer thereof, to enforce a charitable trust, to impress property with a trust for charitable purposes, or to recover property or the proceeds thereof at any time within 10 years after the cause of action accrued.

This bill would expand the definition of a commercial fundraiser for charitable purposes to include any individual, corporation, unincorporated association, or other legal entity that plans, manages, advises, counsels, consults, or prepares material for, or with respect to, the solicitation in this state of funds, assets, or property for charitable purposes, as specified. The bill would exclude from the definition of a commercial fundraiser for charitable purposes, a trustee, a charitable corporation, specified financial institutions, or an escrow agent or caging company, as defined, that receives or controls funds as a result of a solicitation for charitable purposes. The bill would list conditions in which a fundraising counsel for charitable purposes is deemed to receive or control funds, assets, or property. The bill would require an individual, corporation, unincorporated association, or other legal entity that does not meet the qualifications of fundraising counsel for charitable purposes to be deemed a commercial fundraiser for charitable purposes.

This bill would authorize the Attorney General to bring an action for a violation of these provisions at any time within 10 years after the cause of action accrued. The bill would also authorize the Attorney General to bring an action for civil liability against a person who aids or abets a violation of these provisions at any time within 10 years after the cause of action accrued.

Existing law provides that one who wrongfully detains a thing is an involuntary trustee thereof for the benefit of the owner, and that one who gains a thing by fraud, or other wrongful act is an involuntary trustee of the thing gained for the benefit of the owner.

This bill would authorize the Attorney General to bring an action for a violation of these provisions at any time within 10 years after the cause of action accrued.

This bill would also authorize the Attorney General to bring an action for civil liability against a person who aids or abets a violation of these provisions at any time within 10 years after the cause of action accrued.

Existing law, the Nonprofit Corporation Law, set sets forth standards of conduct for directors and officers of nonprofit public benefit corporations and provides that it is a crime for any director or officer of any corporation among other things, to knowingly engage in specified acts relating to fraud, to make materially false reports, to receive or acquire possession of the property of the corporation, or to falsify the books or accounts of the corporation.

This bill would authorize the Attorney General to bring an action for a violation of these provisions at any time within 10 years after the cause of action accrued. The bill would also authorize the Attorney General to bring an action for civil liability against a person who aids or abets a violation of the standards of conduct for directors and officers of nonprofit public benefit corporations at any time within 10 years after the cause of action accrued.

Existing law requires an individual or entity who for compensation solicits funds or property for charitable purposes to disclose that the solicitation is being conducted by a commercial fundraiser for a charitable purpose and the registered name of the commercial fundraiser.

This bill would also require an individual or entity who solicits funds or property for charitable purposes with the participation of a fundraising counsel for charitable purposes to make specified disclosures regarding the fundraising counsel. The bill would require require the disclosures, if printed or if presented electronically, to be in at least 12-point type, and be clear and conspicuous.

Existing law, the Supervision of Trustees and Fundraisers for Charitable Purposes Act, generally regulates charitable corporations, trustees, and other legal entities holding property for charitable purposes, commercial fundraisers for charitable purposes, and fundraising counsel for charitable purposes, among others, over which the state or the Attorney General has enforcement or supervisory powers. Existing law defines a commercial fundraiser for charitable purposes to mean any individual, corporation, unincorporated association, or other legal entity who, for compensation, engages in specified activities, including, among other things, soliciting funds, assets, or property in this state for charitable purposes. Existing law requires the Attorney General to establish and maintain a register of charitable corporations, unincorporated associations, and trustees subject to these provisions and of the particular trust or other relationship under which they hold property for charitable purposes. Existing law authorizes the Attorney General to bring any action against trustees or against any charitable corporation or director or officer thereof, to enforce a charitable trust, to impress property with a trust for charitable purposes, or to recover property or the proceeds thereof at any time within 10 years after the cause of action accrued.

This bill would authorize the Attorney General to bring an action for a violation of these provisions at any time within 10 years after the cause of action accrued. The bill would also authorize the Attorney General to bring an action for civil liability against a person who aids or abets a violation of these provisions at any time within 10 years after the cause of action accrued.

Existing law provides that one who wrongfully detains a thing is an involuntary trustee thereof for the benefit of the owner, and that one who gains a thing by fraud, or other wrongful act is an involuntary trustee of the thing gained for the benefit of the owner.

This bill would authorize the Attorney General to bring an action for a violation of these provisions at any time within 10 years after the cause of action accrued.

This bill would also authorize the Attorney General to bring an action for civil liability against a person who aids or abets a violation of these provisions at any time within 10 years after the cause of action accrued.

Existing law, the Nonprofit Corporation Law, set forth standards of conduct for directors and officers of nonprofit public benefit corporations and provides that it is a crime for any director or officer of any corporation among other things, to knowingly engage in specified acts relating to fraud, to make materially false reports, to receive or acquire possession of the property of the corporation, or to falsify the books or accounts of the corporation.

This bill would authorize the Attorney General to bring an action for a violation of these provisions at any time within 10 years after the cause of action accrued. The bill would also authorize the Attorney General to bring an action for civil liability against a person who aids or abets a violation of the standards of conduct for directors and officers of nonprofit public benefit corporations at any time within 10 years after the cause of action accrued.

Existing law requires an individual or entity who for compensation solicits funds or property for charitable purposes to disclose that the solicitation is being conducted by a commercial fundraiser for a charitable purpose and the registered name of the commercial fundraiser.

This bill would also require an individual or entity who solicits funds or property for charitable purposes with the participation of a fundraising counsel for charitable purposes to make specified disclosures regarding the fundraising counsel. The bill would require the disclosures, if printed or if presented electronically, to be in at least 12-point type. type, and be clear and conspicuous.

Existing law, the Supervision of Trustees and Fundraisers for Charitable Purposes Act, generally regulates charitable corporations, trustees, and other legal entities holding property for charitable purposes, commercial fundraisers for charitable purposes, and fundraising counsel for charitable purposes, among others, over which the state or the Attorney General has enforcement or supervisory powers. Existing law requires the Attorney General to establish and maintain a register of charitable corporations, unincorporated associations, and trustees subject to these provisions and of the particular trust or other relationship under which they hold property for charitable purposes. Existing law authorizes the Attorney General to bring any action against trustees or against any charitable corporation or director or officer thereof, to enforce a charitable trust, to impress property with a trust for charitable purposes, or to recover property or the proceeds thereof at any time within 10 years after the cause of action accrued.

This bill would authorize the Attorney General to bring an action for a violation of these provisions at any time within 10 years after the cause of action accrued. The bill would also authorize the Attorney General to bring an action for civil liability against a person who aids or abets a violation of these provisions at any time within 10 years after the cause of action accrued.

Existing law provides that one who wrongfully detains a thing is an involuntary trustee thereof for the benefit of the owner, and that one who gains a thing by fraud, or other wrongful act is an involuntary trustee of the thing gained for the benefit of the owner.

This bill would also authorize the Attorney General to bring an action for civil liability against a person who aids or abets a violation of these provisions at any time within 10 years after the cause of action accrued.

Existing law, the Nonprofit Corporation Law, set forth standards of conduct for directors and officers of nonprofit public benefit corporations and provides that it is a crime for any director or officer of any corporation among other things, to knowingly engage in specified acts relating to fraud, to make materially false reports, to receive or acquire possession of the property of the corporation, or to falsify the books or accounts of the corporation.

This bill would authorize the Attorney General to bring an action for a violation of these provisions at any time within 10 years after the cause of action accrued. The bill would also authorize the Attorney General to bring an action for civil liability against a person who aids or abets a violation of the standards of conduct for directors and officers of nonprofit public benefit corporations at any time within 10 years after the cause of action accrued.

Existing law requires an individual or entity who for compensation solicits funds or property for charitable purposes to disclose that the solicitation is being conducted by a commercial fundraiser for a charitable purpose and the registered name of the commercial fundraiser.

This bill would also require an individual or entity who solicits funds or property for charitable purposes with the participation of a fundraising counsel for charitable purposes to make specified disclosures regarding the fundraising counsel. The bill would require the disclosures, if printed or if presented electronically, to be in at least 12-point type.

Existing law, the Supervision of Trustees and Fundraisers for Charitable Purposes Act, generally regulates charitable corporations, trustees, and other legal entities holding property for charitable purposes, commercial fundraisers for charitable purposes, and fundraising counsel for charitable purposes, among others, over which the state or the Attorney General has enforcement or supervisory powers. Existing law requires the Attorney General to establish and maintain a register of charitable corporations, unincorporated associations, and trustees subject to these provisions and of the particular trust or other relationship under which they hold property for charitable purposes. Existing law authorizes the Attorney General to bring any action against trustees or against any charitable corporation or director or officer thereof, to enforce a charitable trust, to impress property with a trust for charitable purposes, or to recover property or the proceeds thereof at any time within 10 years after the cause of action accrued.

This bill would authorize the Attorney General to bring an action for a violation of these provisions at any time within 10 years after the cause of action accrued. The bill would also authorize the Attorney General to bring an action for civil liability against a person who aids or abets a violation of these provisions at any time within 10 years after the cause of action accrued.

Existing law provides that one who wrongfully detains a thing is an involuntary trustee thereof for the benefit of the owner, and that one who gains a thing by fraud, or other wrongful act is an involuntary trustee of the thing gained for the benefit of the owner.

This bill would authorize the Attorney General to bring an action for civil liability against a person who aids or abets a violation of these provisions at any time within 10 years after the cause of action accrued.

Existing law also imposes an involuntary trust for a period of 5 years upon the proceeds and profits from the sale or transfer of any thing or right of a felon, the value of which is enhanced by the notoriety gained from the commission of the felony, and specifies procedures whereby the beneficiaries of the trust, as defined, are authorized to enforce their rights under the trust. Existing law authorizes the Attorney General to bring an action to require proceeds or profits by a convicted felon to be held in an express trust within one year after the receipt of proceeds or profits, or one year after the date of the conviction, whichever is later.

This bill would extend the period of the involuntary trust imposed upon the proceeds and profits of a felon to 10 years. The bill would authorize the Attorney General to bring an action to require the proceeds or profits of a felon to be held in an express trust within 10 years after the receipt of the proceeds or profits, or 10 years after the date of conviction, whichever is later. The bill would also authorize the Attorney General to bring an action for a violation of these provisions at any time within 10 years after the cause of action accrued.

Existing law, the Nonprofit Corporation Law, set forth standards of conduct for directors and officers of nonprofit public benefit corporations and provides that it is a crime for any director or officer of any corporation among other things, to knowingly engage in specified acts relating to fraud, to make materially false reports, to receive or acquire possession of the property of the corporation, or to falsify the books or accounts of the corporation.

This bill would authorize the Attorney General to bring an action for a violation of these provisions at any time within 10 years after the cause of action accrued. The bill would also authorize the Attorney General to bring an action for civil liability against a person who aids or abets a violation of the standards of conduct for directors and officers of nonprofit public benefit corporations at any time within 10 years after the cause of action accrued.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 556

Author:(Irwin)

As Amended Ver:June 19, 2015

Majority vote

Original Committee Reference: JUD.

SUMMARY: Strengthens the Attorney General's ability to enforce disclosure requirements for commercial fundraisers for charities, and establishes a 10-year statute of limitations for enforcement actions against these commercial fundraisers, consultants and other third parties who engage in fraud or prohibited conduct. Specifically, this bill:

1. Expands the definition of "commercial fundraiser for charitable purposes" to include any person or entity that plans, manages, advises, counsels, consults, or prepares material for, or with respect to, the solicitation of funds, assets, or property for charitable purposes but who is disqualified as "fundraising counsel for charitable purposes", as defined.

2. Clarifies the definition of "fundraising counsel for charitable purposes" to include any individual, corporation, or entity that, for compensation, other than as a percentage of the funds, assets, or property received as a result of a solicitation campaign, plans, manages, advises, counsels, consults, or prepares material for, or with respect to, the solicitation in this state of funds, assets, or property for charitable purposes.

3. Clarifies that "fundraising counsel for charitable purposes" does not include any person or entity that receives or controls funds, assets or property solicited for charitable purposes, and that such receipt or control is established when any of the following are true of the person or entity:

   1. It has the right to approve or veto any payment from an escrow account to which funds received from a solicitation for charitable purposes are subject.

   2. It maintains an interest in an account into which solicited funds are deposited.

   3. It has the right to access funds, assets, or property received from a solicitation for charitable purposes and held by a caging company.

   4. It has any ownership or management interest in any other entity that receives or controls the funds, assets, or property solicited for charitable purposes, including, but not limited to, an escrow agent or caging company, but not including any federally insured financial institution.

   5. It receives any financial benefit, directly or indirectly, from any other individual or entity that receives or controls the funds, assets, or property solicited for charitable purposes, other than the trustee or charitable corporation soliciting the funds, assets, or property for charitable purposes.

4. Provides that any individual, corporation, unincorporated association, or other legal entity who, for compensation, plans, manages, advises, counsels, consults, or prepares material for, or with respect to, the solicitation in this state of funds, assets, or property for charitable purposes, but does not meet the qualifications of a fundraising counsel for charitable purposes, shall be deemed to be a commercial fundraiser for charitable purposes, unless specifically exempted.

5. Exempts from the definition of "commercial fundraiser for charitable purposes" certain specified entities, including, among others, trustees; charitable corporations; employees or agents of commercial fundraisers, and any financial institution, escrow agent, or caging company that holds or controls funds received as a result of a solicitation for charitable purposes.

6. Establishes a 10-year statute of limitations for the Attorney General to bring a civil action to enforce the Supervision of Trustees and Fundraisers for Charitable Purposes Act, as well as to enforce existing anti-fraud statutes under Civil Code Sections 2223 and 2224.

7. Provides that specified disclosures about fundraising counsel that entities that solicit funds for charitable purposes with the participation of fundraising counsel must make at the time of solicitation shall be clear and conspicuous and appear in at least 12-point type, if printed or presented electronically.

The Senate amendments:

1. Reorganize and clarify elements of the definitions for "commercial fundraiser for charitable purposes" and "fundraising counsel for charitable purposes" to better distinguish between the two categories, so that it is clearer who must register as a commercial fundraiser for charitable purposes.

2. Clarify which specific entities are excluded from the definition of "commercial fundraiser for charitable purposes," including trustees, charitable corporations, and caging companies, which are defined as businesses that receive contributions, process donor mail, and deposit all contributions into an account under the sole control of a charitable organization.

FISCAL EFFECT: According to the Senate Appropriations Committee, pursuant to Senate Rule 28.8, negligible state costs.

COMMENTS: This bill, sponsored by Attorney General Kamala Harris, seeks to revise the definition of "commercial fundraiser for charitable purposes" in order to strengthen the Attorney General's ability to enforce disclosure requirements for charity fundraising campaigns, and extends the statute of limitations for enforcement actions against charity fundraising firms and other third parties who engage in fraud or prohibited conduct. According to the author, this bill is needed to ensure that companies soliciting charitable donations cannot exploit an apparent loophole in the law and circumvent existing disclosure requirements through the use of commercial fundraisers who instead register as "fundraising counsel." Using one recent example, the author explains:

Existing law regulates for-profit companies that raise money on behalf of a charity but keep a portion of the money raised as profit. Companies that raise money on behalf of charitable organizations, known as commercial fundraisers, are required to disclose to donors that a paid professional fundraiser was involved in the solicitation campaign. "Fundraising counsel," persons or entities that plan, manage, or advise charities on their charitable solicitations activities and receive a portion of the funds raised, are not subject to the same transparency requirements.

In the recent charity enforcement case brought by the Attorney General’s Charitable Trusts Section, People v. Help Hospitalized Veterans, the cost of charitable fundraising was 65% to 72% of the gross annual revenue received from donors. Because the professional fundraisers were classified as "fundraising counsel," Help Hospitalized Veterans was not required to disclose to donors that paid professional fundraisers were involved in the solicitation campaigns.

Background on oversight of charity fundraising. According to the 2014 Causes Count report by CalNonprofits, there are more than 70,000 active 501(c)(3) public charities in California. California’s charitable organizations contribute 15% of California’s Gross State Product and employ nearly 1 million people. Nonprofits are also generally highly trusted institutions, with over 80% of Californians surveyed by the Causes Count report stating that they are confident that nonprofits act on the public’s behalf and deliver quality services.

To preserve this public trust and safeguard against fraud and questionable solicitation practices, the Attorney General is responsible for regulating charities and the professional fundraisers who solicit on their behalf. The purpose of this oversight is to protect charitable assets for their intended use and ensure that the charitable donations contributed by Californians are not misused and squandered through fraud or other means. All charitable trustees and fundraising professionals are required to register and file annual financial disclosure reports with the Registry of Charitable Trusts in the Attorney General's office before soliciting in California. The attorneys and auditors of the Attorney General's Charitable Trusts Section investigate and bring legal actions against charities, their officers and directors, and fundraising professionals that misuse charitable assets or engage in fraudulent fundraising practices.

Revised definition of "commercial fundraisers" and "fundraising counsel" to ensure continued transparency in solicitation activities. For-profit companies that solicit money on behalf of charitable organizations but keep a portion of the money raised as profit are regulated as "commercial fundraisers" under existing law, which requires them to disclose to donors that the solicitation is being conducted by a commercial fundraiser for charitable purposes, and to identify themselves by the name under which they are registered with the Attorney General. By contrast, "fundraising counsel" are persons or entities that plan, manage, or advise charities on their charitable solicitations activities for profit but do not directly engage in solicitations, and are not subject to the same disclosure requirements. For this reason, whether a person falls under the statutory definition of "commercial fundraiser" or "fundraising counsel" is key with respect to the Attorney General's ability to enforce these transparency protections under existing law.

According to the author, recent enforcement cases have highlighted examples where persons performing professional fundraising services attempted to circumvent disclosure requirements by registering as fundraising counsel rather than as commercial fundraisers. In response, this bill would help close the loophole in the law, by better defining who is a commercial fundraiser, and who is a fundraising counsel. First, this bill would expand the definition of a commercial fundraiser to also include any person or entity who for compensation plans, manages, advises, counsels, consults, or prepares material for, or with respect to, the solicitation in this state of funds, assets, or property for charitable purposes, but is otherwise disqualified as a fundraising counsel under the latter’s definition. Further, this bill would modify the definition of fundraising counsel to clarify that "compensation" received for its services, is something other than a percentage of the funds, assets, or property received as a result of a solicitation campaign, and to clarify that a person or entity is deemed "to receive or control funds, assets, or property" – and therefore not a fundraising counsel – if it meets any one of certain conditions reflecting the entity's control or interest in the funds.

The author contends this bill will help close loopholes in the disclosure statutes by requiring persons helping to raise funds who have any ownership or management interest in any other entity that receives or controls funds or assets of the charity to register as commercial fundraisers, not fundraising counsel, and thereby become subject to disclosure requirements protecting donors and the public.

Extended statutes of limitation for enforcement actions. Under Government Code Section 12596 of the Supervision of Trustees and Fundraisers for Charitable Purposes Act, the Attorney General may bring an enforcement action for fraud or other violations by the trustees, officers, or directors of a charitable organization at any time within 10 years of the cause of action. Because cases involving charity fraud are often complex and cover misconduct from an extended period of time, the author contends, the 10-year statute of limitations is appropriate. However, Section 12596 does not apply to other parties such as fundraisers, consultants, or accountants who may have directly participated in, or aided and abetted the fraud; instead they are subject to either a three or four year statute of limitations, depending on the cause of action. The author notes that in the Help Hospitalized Veterans case, the Attorney General was unable to bring an action for civil liability against the persons registered as "fundraising counsel" who participated in the fraud because they were not officers or directors of the charity, so the applicable three year statute of limitations on filing charges against them had already passed. Accordingly, this bill would establish a 10 year statute of limitations for all persons or entities involved in the fraud to make this consistent with the same period that applies to directors and officers of the charity.

Analysis Prepared by: Anthony Lew / JUD. / (916) 319-2334 FN: 0001279

 CONSENT  

Bill No: AB 556

Author: Irwin (D)

Amended: 6/19/15 in Senate

Vote: 21

SENATE JUDICIARY COMMITTEE: 7-0, 6/30/15

AYES: Jackson, Moorlach, Anderson, Hertzberg, Leno, Monning, Wieckowski

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

ASSEMBLY FLOOR: 78-0, 5/14/15 (Consent) - See last page for vote

SUBJECT: Charitable trusts: regulation and enforcement

SOURCE: Attorney General

DIGEST: This bill establishes additional 10 year statutes of limitations for the Attorney General (AG) to bring an action (1) pursuant to specified involuntary trust laws under the Civil Code; (2) arising out of a violation of the Uniform Supervision of Trustees and Fundraisers for Charitable Purposes Act (Charitable Purposes Act), pursuant to specified involuntary trust laws, or pursuant to the Nonprofit Corporation Law; and (3) against a person who aids or abets a violation of the Charitable Purposes Act, specified involuntary trust laws, or Nonprofit Public Benefit Corporations laws. This bill also modifies the Charitable Purposes Act’s definitions of “commercial fundraiser for charitable purposes” and “fundraising counsel for charitable purposes,” as specified.

ANALYSIS:

Existing law:

1. Governs, generally, all charitable corporations, unincorporated associations, trustees, commercial fundraisers for charitable purposes, fundraising counsel for charitable purposes, commercial coventurers, and other legal entities holding or soliciting property for charitable purposes under the Charitable Purposes Act (hereinafter “Charitable Purposes Act,” or “Act”). Existing law provides the AG with primary enforcement and supervisory powers over these entities, and requires that the AG maintain a register of charitable organizations subject to the Act.

2. Specifies that the AG has broad powers under common law and California statutory law to carry out its charitable trust enforcement responsibilities, including, but not limited to, enforcement actions under: the Charitable Purposes Act; Nonprofit Corporations Law; Unfair Competition Law; specified provisions of the Civil Code on involuntary trusts; among other specified laws.

3. Requires, generally, every charitable corporation, unincorporated association, and trustee subject to the Act to file with the AG an initial registration form, under oath, as specified, within 30 days after the entity initially receives property, as well as certain periodic written reports.

4. Requires a “commercial fundraiser for charitable purposes” to register with the AG’s Registry of Charitable Trusts prior to soliciting or receiving and controlling any funds, assets, or property, and to file an annual financial report of funds, assets, or property solicited on behalf of each charitable purpose or organization, as specified. Existing law further prohibits a commercial fundraiser from soliciting in the state on behalf of a charitable organization unless that charitable organization is registered or is exempt from registration with the AG’s Registry of Charitable Trusts.

5. Defines, generally, “commercial fundraiser for charitable purposes” to mean any individual, corporation, unincorporated association, or other legal entity who for compensation does any of the following:

• Solicits funds, assets, or property in this state for charitable purposes;

• As a result of a solicitation of funds, assets, or property in this state for charitable purposes, receives or controls the funds, assets, or property solicited for charitable purposes; or

• Employs, procures, or engages any compensated person to solicit, receive, or control funds, assets, or property for charitable purposes.

6. Requires there to be a written contract between a commercial fundraiser for charitable purposes and a charitable organization for each solicitation campaign, event, or service, as specified. The contract must be available for inspection by the AG and contain specified information.

7. Requires a “fundraising counsel for charitable purposes” to register with the AG’s Registry of Charitable Trusts prior to managing, advising, counseling, consulting, or preparing material for, or with respect to, the solicitation in this state of funds, assets, or property for charitable purposes, and to file: (a) an annual report listing each person, corporation, unincorporated association, or other legal entity for whom the fundraising counsel has performed certain services for compensation; and (b) a statement certifying that the fundraising counsel had a written contract with such persons or entities, as specified.

8. Generally defines a “fundraising counsel for charitable purposes” as any individual, corporation, unincorporated association, or other legal entity who:

• For compensation plans, manages, advises, counsels, consults, or prepares material for, or with respect to, the solicitation in this state of funds, assets, or property for charitable purposes;

• Does not solicit funds, assets, or property for charitable purposes;

• Does not receive or control funds, assets, or property solicited for charitable purposes in this state; and

• Does not employ, procure, or engage any compensated person to solicit, receive, or control funds, assets, or property for charitable purposes.

9. Requires a written contract between a fundraising counsel and a charitable organization for each service to be performed by the fundraising counsel for the charity, as specified. The contract must be available for inspection by the AG and contain specified information, such as:

• A clear statement of the fees and any other form of compensation, including commissions and property, that will be paid to the fundraising counsel; and

• A statement that the fundraising counsel will not at any time solicit or receive or control funds, assets, or property for charitable purposes, or employ, procure, or engage any compensated person to solicit, receive, or control funds, assets, or property for charitable purposes.

10. Authorizes the AG to investigate transactions and relationships of corporations and trustees subject to the Charitable Purposes Act to ascertain whether or not the purposes of the corporation or trust are being carried out in accordance with the articles of incorporation or other instrument.

11. Authorizes the AG to refuse to register or revoke or suspend the registration of a charitable corporation or trustee, commercial fundraiser, fundraising counsel, or coventurer whenever the AG finds that such a person or entity has violated or is operating in violation of any provisions of the Charitable Purposes Act.

12. Authorizes the AG to bring an action against trustees or other persons holding property in trust for charitable purposes or against any charitable corporation or any director or officer thereof to enforce a charitable trust or to impress property with a trust for charitable purposes or to recover property or the proceedings thereof for and on behalf of any charitable trust or corporation at any time within 10 years after the cause of action accrued.

13. Requires any individual, corporation, or other legal entity who for compensation solicits funds or other property in this state for charitable purposes to disclose prior to an oral solicitation, as specified, or at the same time as a written solicitation: (a) that the solicitation is being conducted by a commercial fundraiser for charitable purposes; and (b) the name of the commercial fundraiser as registered with the AG, as specified.

This bill:

1. Specifies that the disclosures required under existing law prior to an oral solicitation, or at the same time of a written disclosure, must be in at least 12-point font, and be clear and conspicuous, as specified, if printed or presented electronically.

2. Authorizes the AG to bring an action pursuant to specified laws relating to involuntary trusts at any time within 10 years after the cause of action accrued, and as well as for a violation of the Nonprofit Corporation Law at any time within 10 years after the cause of action accrued.

3. Authorizes, further, the AG, notwithstanding the limited application of the Charitable Purposes Act to certain persons or entities, to bring a civil action against a person who aids or abets a violation of that Act, specified laws relating to involuntary trusts, or the Nonprofit Public Benefit Corporations’ article providing standards of conduct for directors and management, at any time within 10 years after the cause of action accrued.

4. Expands the definition of a “commercial fundraiser” to include a person or entity who for compensation plans, manages, advises, counsels, consults, or prepares material for, or with respect to, the solicitation in this state of funds, assets, or property for charitable purposes, but is disqualified as a “fundraising counsel for charitable purposes” pursuant to the definition of that term. Further clarifies that a commercial fundraiser does not include an escrow agent or “caging company,” as defined, which receives or controls funds received as a result of a solicitation for charitable purposes.

5. Modifies the definition of “fundraising counsel” to clarify that “compensation” received for planning, managing, advising, counseling, consulting, or preparing material for, or with respect to, the solicitation in this state of funds, assets, or property for charitable purposes, is something other than a percentage of the funds, assets, or property received as a result of a solicitation campaign.

6. Modifies, further, the definition of “fundraising counsel” to clarify that a person or entity is deemed to receive or control funds, assets, or property if it:

• Has the right to approve or veto any payment from an escrow account to which funds received from a solicitation for charitable purposes are subject;

• Maintains an interest in an account into which solicited funds are deposited;

• Has the right to access funds, assets, or property received from a solicitation for charitable purposes and held by a caging company;

• Has any ownership or management interest in any other entity that receives or controls the funds, assets, or property solicited for charitable purposes, including, but not limited to, an escrow agent or caging company, but not including a federally insured financial institution; or

• Receives any financial benefit, directly or indirectly, from any other individual or entity that receives or controls the funds, assets, or property solicited for charitable purposes, other than the trustee or charitable corporation soliciting the funds, assets, or property for charitable purposes.

7. Provides that any person or entity who, for compensation, plans, manages, advises, counsels, consults, or prepares material for, or with respect to, the solicitation in this state of funds, assets, or property for charitable purposes, but does not meet specified qualifications of a “fundraising counsel,” shall be deemed a “commercial fundraiser,” as described, unless excluded pursuant to the statute defining that term. Further specifies for these purposes that “commercial fundraiser” does not include:

• A “trustee” or “charitable corporation,” as defined, or any employee thereof;

• An individual who is employed by or under the control of a commercial fundraiser for charitable purposes that is registered with the AG; or

• Any federally insured financial institution that holds, as a depository, funds received as a result of a solicitation for charitable purposes, or an escrow agent or “caging company,” as defined, that receives or controls funds received as a result of a solicitation for charitable purposes.

8. Makes other technical or non-substantive changes.

Background

The AG oversees registered charities to ensure that funds received are properly managed and devoted to charitable programs under the Charitable Purposes Act, which was originally enacted in California in 1959. The Act generally requires every person or entity that holds or solicits property for charitable purposes in California to file certain documents and information, including annual financial statements, with the AG. In turn, the AG uses the reports to investigate and litigate cases of charity fraud and mismanagement by trustees and directors of charities.

In 1989, to protect the interests of a donor and of the donee charitable organization, the Act was expanded to apply to commercial fundraisers who solicit for charitable purposes (a commercial fundraiser is not a charity, but usually an individual or corporation engaged in business for-profit). (SB 502, Lockyer, Chapter 307, Statutes of 1989).) The commercial fundraiser provisions were strengthened further in 1991 and 1992 by adding a bond requirement for commercial fundraisers and by adding a requirement that any person or entity who for compensation solicits funds or other property for charitable purposes, must disclose that the solicitation is being conducted by a commercial fundraiser for charitable purposes. Significantly, commercial fundraisers were thereafter required to also disclose, upon receiving a written or oral request from a person solicited, the ratio of total expenses of the fundraiser to the total revenue received by the fundraiser. (See AB 838 (Peace, Chapter 569, Statutes of 1991); SB 1682 (Boatwright, Chapter 511, Statutes of 1992); AB 3066 (Sher, Chapter 249, Statutes of 1992).)

Then in 1998, AB 1810 (Davis, Chapter 445, Statutes of 1998) was enacted in response to an increasing practice by sophisticated commercial fundraisers to hire “fundraising counsels” or enter into partnerships with “commercial conventurers,” in order to downplay the extraordinary costs of their fundraising and exclude administrative costs from their annual financial reports, in recognition of the fact that high fundraising costs and administrative expenses—which translate into smaller distributions to the charity—could discourage donors from making donations. As such, AB 1810 sought to close any loophole in the law by requiring registration and reporting of fundraising counsels and commercial conventurers.

Over the years, other bills have sought to expand the tools and resources available to aid the AG in the supervision and enforcement of this Act. For example, the AG may issue cease and desist orders for violations of this Act or its implementing regulations; impose specified civil penalties for each act or omission that constitutes a violation; suspend the registration of a person or entity where a penalty has been assessed; or apply to a superior court for relief and obtain a temporary or permanent injunctive order. Notably, the Act provides the AG a 10 year statute of limitations to bring an action against trustees or other persons holding property in trust for charitable purposes or against any charitable corporation or any director or officer thereof, to enforce a charitable trust or to impress property with a trust for charitable purposes or to recover property or the proceeds thereof for and on behalf of any charitable trust or corporation. While this 10 year statute of limitations has been in existence since 1965 and affords the AG additional time to investigate and pursue action against charities in violation of the Act, it is limited with respect to the parties that the AG can bring an action against.

This bill seeks to provide additional 10 year statutes of limitations under which the AG can pursue various actions against those who violate or aid and abet in violations of the Act. This bill also seeks to close a loophole in the Act by better defining “fundraising counsels” and “commercial fundraisers.”

Comments

As stated by the author:

The Attorney General is responsible for regulating charities and the professional fundraisers who solicit on their behalf. The purpose of this oversight is to protect charitable assets for their intended use and ensure that the charitable donations contributed by Californians are not misused or squandered through fraud or other means. [ . . . ]

Existing law regulates for-profit companies that raise money on behalf of a charity but keep a portion of the money raised as profit. Companies that solicit money on behalf of charitable organizations, “commercial fundraisers,” are required to disclose to donors that a paid professional fundraiser was involved in the solicitation campaign. “Fundraising counsel” – persons or entities that plan, manage, or advise charities on their charitable solicitations activities for profit but do not directly engage in solicitations – are not subject to the same transparency requirements. Both commercial fundraisers and fundraising counsel are required to register with the Attorney General’s office.

The distinctions between commercial fundraisers and fundraising counsel are that commercial fundraisers hold assets and do the direct solicitation, while fundraising counsel do not. Sometimes, in order to avoid falling into the commercial fundraiser category, which requires disclosure to consumers that the solicitation is being conducted by a commercial fundraiser, fundraising companies will make it falsely appear that the company providing advice and the company receiving donations are separate. Other times, fundraising counsel will receive substantial portions of a charity’s donations through fundraising fees, because they own more than one company involved in the charity’s fundraising program.

Cases involving charity fraud are often complex, fact-intensive, and cover misconduct occurring over an extended period of time. Existing law allows the Attorney General a 10 year statute of limitations for fraud conducted by officers and directors of the charity. Other parties such as fundraisers, accountants, etc. who directly participate in or aid and abet the fraud[, however,] are subject to either a three or four year statute of limitations, depending on the cause of action.

AB 556 will close loopholes in for-profit solicitation disclosure laws by requiring fundraisers who have any ownership or management interest in any other entity also involved in a charitable solicitation to register as commercial fundraisers and therefore be subject to disclosure to donors. The bill also states that if a fundraiser takes a percentage of the funds raised through the solicitation rather than a flat fee, they should register as commercial fundraisers. The bill will also extend the 10 year statute of limitations to include all persons and entities involved in the fraud. [Accordingly,] AB 556 will uphold consumer and donor confidence in charitable giving by increasing transparency and accountability for charitable fundraisers.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

SUPPORT: (Verified 7/13/15)

Attorney General (source)

American Cancer Society Cancer Action Network

California Association of Nonprofits

Christian Appalachian Project

Disabled American Veterans

DMA Nonprofit Federation

Easter Seals

Feed the Children

Food and Water Watch

Food for the Poor

March of Dimes California Chapter

Network American Institute for Cancer Research

Wounded Warrior Project, Inc.

OPPOSITION: (Verified 7/13/15)

None received

ASSEMBLY FLOOR: 78-0, 5/14/15

AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Atkins

NO VOTE RECORDED: Linder, Medina

Prepared by: Ronak Daylami / JUD. / (916) 651-4113

7/15/15 14:58:57

**** END ****

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2015-2016 Regular Session

Bill No: AB 556 (Author:Irwin)

Version: June 19, 2015

Hearing Date: June 30, 2015

Fiscal: Yes

Urgency: No

Consultant: RD

SUBJECT

Charitable trusts: regulation and enforcement

DESCRIPTION

Existing law, the Uniform Supervision of Trustees and Fundraisers for Charitable Purposes Act (Charitable Purposes Act), authorizes the Attorney General (AG) to bring specified civil actions against trustees or other persons holding property in trust for charitable purposes or against any charitable corporation or any director or officer thereof, at any time within 10 years after the cause of action accrued.

This bill would apply an identical 10 year statute of limitation to any action brought by the Attorney General:

• pursuant to specified involuntary trust laws under the Civil Code;

• arising out of a violation of the Charitable Purposes Act, pursuant to specified involuntary trust laws, or pursuant to the Nonprofit Corporation Law; and

• against a person who aids or abets a violation of the Charitable Purposes Act, specified involuntary trust laws, or the Nonprofit Public Benefit Corporations laws.

This bill would modify the definitions of “commercial fundraiser for charitable purposes” and “fundraising counsel for charitable purposes,” as specified.

BACKGROUND

The Attorney General (AG) oversees registered charities to ensure that funds received are properly managed and devoted to charitable programs. The office derives its authority from the Uniform Supervision of Trustees and Fundraisers for Charitable Purposes Act, which was originally enacted in California in 1959. This law generally requires every person or entity that holds or solicits property for charitable purposes in California to file specified documents and information, including annual financial statements, with the AG. These reports are in turn used by the AG to investigate and litigate cases of charity fraud and mismanagement by trustees and directors of charities.

In 1989, in order to protect the interests of a donor and the donee charitable organization, the Act was expanded to also apply to commercial fundraisers who solicit for charitable purposes (a commercial fundraiser is not a charity, but usually an individual or corporation engaged in business for-profit). (SB 502 (Lockyer, Ch. 307, Stats. 1989).) The provisions for commercial fundraisers were further strengthened in 1991 and 1992 by adding a bond requirement for commercial fundraisers and by adding a requirement that any person or entity who for compensation solicits funds or other property for charitable purposes, must disclose that the solicitation is being conducted by a commercial fundraiser for charitable purposes. Significantly, commercial fundraisers were thereafter required to also disclose, upon receiving a written or oral request from a person solicited, the ratio of total expenses of the fundraiser to the total revenue received by the fundraiser. (See AB 838 (Peace, Ch. 569, Stats. 1991); SB 1682 (Boatwright, Ch. 511, Stats. 1992); AB 3066 (Sher, Ch. 249, Stats. 1992).)

Then in 1998, AB 1810 (Davis, Ch. 445, Stats. 1998) was enacted in response to an increasing practice by sophisticated commercial fundraisers to hire “fundraising counsels” or enter into partnerships with “commercial conventurers,” in order to downplay the extraordinary costs of their fundraising and exclude administrative costs from their annual financial reports because the commercial fundraisers were aware that high fundraising costs and administrative expenses—which translate into smaller distributions to the charity—can discourage donors from making donations. (See Sen. Judiciary Com. analysis of AB 1810 (1998-1999 Reg. Session), Jul. 21, 1998.) Accordingly, AB 1810 sought to close any loophole in the law by requiring registration and reporting of fundraising counsels and commercial conventurers. In doing so, the bill also renamed the Act from the Uniform Supervision of Trustees for Charitable Purposes Act to its current title of the Supervision of Trustees and Fundraisers for Charitable Purposes Act.

Other bills have also been enacted to provide the Attorney General with additional tools and resources in the supervision and enforcement of this Act. As a result of some of those changes, the Attorney General may now also issue cease and desist orders for violations of this Act or its implementing regulations; impose specified civil penalties for each act or omission that constitutes a violation; suspend the registration of a person or entity where a penalty has been assessed; or apply to a superior court for relief and obtain a temporary or permanent injunctive order. Notably, the Charitable Purposes Act provides a 10 year statute of limitations for the Attorney General to bring an action against trustees or other persons holding property in trust for charitable purposes or against any charitable corporation or any director or officer thereof, to enforce a charitable trust or to impress property with a trust for charitable purposes or to recover property or the proceeds thereof for and on behalf of any charitable trust or corporation. While this 10 year statute of limitations has been in existence since 1965 and affords the Attorney General’s office additional time to investigate and pursue action against those in violation of the law, it is limited with respect to the parties that the Attorney General can bring an action against.

Accordingly, this bill, sponsored by the Office of the Attorney General, seeks to provide additional 10 year statutes of limitations under which the AG can pursue various actions against those who violate or aid and abet in violations of the Charitable Purposes Act. The bill also seeks to close a loophole in the law by better defining the differences between “fundraising counsels” and “commercial fundraisers.”

CHANGES TO EXISTING LAW

Existing law, the Uniform Supervision of Trustees and Fundraisers for Charitable Purposes Act (hereinafter “Charitable Purposes Act,” or “Act”), generally governs all charitable corporations, unincorporated associations, trustees, commercial fundraisers for charitable purposes, fundraising counsel for charitable purposes, commercial coventurers, and other legal entities holding or soliciting property for charitable purposes. Existing law provides the Attorney General (AG) with primary enforcement and supervisory powers over these entities, and requires that the AG maintain a register of charitable organizations subject to the Act. (Gov. Code Sec. 12580 et seq.)

Existing law specifies that the AG has broad powers under common law and California statutory law to carry out its charitable trust enforcement responsibilities and that these powers include, but are not limited to, charitable trust enforcement actions under:

• the Charitable Purposes Act;

• specified laws on involuntary trusts under the Civil Code;

• the Nonprofit Corporations Law;

• specified provisions under the Probate Code relating to trusts and trustees;

• the Unfair Competition Law and specified law on false advertising; and

• specified Penal Code provisions relating to lotteries and charitable solicitations. (Gov. Code Sec. 12598(a).)

Existing law requires every charitable corporation, unincorporated association, and trustee subject to the Charitable Purposes Act to file with the AG an initial registration form, under oath, as specified, within 30 days after the entity initially receives property, except as specified. Existing law also generally requires that these entities file with the AG periodic written reports, as specified. (Gov. Code Secs. 12585, 12586.)

Existing law requires a “commercial fundraiser” to register with the AG’s Registry of Charitable Trusts prior to soliciting or receiving and controlling any funds, assets, or property, and to file an annual financial report of funds, assets, or property solicited on behalf of each charitable purpose or organization, as specified. (Gov. Code Sec. 12599.)

Existing law prohibits a commercial fundraiser for charitable purposes from soliciting in the state on behalf of a charitable organization unless that charitable organization is registered or is exempt from registration with the AG’s Registry of Charitable Trusts. (Gov. Code Sec. 12599(m).)

Existing law generally defines “commercial fundraiser for charitable purposes” to mean any individual, corporation, unincorporated association, or other legal entity who for compensation does any of the following:

• solicits funds, assets, or property in this state for charitable purposes;

• as a result of a solicitation of funds, assets, or property in this state for charitable purposes, receives or controls the funds, assets, or property solicited for charitable purposes; or

• employs, procures, or engages any compensated person to solicit, receive, or control funds, assets, or property for charitable purposes. (Gov. Code Sec. 12599(a).)

Existing law requires there to be a written contract between a commercial fundraiser for charitable purposes and a charitable organization for each solicitation campaign, event, or service, as specified. The contract must be available for inspection by the Attorney General and contain specified information. (Gov. Code Sec. 12599(h).)

Existing law requires that a “fundraising counsel for charitable purposes” register with the AG’s Registry of Charitable Trusts, prior to managing, advising, counseling, consulting, or preparing material for, or with respect to, the solicitation in this state of funds, assets, or property for charitable purposes, and to file (1) an annual report listing each person, corporation, unincorporated association, or other legal entity for whom the fundraising counsel has performed specified services for compensation, and (2) a statement certifying that the fundraising counsel had a written contract with each listed person, corporation, unincorporated association, or other legal entity that complied with specified requirements. (Gov. Code Sec. 12599.1.)

Existing law generally defines a “fundraising counsel for charitable purposes” as any individual, corporation, unincorporated association, or other legal entity who is described by all of the following:

• for compensation plans, manages, advises, counsels, consults, or prepares material for, or with respect to, the solicitation in this state of funds, assets, or property for charitable purposes;

• does not solicit funds, assets, or property for charitable purposes;

• does not receive or control funds, assets, or property solicited for charitable purposes in this state; and

• does not employ, procure, or engage any compensated person to solicit, receive, or control funds, assets, or property for charitable purposes. (Gov. Code Sec. 12599.1(a).)

Existing law requires a written contract between a fundraising counsel for charitable purposes and a charitable organization for each service to be performed by the fundraising counsel for the charitable organization, as specified. The contract must be available for inspection by the AG and contain specified information, such as:

• a clear statement of the fees and any other form of compensation, including commissions and property, that will be paid to the fundraising counsel; and

• a statement that the fundraising counsel will not at any time solicit or receive or control funds, assets, or property for charitable purposes, or employ, procure, or engage any compensated person to solicit, receive, or control funds, assets, or property for charitable purposes. (Gov. Code Sec. 12599.1(f).)

Existing law provides the AG authority to investigate transactions and relationships of corporations and trustees subject to the Charitable Purposes Act for the purpose of ascertaining whether or not the purposes of the corporation or trust are being carried out in accordance with the terms and provisions of the articles of incorporation or other instrument. (Gov. Code Sec. 12588.)

Existing law authorizes the AG to refuse to register or revoke or suspend the registration of a charitable corporation or trustee, commercial fundraiser, fundraising counsel, or coventurer whenever the AG finds that the charitable corporation or trustee, commercial fundraiser, fundraising counsel, or coventurer has violated or is operating in violation of any provisions of the Charitable Purposes Act. (Gov. Code Sec. 12598(e).)

Existing law authorizes the Attorney General to bring an action against trustees or other persons holding property in trust for charitable purposes or against any charitable corporation or any director or officer thereof to enforce a charitable trust or to impress property with a trust for charitable purposes or to recover property or the proceedings thereof for and on behalf of any charitable trust or corporation at any time within 10 years after the cause of action accrued. (Gov. Code Sec. 12596.)

Existing law requires any individual, corporation, or other legal entity who for compensation solicits funds or other property in this state for charitable purposes to disclose prior to an oral solicitation or sales solicitation, as specified, or at the same time as a written solicitation or sales solicitation:

• that the solicitation or sales solicitation is being conducted by a commercial fundraiser for charitable purposes; and

• the name of the commercial fundraiser for charitable purposes as registered with the Attorney General pursuant to specified law. (Bus. & Prof. Code Sec. 17510.85.)

Existing law provides that one who wrongfully detains a thing is an involuntary trustee thereof, for the benefit of the owner. Existing law also provides that one who gains a thing by fraud, accident, mistake, undue influence, the violation of a trust, or other wrongful act, is, unless he or she has some other and better right thereto, an involuntary trustee of the thing gained, for the benefit of the person who would otherwise have had it. (Civ. Code Secs. 2223, 2224.)

This bill would specify that the disclosures required under existing law prior to an oral solicitation or sales solicitation, or at the same time of a written disclosure or sales solicitation, must be in at least 12-point font, and be clear and conspicuous, as specified, if printed or presented electronically.

This bill would authorize the AG to bring an action pursuant to specified laws relating to involuntary trustees at any time within 10 years after the cause of action accrued. This bill would also authorize the AG to bring a civil action for a violation of the Nonprofit Corporation Law at any time within 10 years after the cause of action accrued.

This bill would authorize the AG, notwithstanding the limited application of the Charitable Purposes Act to certain entities, to bring a civil action against a person who aids or abets a violation of that Act, specified laws relating to involuntary trusts, or the Nonprofit Public Benefit Corporations’ article providing standards of conduct for directors and management, at any time within 10 years after the cause of action accrued.

This bill would expand the definition of a “commercial fundraiser for charitable purposes” to include a person or entity who for compensation plans, manages, advises, counsels, consults, or prepares material for, or with respect to, the solicitation in this state of funds, assets, or property for charitable purposes, but is disqualified as a “fundraising counsel for charitable purposes” pursuant to the definition of that term. This bill would further clarify that a commercial fundraiser for charitable purposes does not include an escrow agent or “caging company,” as specified, which receives or controls funds received as a result of a solicitation for charitable purposes.

This bill would modify the definition of “fundraising counsel for charitable purposes” to clarify that “compensation” received for planning, managing, advising, counseling, consulting, or preparing material for, or with respect to, the solicitation in this state of funds, assets, or property for charitable purposes, is something other than a percentage of the funds, assets, or property received as a result of a solicitation campaign.

This bill would further modify the definition of “fundraising counsel for charitable purposes” to clarify that a person or entity is deemed to receive or control funds, assets, or property if any of the following apply:

• it has the right to approve or veto any payment from an escrow account to which funds received from a solicitation for charitable purposes are subject;

• it maintains an interest in an account into which solicited funds are deposited;

• it has the right to access funds, assets, or property received from a solicitation for charitable purposes and held by a caging company;

• it has any ownership or management interest in any other entity that receives or controls the funds, assets, or property solicited for charitable purposes, including, but not limited to, an escrow agent or caging company, but not including a federally insured financial institution; or

• it receives any financial benefit, directly or indirectly, from any other individual or entity that receives or controls the funds, assets, or property solicited for charitable purposes, other than the trustee or charitable corporation soliciting the funds, assets, or property for charitable purposes.

This bill would provide that any person or entity who, for compensation, plans, manages, advises, counsels, consults, or prepares material for, or with respect to, the solicitation in this state of funds, assets, or property for charitable purposes, but does not meet the qualifications of a “fundraising counsel for charitable purposes,” as specified, shall be deemed to be a “commercial fundraiser for charitable purposes,” as described, unless excluded by the section defining that term. This bill would specify for these purposes that “commercial fundraiser for charitable purposes” does not include:

• a “trustee” or “charitable corporation,” as defined, or any employee thereof;

• an individual who is employed by or under the control of a commercial fundraiser for charitable purposes that is registered with the AG; or

• any federally insured financial institution that holds, as a depository, funds received as a result of a solicitation for charitable purposes, or an escrow agent or “caging company,” as defined, that receives or controls funds received as a result of a solicitation for charitable purposes.

This bill defines a caging company for purposes of the above definitions as a business that receives contributions, processes donor mail, and deposits all contributions into an account under the sole control of the charitable organization.

This bill would make other technical or non-substantive changes.

COMMENT

1. Stated need for the bill

According to the author:

The Attorney General is responsible for regulating charities and the professional fundraisers who solicit on their behalf. The purpose of this oversight is to protect charitable assets for their intended use and ensure that the charitable donations contributed by Californians are not misused or squandered through fraud or other means. [ . . . ]

Existing law regulates for-profit companies that raise money on behalf of a charity but keep a portion of the money raised as profit. Companies that solicit money on behalf of charitable organizations, “commercial fundraisers,” are required to disclose to donors that a paid professional fundraiser was involved in the solicitation campaign. “Fundraising counsel” – persons or entities that plan, manage, or advise charities on their charitable solicitations activities for profit but do not directly engage in solicitations – are not subject to the same transparency requirements. Both commercial fundraisers and fundraising counsel are required to register with the Attorney General’s office.

The distinctions between commercial fundraisers and fundraising counsel are that commercial fundraisers hold assets and do the direct solicitation, while fundraising counsel do not. Sometimes, in order to avoid falling into the commercial fundraiser category, which requires disclosure to consumers that the solicitation is being conducted by a commercial fundraiser, fundraising companies will make it falsely appear that the company providing advice and the company receiving donations are separate. Other times, fundraising counsel will receive substantial portions of a charity’s donations through fundraising fees, because they own more than one company involved in the charity’s fundraising program.

Cases involving charity fraud are often complex, fact-intensive, and cover misconduct occurring over an extended period of time. Existing law allows the Attorney General a 10 year statute of limitations for fraud conducted by officers and directors of the charity. Other parties such as fundraisers, accountants, etc. who directly participate in or aid and abet the fraud[, however,] are subject to either a three or four year statute of limitations, depending on the cause of action.

AB 556 will close loopholes in for-profit solicitation disclosure laws by requiring fundraisers who have any ownership or management interest in any other entity also involved in a charitable solicitation to register as commercial fundraisers and therefore be subject to disclosure to donors. The bill also states that if a fundraiser takes a percentage of the funds raised through the solicitation rather than a flat fee, they should register as commercial fundraisers. The bill will also extend the 10 year statute of limitations to include all persons and entities involved in the fraud. [Accordingly,] AB 556 will uphold consumer and donor confidence in charitable giving by increasing transparency and accountability for charitable fundraisers.

The sponsor of this bill, the Office of the Attorney General (AG), indicates that recent litigation exposed some of the shortcomings with both the existing 10 year statute of limitations and the laws that distinguish a “commercial fundraiser” from a “fundraising counsel,” which is discussed further in Comment 2 below. The AG writes that:

AB 556 will address and correct both legal deficiencies identified in the Help Hospitalized Veterans litigation and improve transparency and accountability for all for-profit charitable fundraisers. The bill expands existing transparency requirements for “commercial fundraisers” to include “fundraising counsel,” closing the loophole in current law that allows for-profit fundraisers to avoid disclosing to prospective donors whether a portion of their gift will be diverted to a paid company. The bill also broadens the Attorney General’s statute of limitations for enforcement actions to include commercial fundraisers, fundraising counsel, and other third party entities that aid and abet charity fraud, ensuring that all culpable parties are held equally accountable.

This legislation will significantly improve the Attorney General’s ability to protect charitable assets and empower responsible charitable giving. By enhancing existing safeguards against fraud, AB 556 will maintain consumer confidence in donating to the many nonprofit organizations that work to make a difference in their state.

2. Bill seeks to better distinguish commercial fundraisers for charitable purposes from fundraising counsels for charitable purposes.

Under the Supervision of Trustees and Fundraisers for Charitable Purposes Act (“Charitable Purposes Act,” or “Act”), all charitable entities that hold or solicit property for charitable purposes must register with and disclose certain information to the Attorney General. Most pertinent to this bill are commercial fundraisers and fundraising counsel.

These classifications, and the distinctions between those entities, are quite significant. Indeed, AB 1810 (Davis, Ch. 445, Stats. 1998) sought to close loopholes that had previously enabled sophisticated commercial fundraisers to hire “fundraising counsels” in order to downplay the extraordinary costs of their fundraising and exclude administrative costs from their annual financial reports which might otherwise discourage donors from making donations due to the fact that high administration costs translate into less money for the charity. (See Sen. Judiciary Com. analysis of AB 1810 (1998-1999 Reg. Session), Jul. 21, 1998.) Accordingly, while under the current Act, both charitable fundraisers and fundraising counsel must register with and file certain documents and information with the AG, commercial fundraisers must disclose to donors that the solicitation is being conducted by a commercial fundraiser for charitable purposes and, upon request, disclose their percentage of total fundraising expenses (which signals to the donor how much money actually ends up going to the charitable purposes). (See Bus. & Prof. Code Sec. 17510.85 and Gov. Code Sec. 12599(j).)

Additionally, while fundraising counsels have to provide the AG with an annual list of the charitable organizations for which the fundraiser has performed services and make its written contracts with those charitable organizations available for inspection to the AG, commercial fundraisers must not only make their contracts available for inspection, but also specifically disclose to the AG, on an annual basis, their: (1) total revenue; (2) the fee or commission charged by the commercial fundraiser for charitable purposes; (3) salaries paid by the commercial fundraiser for charitable purposes to its officers and employees; (4) fundraising expenses; (5) distributions to the identified charitable organization or purpose; and (6) the names and addresses of any director, officer, or employee of the commercial fundraiser for charitable purposes who is a director, officer, or employee of any charitable organization listed in the annual financial report. (See Gov. Code Secs. 12599.1(d)-(f), 12599(d).)

Indeed, the more onerous filing and disclosure requirements for commercial fundraisers appear justified given that the definition of fundraising counsel presumes that the fundraising counsel’s involvement generally stops at managing, advising, counseling, consulting, or preparing materials for, or with respect to, the solicitation of donations. Unlike their commercial fundraiser counterparts, entities seeking to register as fundraising counsel must not solicit the donation directly, or receive or control the donation, or employ anyone to engage in such activities. That being said, the AG, the sponsor of this bill, provides information that suggests that the lines between these two types of entities engaged in charitable activities is being blurred by some who seek to take advantage of the “fundraising counsel” classification, but then engage in activities that would seem to fall under the category of commercial fundraising. As described by the sponsor:

In 2012, Attorney General Harris filed suit against Help Hospitalized Veterans (HHV), a charity that solicited donations to support programs serving veterans and active-duty military improperly diverted more than $4.3 million in funds toward the purchase of golf memberships, condominiums, and excessive executive compensation. The scheme included loans made by HHV to American Target Advertising, a for-profit firm that directed the charity’s vast direct-mail fundraising operation while making substantial payments to HHV’s former president. Another fundraising firm, Creative Direct Response, made deceptive statements in its direct mail solicitations to imply that there were minimal or no fundraising expenses associated with the campaign, while in actuality, HHV incurred substantial costs. Meanwhile, the nonprofit used accounting gimmicks to inflate the amount of income purportedly spent on providing veterans’ services while artificially minimizing the amount reportedly spent on fundraising. [Footnote excluded.]

[. . . D]espite the fact that American Target Advertising and Creative Direct Response each unilaterally orchestrated elaborate fundraising campaigns for HHV—designing fundraising materials, managing prospective donor mailing lists, etc.—neither were legally registered as “commercial fundraisers” because the direct mail was turned over to HHV for final mailing. Instead, both companies filed as “fundraising counsel.” A “caging operation” was used to siphon donations off to the firms, paying out millions of dollars in fees before turning any money over to the charity. Because these firms stopped just short of physically sending the solicitations they designed, none of the materials contained written disclosures that would have been required if the campaigns were conducted by “commercial fundraisers.” In total, between 65-72 percent of the annual gross revenue HHV received from donors over the years went to the charity’s fundraising operation.

This bill would help close the loophole in the law, by better defining who is a commercial fundraiser, and who is a fundraising counsel. First, the bill would expand the definition of a commercial fundraiser to also include any person or entity who for compensation plans, manages, advises, counsels, consults, or prepares material for, or with respect to, the solicitation in this state of funds, assets, or property for charitable purposes, but is otherwise disqualified as a fundraising counsel under the latter’s definition. Further, the bill would modify the fundraising counsel definition to clarify that “compensation” received for its services, is something other than a percentage of the funds, assets, or property received as a result of a solicitation campaign, and to clarify that a person or entity is deemed “to receive or control funds, assets, or property”—and therefore not a fundraising counsel—if it:

• has the right to approve or veto any payment from an escrow account to which funds received from a solicitation for charitable purposes are subject;

• maintains an interest in an account into which solicited funds are deposited;

• has the right to access funds, assets, or property received from a solicitation for charitable purposes and held by a “caging company” (defined as a business that receives contributions, processes donor mail, and deposits all contributions into an account under the sole control of the charitable organization);

• has any ownership or management interest in any other entity that receives or controls the funds, assets, or property solicited for charitable purposes, including, but not limited to, an escrow agent or caging company, but excluding a federally insured financial institution; or

• receives any financial benefit, directly or indirectly, from any other individual or entity that receives or controls the funds, assets, or property solicited for charitable purposes, other than the trustee or charitable corporation soliciting those donations.

3. Specified actions by the Attorney General to enforce the Charitable Purposes Act are already subject to a 10 year statute of limitations

Under the Charitable Purposes Act, the AG may bring an action against trustees or other persons holding property in trust for charitable purposes or against any charitable corporation or any director or officer thereof, to enforce a charitable trust or to impress property with a trust for charitable purposes or to recover property or the proceeds thereof for and on behalf of any charitable trust or corporation, for up to 10 years after the action accrued.

According to the AG, however, in the Help Hospitalized Veterans case, “despite significant evidence that Creative Direct Response had made serious misrepresentations in its solicitations to over 40,000 potential donors, subject to over $4 million in civil penalties, the firm was successful on demurrer and was not held accountable for its role in the HHV fraud.” The sponsor explains that this occurred because of the narrow application of the 10 year statute of limitations under existing law:

[E]ven though the Attorney General’s enforcement authority under the Supervision of Trustees and Fundraisers for Charitable Purposes Act applies to fundraising counsel, the express language of the Act’s special 10-year statute of limitations covering officers and directors of charities does not cover causes of action against third parties, including fundraisers, even though they participate in the charity fraud. The court in the HHV case instead applied the standard 3-year statute of limitations for fraud to Creative Direct Response’s conduct and ruled that the action could not proceed against the fundraiser. Since charitable trust enforcement actions are often complex, fact-intensive, and cover an extended period of time, a 10-year statute of limitations is necessary in order to ensure that all who commit misconduct involving charities are held accountable for their actions.

Accordingly, this bill seeks to provide a broader 10-year statute of limitation that would allow the AG to also bring an action at any time within 10 years after the cause of action accrued: (1) pursuant to specified involuntary trust laws under the Civil Code; (2) arising out of a violation of the Charitable Purposes Act, pursuant to specified involuntary trust laws, or pursuant to the Nonprofit Corporation Law; and (3) against a person who aids or abets a violation of the Charitable Purposes Act, specified involuntary trust laws, or the Nonprofit Public Benefit Corporations laws.

As a matter of public policy, shorter limitations periods serve important policy goals that help to preserve both the integrity of our legal system and the due process rights of individuals. Their purpose is to prevent the assertion of stale claims and, ultimately, “to promote justice by preventing surprises through the revival of claims that have been allowed to slumber until evidence is lost, memories have faded, and witnesses have disappeared.” (3 Witkin Cal. Proc. Actions Sec. 433.) That being said, here, existing law already envisions providing the AG with longer periods of time to bring enforcement actions—albeit against a narrower number of individuals. This longer period is largely justified by the potential complexity of the underlying cases and the time and work that can be required to both uncover fraud and to pursue those involved. Arguably, therefore, the 10 year statute of limitations should be based upon the underlying act, and not necessarily a small subset of potential bad actors against whom the action would be brought against.

Support: American Cancer Society Cancer Action Network; California Association of Nonprofits (CalNonprofits); Christian Appalachian Project; Disabled American Veterans; DMA Nonprofit Federation; Easter Seals; Feed the Children; Food and Water Watch; Food for the Poor; March of Dimes California Chapter; Network American Institute for Cancer Research; Wounded Warrior Project, Inc.

Opposition: None Known

HISTORY

Source: Attorney General

Related Pending Legislation: None Known

Prior Legislation:

AB 2327 (Feuer, Ch. 483, Stats. 2012) revised the enforcement provisions of the Charitable Purposes Act.

SB 1262 (Sher, Ch. 919, Stats. 2004) See Background.

SB 2015 (Sher, Ch. 475, Stats. 2000) amended the Charitable Purposes Act to grant the AG additional enforcement tools and resources, including: ability to assess late fees; authority to suspend or revoke registrations; the ability to impose criminal penalties for violations of the Act; and the appropriation of all fines, penalties, attorney’s fees and costs to the AG for the administration and enforcement of the Act.

AB 1810 (Davis, Ch. 445, Stats. 1998) See Background.

SB 1682 (Boatwright, Ch. 511, Stats. 1992) See Background.

AB 3066 (Sher, Ch. 249, Stats. 1992) See Background.

AB 838 (Peace, Ch. 569, Stats. 1991) See Background.

Prior Vote:

Assembly Floor (Ayes 78, Noes 0)

Assembly Appropriations Committee (Ayes 17, Noes 0)

Assembly Privacy and Consumer Protection Committee (Ayes 11, Noes 0)

Assembly Judiciary Committee (Ayes 10, Noes 0)

**************

Date of Hearing: May 6, 2015

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Jimmy Gomez, Chair

ABPCA Bill Id:AB 556

Author:(Irwin) – As Amended Ver:April 7, 2015

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill:

1. Expands the definition of "commercial fundraiser for charitable purposes" with regard to the Attorney General's (AG's) authority to enforce disclosure requirements for charity fundraisers.

2. Establishes a ten-year statute of limitations for enforcement actions against charity fundraisers, consultants, and other third parties who engage in fraud or other prohibited conduct.

FISCAL EFFECT:

Any additional costs to the AG's office would be minor and absorbable within its existing resources.

COMMENTS:

1. Background. The AG is responsible for regulating charities and the professional fundraisers who solicit on their behalf. This oversight is meant to protect charitable assets for their intended use and ensure that charitable donations contributed by Californians are not misused and squandered through fraud or other means. All charitable trustees and fundraising professionals are required to register and file annual financial disclosure reports with the Registry of Charitable Trusts in the AG’s office before soliciting in California. The attorneys and auditors of the AG’s Charitable Trusts Section investigate and bring legal actions against charities, their officers and directors, and fundraising professionals that misuse charitable assets or engage in fraudulent fundraising practices.

2. Purpose. According to the author, recent enforcement cases have highlighted examples where persons performing professional fundraising services attempted to circumvent disclosure requirements by registering as fundraising counsel rather than as commercial fundraisers. In response, this bill would revise the definition of "commercial fundraiser for charitable purposes" to include additional actions and types of fee arrangements that the author believes warrant a disclosure to the public that the actions are being carried out by a third party fundraiser for compensation. For example, the bill would require a person or entity that plans, manages, counsels, advises, or prepares material for the solicitation of funds for charitable purposes to register as a commercial fundraiser if he or she is compensated by a percentage interest in the funds received through solicitation rather than by a flat fee.

3. Statute of Limitations. Under Section 12596 of the Supervision of Trustees and Fundraisers for Charitable Purposes Act, the AG may bring an enforcement action for fraud or other violations by the trustees, officers, or directors of a charitable organization at any time within ten years of the cause of action. Because cases involving charity fraud are often complex and cover misconduct from an extended period of time, the author contends, the ten-year statute of limitations is appropriate. However, Section 12596 does not apply to other parties such as fundraisers, consultants, or accountants who may have directly participated in, or aided and abetted the fraud; instead they are subject to either a three- or four- year statute of limitations, depending on the cause of action. Accordingly, this bill would establish a ten-year statute of limitations for all persons or entities involved in the fraud to make this consistent with the same period that applies to directors and officers of the charity.

Analysis Prepared by: Chuck Nicol / APPR. / (916) 319-2081

Date of Hearing: April 21, 2015

ASSEMBLY COMMITTEE ON PRIVACY AND CONSUMER PROTECTION

Mike Gatto, Chair

ABPCA Bill Id:AB 556

Author:(Irwin) – As Amended Ver:April 7, 2015

SUBJECT: Trusts: regulation and enforcement

SUMMARY: Expands the definition of a "commercial fundraiser for charitable purposes" in order to strengthen the Attorney General's (AG) ability to enforce disclosure requirements for charity fundraisers, and establishes a ten-year statute of limitations for enforcement actions against charity fundraisers, consultants and other third parties who engage in fraud or prohibited conduct. Specifically, this bill:

1. Expands the definition of "commercial fundraiser for charitable purposes" to include any person or entity that plans, manages, advises, counsels, consults, or prepares material for, or with respect to, the solicitation of funds, assets, or property for charitable purposes and is compensated by a percentage interest in the funds, assets, or property received through a solicitation campaign, rather than by a flat fee.

2. Expands the definition of "commercial fundraiser for charitable purposes" to include any person or entity that plans, manages, advises, counsels, consults, or prepares material for, or with respect to, the solicitation in this state of funds, assets, or property for charitable purposes and:

   1. Has any ownership or management interest in any other entity that receives or controls the funds, assets, or property solicited for charitable purposes; or
      
      

   2. Receives any material financial benefit, directly or indirectly, from any other individual or entity that receives or controls the funds, assets, or property solicited for charitable purposes, other than the nonprofit soliciting the funds, assets, or property for charitable purposes.

3. Exempts from the definition of "commercial fundraiser for charitable purposes" certain specified individuals, including, among others, trustees; charitable corporations; employees or agents of commercial fundraisers, and any attorney, investment counselor, or banker who in the conduct of that person’s profession advises a client when actually engaged in the giving of legal, investment, or financial advice.

4. Clarifies that any person or entity who indirectly maintains an interest in an escrow account into which solicited funds are deposited, or who indirectly maintains access of the right to access funds, assets, or property received by a caging (i.e., direct mail fundraising) company as a result of a solicitation, falls under the definition of "commercial fundraiser for charitable purposes."

5. Establishes a 10-year statute of limitations for the AG to bring a civil action to enforce this Act, as well as to enforce existing anti-fraud statutes under Civil Code Sections 2223 and 2224.

6. Provides that specified disclosures about fundraising counsel that entities that solicit funds for charitable purposes with the participation of fundraising counsel must make at the time of solicitation shall be clear and conspicuous and appear in at least 12-point type, if printed or presented electronically.

EXISTING LAW:

1. Governs charitable corporations, trustees, commercial fundraisers, fundraising counsel and commercial co-venturers who solicit or hold property for charitable purposes through the Supervision of Trustees and Fundraisers for Charitable Purposes Act (Act), and generally provides the AG with supervisory and enforcement powers over these entities. (Government Code Section (GC) 12580 et seq.)

2. Requires commercial fundraisers and fundraising counsel, both as defined, to register with the AG's Registry of Charitable Trusts and to file an annual financial report of funds solicited on behalf of each charitable purpose or organization. (GC 12599, 12599.1)

3. Defines “commercial fundraiser for charitable purposes” to mean any individual, corporation, unincorporated association, or other legal entity, except as specified, who for compensation does any of the following:

   1. Solicits funds, assets, or property in this state for charitable purposes;
      
      

   2. As a result of a solicitation of funds, assets, or property in this state for charitable purposes, receives or controls the funds, assets, or property solicited for charitable purposes; or
      
      

   3. Employs, procures, or engages any compensated person to solicit, receive, or control funds, assets, or property for charitable purposes. (GC 12599(a))

4. Requires, not less than 10 working days prior to commencement of each solicitation campaign, the filing with the AG’s Registry of Charitable Trusts of a notice setting forth, among other things, the person responsible for directing and supervising the work of the commercial fundraiser under the contract and the fundraising methods to be used. (GC 12599(h))

5. Requires a written contract between commercial fundraisers and charities for each solicitation campaign or event containing, among other things, a statement of charitable purposes of the campaign or event; if the commercial fundraiser is to be paid a fixed fee, a statement of the fee and a good faith estimate of what percentage the fee will constitute of the total collections; if the commercial fundraiser is to be paid a percentage fee, a statement of the percentage of contributions that the charity will receive; a requirement that all funds in the control or custody of the commercial fundraiser be deposited into the charity's bank or delivered to the charity within five working days of receipt; and specified contract termination provisions. (GC 12599(i))

6. Defines “fundraising counsel for charitable purposes” to mean any individual, corporation, unincorporated association, or other legal entity, except as provided, who is described by all of the following:

   1. For compensation plans, manages, advises, counsels, consults, or prepares material for, or with respect to, the solicitation in this state of funds, assets, or property for charitable purposes;
      
      

   2. Does not solicit funds, assets, or property for charitable purposes;
      
      

   3. Does not receive or control funds, assets, or property solicited for charitable purposes in this state; and
      
      

   4. Does not employ, procure, or engage any compensated person to solicit, receive, or control funds, assets, or property for charitable purposes. (GC 12599.1(a).)

7. Requires fundraising counsel for charitable purposes to file annually with the AG, a report listing each person, corporation, unincorporated association, or other legal entity for whom the fundraising counsel has performed any specified services, and a statement certifying that the fundraising counsel had a written contract with each listed person, corporation, or other legal entity that complied with specified requirements. (GC 12599.1(d))

8. Requires a written contract between a fundraising counsel for charitable purposes and a charitable organization for each service to be performed by the fundraising counsel for the charitable organization that shall be available for inspection by the AG. (GC 12599.1(f))

9. Requires any individual, corporation, or other legal entity who for compensation solicits funds or other property in this state for charitable purposes to disclose prior to an oral solicitation or sales solicitation made by direct personal contact, radio, television, telephone, or over the Internet, or at the same time as a written solicitation or sales solicitation that a) the solicitation or sales solicitation is being conducted by a commercial fundraiser for charitable purposes, and b) the name of the commercial fundraiser for charitable purposes as registered with the AG. (Business and Professions Code Section 17510.85)

10. Provides for a 10-year statute of limitations for any action brought by the AG against trustees or other persons holding property in trust for charitable purposes or against any charitable corporation or any director or officer thereof to enforce a charitable trust or to impress property with a trust for charitable purposes or to recover property or the proceeds thereof for and on behalf of any charitable trust or corporation. (GC 12596)

FISCAL EFFECT: Unknown

COMMENTS:

1. Purpose of this bill. This bill is intended to strengthen the AG’s ability to regulate charity fundraising campaigns by closing a loophole in current law that allows third party fundraisers hired as so-called “fundraising counsel” to avoid disclosures about their fees that are currently required of commercial fundraisers. The bill also strengthens the AG’s enforcement powers by extending the statute of limitations for enforcement actions against charity fundraising firms and other third parties who engage in fraud or prohibited conduct. This measure sponsored by Attorney General Kamala Harris.
   
   
   

2. Author’s statement. According to the author, “Existing law regulates for-profit companies that raise money on behalf of a charity but keep a portion of the money raised as profit. Companies that raise money on behalf of charitable organizations, known as commercial fundraisers, are required to disclose to donors that a paid professional fundraiser was involved in the solicitation campaign. 'Fundraising counsel,' persons or entities that plan, manage, or advise charities on their charitable solicitations activities and receive a portion of the funds raised, are not subject to the same transparency requirements. In the recent charity enforcement case brought by the AG’s Charitable Trusts Section, People v. Help Hospitalized Veterans, the cost of charitable fundraising was 65 to 72 percent of the gross annual revenue received from donors. Because the professional fundraisers were classified as 'fundraising counsel,' Help Hospitalized Veterans was not required to disclose to donors that paid professional fundraisers were involved in the solicitation campaigns.”
   
   
   

3. Charitable fundraising and AG oversight. According to the 2014 Causes Count report by CalNonprofits, there are more than 70,000 active 501(c)(3) public charities in California. California’s charitable organizations contribute 15 percent of California’s Gross State Product and employ nearly 1 million people. Nonprofits are also generally highly trusted institutions, with over 80 percent of Californians surveyed by the Causes Count report stating that they are confident that nonprofits act on the public’s behalf and deliver quality services.
   
   The AG is responsible for regulating charities and the professional fundraisers who solicit on their behalf. All charitable trustees and fundraising professionals are required to register and file annual financial disclosure reports with the Registry of Charitable Trusts in the AG’s office before soliciting in California. The attorneys and auditors of the AG’s Charitable Trusts Section investigate and bring legal actions against charities, their officers and directors, and fundraising professionals that misuse charitable assets or engage in fraudulent fundraising practices.

4. Expanded definition of “commercial fundraiser for charitable purposes.” This bill revises the definition of "commercial fundraiser for charitable purposes" to ensure that companies soliciting charitable donations as "fundraising counsel" must register as commercial fundraisers. For-profit companies that solicit money on behalf of charitable organizations but keep a portion of the money raised as profit are currently regulated as “commercial fundraisers.” Commercial fundraisers have to register with the AG, must identify themselves to donors by their registered name, and must explain to donors that the charitable solicitation is being conducted by a commercial fundraiser. By contrast, "fundraising counsel” which help plan, manage, or advise charities on their charitable solicitations but do not directly engage in solicitations are currently not subject to the same disclosure requirements.

According to the author, recent AG enforcement cases revealed instances in which professional fundraisers who registered as fundraising counsel rather than as commercial fundraisers in order to avoid disclosing their identity to donors. This bill revises the definition of "commercial fundraiser for charitable purposes" to include an individual or business that plans, manages, counsels, advises, or prepares material for the solicitation of funds for charitable purposes if the fee arrangement with the charity gives the person or business a percentage of the funds raised – even if the fundraiser neither directly solicits donors nor holds any funds raised through the fundraising activities conducted. According to the author’s office, this will close the loophole in current law and give the AG the ability to better protect the public from charitable fundraising fraud.

5. Extension of statute of limitations. This bill extends the statute of limitations for enforcement actions against charity fundraising firms and other third parties who engage in fraud or prohibited conduct. While the AG has 10 years to bring enforcement actions against trustees, officers, or directors of a charitable organizations for fraud or other violations, that 10-year statute of limitations does not extend to third party fundraisers, consultants, or accountants. Instead they are subject to either a three or four year statute of limitations, depending on the cause of action. According to the author’s office, in a recent case, the AG was unable to bring an action for fraud against the persons registered as "fundraising counsel" because the three-year statute of limitations had passed. This bill establishes a 10-year statute of limitations for all persons or entities involved in the fraud in order to be consistent with the 10-year statute of limitations that applies to fraud cases involving directors and officers of a charity.

6. Recent Amendments. Recent amendments to the bill removed opposition by charities and nonprofit organizations. The Direct Marketing Association (DMA) states it has proposed some “non-substantive, clarifying amendments” to address its minor remaining concerns.

7. Double-referral. This bill was double-referred to the Assembly Judiciary Committee, where it was heard on April 14, 2015, and passed on a 10-0 vote.

REGISTERED SUPPORT / OPPOSITION:

Support

California Department of Justice

Wounded Warrior Project, Inc.

Opposition

None received.

Analysis Prepared by: Jennie Bretschneider / P. & C.P. / (916) 319-2200

Date of Hearing: April 14, 2015

ASSEMBLY COMMITTEE ON JUDICIARY

Mark Stone, Chair

ABPCA Bill Id:AB 556

Author:(Irwin) – As Amended Ver:April 7, 2015

SUBJECT: TRUSTS: REGULATION AND ENFORCEMENT

KEY ISSUE: to prevent circumvention of important disclosure laws protecting donors to charities, should steps be taken to strengthen the attorney general's regulation of commercial fundraisers for charities, and extend the statute of limitations for the attorney general to bring an enforcement action?

SYNOPSIS

This bill, sponsored by the Attorney General, seeks to revise the definition of "commercial fundraiser for charitable purposes" in order to strengthen the Attorney General's ability to enforce disclosure requirements for charity fundraising campaigns, and extend the statute of limitations for enforcement actions against charity fundraising firms and other third parties who engage in fraud or prohibited conduct. According to the author, the bill is needed to ensure that companies soliciting charitable donations cannot exploit an apparent loophole in the law and circumvent existing disclosure requirements through the use of commercial fundraisers who instead register as "fundraising counsel." Among other things, the bill would (1) require a person or entity that plans, manages, counsels, advises, or prepares material for the solicitation of funds for charitable purposes to register as a commercial fundraiser if he or she is compensated by a percentage interest in the funds received through solicitation rather than by a flat fee; and (2) require a person assisting but not directly engaging in solicitation who has any ownership or management interest in any other entity that receives or controls funds or assets of the charity to register as a commercial fundraiser, not fundraising counsel, thereby becoming subject to disclosure requirements protecting donors and the public.

Additionally, this bill seeks to take the ten-year statute of limitations that currently applies to fraud by the charity's directors and officers and apply it to commercial fundraisers, counsel, and any other persons involved in the fraud. According to the author, this is needed because the statute of limitations that applies to fundraisers, counsel and other non-directors or non-officers is only three or four years depending on the cause of action, which is an insufficient length of time to prosecute cases that are typically complex and involve misconduct extended over long periods of time. Recent amendments to the bill have helped address concerns previously expressed by some charities and nonprofit organizations, and the bill is now supported by the Wounded Warrior Project and has no registered opposition. The bill will be referred to the new Committee on Privacy and Consumer Protection should it pass this Committee.

SUMMARY: Revises the definition of "commercial fundraiser for charitable purposes" in order to strengthen the Attorney General's ability to enforce disclosure requirements for charity fundraisers, and establishes a ten-year statute of limitations for enforcement actions against charity fundraisers, consultants and other third parties who engage in fraud or prohibited conduct. Specifically, this bill:

1. Expands the definition of "commercial fundraiser for charitable purposes" to include any person or entity that plans, manages, advises, counsels, consults, or prepares material for, or with respect to, the solicitation of funds, assets, or property for charitable purposes and is compensated by a percentage interest in the funds, assets, or property received through a solicitation campaign, rather than by a flat fee.

2. Expands the definition of "commercial fundraiser for charitable purposes" to include any person or entity that plans, manages, advises, counsels, consults, or prepares material for, or with respect to, the solicitation in this state of funds, assets, or property for charitable purposes and:

   1. Has any ownership or management interest in any other entity that receives or controls the funds, assets, or property solicited for charitable purposes, or

   2. Receives any material financial benefit, directly or indirectly, from any other individual or entity that receives or controls the funds, assets, or property solicited for charitable purposes, other than the nonprofit soliciting the funds, assets, or property for charitable purposes.

3. Exempts from the above definitions certain specified individuals, including, among others, trustees; charitable corporations; employees or agents of commercial fundraisers, and any attorney, investment counselor, or banker who in the conduct of that person’s profession advises a client when actually engaged in the giving of legal, investment, or financial advice.

4. Clarifies that any person or entity who indirectly maintains an interest in an escrow account into which solicited funds are deposited, or who indirectly maintains access of the right to access funds, assets, or property received by a caging company as a result of a solicitation, falls under the definition of "commercial fundraiser for charitable purposes."

5. Establishes a 10-year statute of limitations for the Attorney General to bring a civil action to enforce this Act, as well as to enforce existing anti-fraud statutes under Civil Code sections 2223 and 2224.

6. Provides that specified disclosures about fundraising counsel that entities that solicit funds for charitable purposes with the participation of fundraising counsel must make at the time of solicitation shall be clear and conspicuous and appear in at least 12-point type, if printed or presented electronically.

EXISTING LAW:

1. Governs charitable corporations, trustees, commercial fundraisers, fundraising counsel and commercial co-venturers who solicit or hold property for charitable purposes through the Supervision of Trustees and Fundraisers for Charitable Purposes Act (Act), and generally provides the Attorney General with supervisory and enforcement powers over these entities. (Government Code Section 12580 et seq.)

2. Requires commercial fundraisers and fundraising counsel, both as defined, to register with the Attorney General's Registry of Charitable Trusts and to file an annual financial report of funds solicited on behalf of each charitable purpose or organization. (Gov. Code Sections 12599, 12599.1.)

3. Defines “commercial fundraiser for charitable purposes” to mean any individual, corporation, unincorporated association, or other legal entity, except as specified, who for compensation does any of the following:

   1. Solicits funds, assets, or property in this state for charitable purposes.

   2. As a result of a solicitation of funds, assets, or property in this state for charitable purposes, receives or controls the funds, assets, or property solicited for charitable purposes.

   3. Employs, procures, or engages any compensated person to solicit, receive, or control funds, assets, or property for charitable purposes. (Gov. Code Section 12599(a).)

4. Requires, not less than 10 working days prior to commencement of each solicitation campaign, the filing with the Attorney General's Registry of Charitable Trusts of a notice setting forth, among other things, the person responsible for directing and supervising the work of the commercial fundraiser under the contract and the fundraising methods to be used. (Gov. Code Section 12599(h).)

5. Requires a written contract between commercial fundraisers and charities for each solicitation campaign or event containing, among other things, a statement of charitable purposes of the campaign or event; if the commercial fundraiser is to be paid a fixed fee, a statement of the fee and a good faith estimate of what percentage the fee will constitute of the total collections; if the commercial fundraiser is to be paid a percentage fee, a statement of the percentage of contributions that the charity will receive; a requirement that all funds in the control or custody of the commercial fundraiser be deposited into the charity's bank or delivered to the charity within five working days of receipt; and specified contract termination provisions. (Gov. Code Section 12599(i).)

6. Defines “fundraising counsel for charitable purposes” to mean any individual, corporation, unincorporated association, or other legal entity, except as provided, who is described by all of the following:

   1. For compensation plans, manages, advises, counsels, consults, or prepares material for, or with respect to, the solicitation in this state of funds, assets, or property for charitable purposes.

   2. Does not solicit funds, assets, or property for charitable purposes.

   3. Does not receive or control funds, assets, or property solicited for charitable purposes in this state.

   4. Does not employ, procure, or engage any compensated person to solicit, receive, or control funds, assets, or property for charitable purposes. (Gov. Code Section 12599.1(a).)

7. Requires fundraising counsel for charitable purposes to file annually with the Attorney General, a report listing each person, corporation, unincorporated association, or other legal entity for whom the fundraising counsel has performed any specified services, and a statement certifying that the fundraising counsel had a written contract with each listed person, corporation, or other legal entity that complied with specified requirements. (Gov. Code Section 12599.1(d).)

8. Requires a written contract between a fundraising counsel for charitable purposes and a charitable organization for each service to be performed by the fundraising counsel for the charitable organization, that shall be available for inspection by the Attorney General and shall contain, among other things:

   1. A statement of the charitable purpose for which the solicitation campaign is being conducted.

   2. A clear statement of the fees and any other form of compensation, including commissions and property, that will be paid to the fundraising counsel; and

   3. A statement that the fundraising counsel will not at any time solicit funds, assets, or property for charitable purposes; receive or control funds, assets, or property solicited for charitable purposes; or employ, procure, or engage any compensated person to do so. (Gov. Code Section 12599.1(f).)

9. Requires any individual, corporation, or other legal entity who for compensation solicits funds or other property in this state for charitable purposes to disclose prior to an oral solicitation or sales solicitation made by direct personal contact, radio, television, telephone, or over the Internet, or at the same time as a written solicitation or sales solicitation that a) the solicitation or sales solicitation is being conducted by a commercial fundraiser for charitable purposes, and b) the name of the commercial fundraiser for charitable purposes as registered with the Attorney General. (Business and Professions Code Section 17510.85.)

10. Provides for a 10-year statute of limitations for any action brought by the Attorney General against trustees or other persons holding property in trust for charitable purposes or against any charitable corporation or any director or officer thereof to enforce a charitable trust or to impress property with a trust for charitable purposes or to recover property or the proceeds thereof for and on behalf of any charitable trust or corporation. (Government Code Section 12596.)

FISCAL EFFECT: As currently in print this bill is keyed fiscal.

COMMENTS: This bill, sponsored by Attorney General Kamala Harris, seeks to revise the definition of "commercial fundraiser for charitable purposes" in order to strengthen the Attorney General's ability to enforce disclosure requirements for charity fundraising campaigns, and extends the statute of limitations for enforcement actions against charity fundraising firms and other third parties who engage in fraud or prohibited conduct. According to the author, the bill is needed to ensure that companies soliciting charitable donations cannot exploit an apparent loophole in the law and circumvent existing disclosure requirements through the use of commercial fundraisers who instead register as "fundraising counsel." Using one recent example, the author explains:

Existing law regulates for-profit companies that raise money on behalf of a charity but keep a portion of the money raised as profit. Companies that raise money on behalf of charitable organizations, known as commercial fundraisers, are required to disclose to donors that a paid professional fundraiser was involved in the solicitation campaign. “Fundraising counsel,” persons or entities that plan, manage, or advise charities on their charitable solicitations activities and receive a portion of the funds raised, are not subject to the same transparency requirements.

In the recent charity enforcement case brought by the Attorney General’s Charitable Trusts Section, People v. Help Hospitalized Veterans, the cost of charitable fundraising was 65 to 72 percent of the gross annual revenue received from donors. Because the professional fundraisers were classified as “fundraising counsel,” Help Hospitalized Veterans was not required to disclose to donors that paid professional fundraisers were involved in the solicitation campaigns.

Background on oversight of charity fundraising. According to the 2014 Causes Count report by CalNonprofits, there are more than 70,000 active 501(c)(3) public charities in California. California’s charitable organizations contribute 15 percent of California’s Gross State Product and employ nearly 1 million people. Nonprofits are also generally highly trusted institutions, with over 80 percent of Californians surveyed by the Causes Count report stating that they are confident that nonprofits act on the public’s behalf and deliver quality services.

To preserve this public trust and safeguard against fraud and questionable solicitation practices, the Attorney General is responsible for regulating charities and the professional fundraisers who solicit on their behalf. The purpose of this oversight is to protect charitable assets for their intended use and ensure that the charitable donations contributed by Californians are not misused and squandered through fraud or other means. All charitable trustees and fundraising professionals are required to register and file annual financial disclosure reports with the Registry of Charitable Trusts in the Attorney General’s office before soliciting in California. The attorneys and auditors of the Attorney General’s Charitable Trusts Section investigate and bring legal actions against charities, their officers and directors, and fundraising professionals that misuse charitable assets or engage in fraudulent fundraising practices.

Revised definition of "commercial fundraisers" to ensure continued transparency in solicitation activities. For-profit companies that solicit money on behalf of charitable organizations but keep a portion of the money raised as profit are regulated as “commercial fundraisers” under existing law, which requires them to disclose to donors that the solicitation is being conducted by a commercial fundraiser for charitable purposes, and to identify themselves by the name under which they are registered with the Attorney General. By contrast, "fundraising counsel” are persons or entities that plan, manage, or advise charities on their charitable solicitations activities for profit but do not directly engage in solicitations, and are not subject to the same disclosure requirements. For this reason, whether a person falls under the statutory definition of "commercial fundraiser" or "fundraising counsel" is important with respect to the Attorney General's ability to enforce these transparency protections under existing law.

According to the author, recent enforcement cases have highlighted examples where persons performing professional fundraising services attempted to circumvent disclosure requirements by registering as fundraising counsel rather than as commercial fundraisers. In response, this bill would revise the definition of "commercial fundraiser for charitable purposes" to include additional actions and types of fee arrangements that the author believes warrant a disclosure to the public that the actions are being carried out by a third party fundraiser for compensation. For example, the bill would require a person or entity that plans, manages, counsels, advises, or prepares material for the solicitation of funds for charitable purposes to register as a commercial fundraiser if he or she is compensated by a percentage interest in the funds received through solicitation rather than by a flat fee.

Under existing law, if a person raising funds for a charity did not directly hold the charity's assets or do the direct solicitation, but maintained an interest in the escrow account in which the solicited funds were deposited, then he or she could technically avoid disclosing to donors his or her paid role in the solicitation campaign by claiming to be and registering as fundraising counsel. (This was the case in the aforementioned People v. Help Hospitalized Veterans case.) To address this problem, this bill provides that, if as a result of solicitation of funds for charitable purposes a person indirectly controls those funds by maintaining an interest in the escrow account in which the solicited funds were deposited, or maintaining access to funds received by a caging company as a result of the solicitation, then he or she would be deemed a commercial fundraiser and be required to disclose to the public that the solicitation is being conducted by a commercial fundraiser for charitable purposes. The author contends the bill will help close loopholes in the disclosure statutes by requiring persons helping to raise funds who have any ownership or management interest in any other entity that receives or controls funds or assets of the charity to register as commercial fundraisers, not fundraising counsel, and thereby become subject to disclosure requirements protecting donors and the public.

Extended statutes of limitation for enforcement actions. Under Section 12596 of the Act, the Attorney General may bring an enforcement action for fraud or other violations by the trustees, officers, or directors of a charitable organization at any time within ten years of the cause of action. Because cases involving charity fraud are often complex and cover misconduct from an extended period of time, the author contends, the ten-year statute of limitations is appropriate. However, Section 12596 does not apply to other parties such as fundraisers, consultants, or accountants who may have directly participated in, or aided and abetted the fraud; instead they are subject to either a three or four year statute of limitations, depending on the cause of action. The author notes that in the Help Hospitalized Veterans case, the Attorney General was unable to bring an action for civil liability against the persons registered as "fundraising counsel" who participated in the fraud because they were not officers or directors of the charity, so the applicable three year statute of limitations on filing charges against them had already passed. Accordingly, this bill would establish a ten year statute of limitations for all persons or entities involved in the fraud to make this consistent with the same period that applies to directors and officers of the charity.

REGISTERED SUPPORT / OPPOSITION:

Support

Attorney General Kamala Harris

Wounded Warrior

Opposition

None on file

Analysis Prepared by: Anthony Lew / JUD. / (916) 319-2334