by Jane C. Nober

This article is from Council Columns.

One of the less pleasant responsibilities of the Legal Services department at the Council is tracking scams and frauds that plague the nonprofit sector and private foundations in particular. The ingenuity that individuals display in devising new ways to defraud the public is depressing, and the limits on law enforcement authorities’ interest in or ability to combat fraud is also troubling. Happily, the last few weeks have seen positive developments in two areas, the "grant-assistance programs" that fraudulently promise to link individuals with the "billions of dollars" of foundation funds and the Nigerian banking scams that have annoyed foundations for over a year. This column details the developments and provides reminders on the best ways to handle scams.

Cyberspace "Free Money" Scam Halted by Federal Trade Commissio

For years, foundations have forwarded to the Council advertisements touting the abilities of companies to secure foundation grants for needy individuals. These ads mischaracterize private foundations by suggesting that they were ready and eager to give away billions of dollars to individuals every year for any purpose, from furthering education to getting out of debt. Best of all, the ads noted, the funds would never have to be paid back. Unfortunately, the ads were successful in convincing people that "free money" was available; grantmakers often sent copies of pathetic letters from individual grantseekers who had paid their fee (typically $19.95 to $29.95) to these companies and were now looking for a grant. The Council forwarded these ads to appropriate state and postal authorities but was unable to determine whether any action was taken.

When the ads moved to the Internet, however, action from the Federal Trade Commission (FTC) came swiftly. On March 14, the FTC announced that it had negotiated a settlement with a Randolf A. Albertson, who had been offering grant matching services under the name of Wolverine Capital. Under the terms of the agreement, Mr. Albertson must cease and desist from making similar false and unsubstantiated claims about his ability to help clients secure grants. He must deliver a copy of the consent agreement that he has signed to both his employees and others for the next ten years, and he must keep the FTC informed of his future business affiliations and addresses.

While the FTC action takes only one alleged scam artist out of circulation, it may serve as a deterrent to others and an inspiration to other law enforcement authorities.

Nigerian Scam Artist Sentenced to Prison and Deportation

Since January 1995, many foundations have received letters from Nigeria and other western African nations offering them either grants or enormous sums of money for participating in shady money transfers. The letters attempt to persuade the recipients to furnish a copy of the foundation’s letterhead, an authorized signature and information about the foundation’s bank accounts; the intent is clearly to gain access to foundation bank funds. The Council has alerted its members to this scam and cautioned them not to respond to letters and follow-up phone calls. The Council continues to forward copies of all solicitation letters received to the Secret Service division charged with investigating the matter. We understand that information from the letters is entered into a Secret Service database that monitors scam activity.

Prosecution of those involved in these schemes is nearly impossible, as the United States does not have jurisdiction over foreign citizens living outside the United States and the government of Nigeria has been either unable or unwilling to crack down on its own populace. However, The New York Times of March 24, 1996, reported that federal authorities have obtained their first conviction in connection with the fraud schemes against a Nigerian residing in the United States. The arrest of Charles Nnabuife was apparently fortuitous; according to the Times, he was stopped in connection with an immigration matter while driving in Atlanta. A search of Mr. Nnabuife’s car revealed numerous documents that linked him with various fraudulent schemes and he subsequently pled guilty to conspiracy to commit mail fraud and Social Security fraud. He has been sentenced to two and one- half years in prison and will then be deported.

Again, this government action in no way guarantees an end to the flow of letters and schemes that foundations and others have endured, but it does send a warning to other criminals that law enforcement agencies are serious about cracking down on fraud.

Reminder: Steer Clear of Fraud

Since fraudulent schemes show no sign of disappearing, it is important for foundations to guard against the many ways in which criminals may try to get their hands on charitable funds. The basic rule never changes: if it sounds too good to be true, it probably is. This is especially true when it comes to investments, the area in which foundations are most likely to be solicited. The no-risk investment with an absurdly high guaranteed return remains a continuing problem. When offered the chance to participate in such a scheme, foundation managers should exercise great caution. Caution is necessary even when the proponent of such a scheme is a trusted acquaintance. Asking for financial statements and evidence of registration with appropriate authorities may help prevent unfortunate consequences.

Two more hints to foundation managers who believe they are being targeted for fraud: First, report your suspicions. A call to your state attorney general or the Council may reveal that you are not the only one who has received a solicitation and may aid prosecution. Also, be careful. It is important to keep in mind that some of these con artists are criminals who may be violent.