Veterans charity raises millions to help those who’ve served. But telemarketers are pocketing most of it

Introduction

The warning was prophetic.

Maurice Levite sat in a modest office in Falls Church, Virginia, about a decade ago, and cautioned his longtime friend, Brian Arthur Hampton, against continuing to use telemarketers to fund his small veterans charity.

With the help of his fundraisers-for-hire, Hampton had increased Circle of Friends for American Veterans’ income by an astounding amount — tenfold within three years.

But there was a catch — a costly one. The fundraisers were keeping most of the contributions donors were giving to the charity. Almost all of the money left over paid for overhead costs, such as Hampton’s salary. Veterans themselves received scraps.

Levite says he protested, but Hampton ignored him. He hired another telemarketer, Outreach Calling, to assist a related veterans nonprofit he runs out of the same office. This telemarketer — which the New York attorney general’s office says is run by a man they banned for life from fundraising in New York and remains under investigation — kept $9 out of every $10 raised.

Meanwhile, Hampton’s reported compensation quadrupled — to $340,126 between his two nonprofits in 2015 — in less than a decade.

“I’m flabbergasted,” said Levite, who served with Hampton on the board of Circle of Friends for American Veterans from 2006 to 2009. “Those figures blow me away.”

With help from Outreach Calling, Hampton is now expanding his operation into the largely unregulated world of political fundraising, sponsoring a veterans-focused political action committee that’s using the same money-generating tactics as his nonprofit groups, according to a Center for Public Integrity analysis of Federal Election Commission and Internal Revenue Service documents.

Hampton has already cashed in: During the first nine months of 2017, he paid himself $75,000 from his PAC. Out of $1.5 million the PAC has raised from donors, telemarketers have kept $1.3 million. Politicians and political committees that support veterans issues hadn’t received a cent through September.

Hampton said he hires telemarketers because it is too expensive and time-consuming to try to raise money on his own.

“Over the course of 24 years, I have tried every other fundraising technique known to me in over four decades with fundraising experience, most of them over and over again, with different variations,” Hampton said in an email to the Center for Public Integrity (he declined to answer questions in person). “None of those efforts produced revenue remotely close to the revenue generated by telemarketing.”

He also defended his compensation: “I am the head of three organizations. I am always working.”

But Elaine Del Vecchio, a semi-retired New Jersey resident, said she felt duped after learning almost all of her donation to Hampton’s nonprofit went to a fundraising company instead of programs directly benefiting veterans.

“They served in the military — even foreign wars — and risked their lives, and now they’re homeless. That touched a soft spot in my heart, and so I just made the donation,” said Del Vecchio, who recently gave Hampton’s nonprofit $25. “We know that 100 percent of the donations can’t go directly to the cause, because the CEOs have to be paid and all that, but it should be reasonable.”

Charity watchdogs say the most effective nonprofits spend at least 75 percent of their expenses on program services and no more than 25 percent on fundraising and overhead. Hampton’s tax returns claim his nonprofits are spending just under a third on programs — but that’s only because telemarketers’ consulting fees are counted as “program” services. CharityWatch, a nonprofit that analyzes financial statements of charitable organizations, says Hampton’s nonprofits spend 7 to 11 percent on programs.

Hampton’s veterans operation is hardly alone. Telemarketer Outreach Calling has contracted with at least a dozen other charities — two of which have been shut down by New York regulators — and keeps an average of 90 percent of the money it raises for them, according to state government records. And other veterans groups, such as the Wounded Warrior Project, have recently endured scandals surrounding their spending.

The U.S. Supreme Court has ruled that it’s not against the law for telemarketers to keep most of the donations they raise, as long as they don’t lie about how the money is going to be used, said Jim Sheehan, head of the charities bureau for the office of New York Attorney General Eric T. Schneiderman.

“From the charitable entrepreneurs’ perspective, there’s no downside. Whatever money they get is gravy,” Sheehan said. But at some point, “the gifts to the charitable activity are so low, it’s a fraud.”

‘Steamed’

Hampton, born in Michigan in 1943 to university professors, is himself a veteran.

He enlisted in the U.S. Army in 1968, served a year in Vietnam in “psychological operations” during the war and was in the Army Reserves from 1970 to 1992, according to a biography he provided the Center for Public Integrity and personnel records from the Army and National Archive. He retired with the rank of major.

It was 1993 when Hampton — “steamed” that the government was leaving veterans behind, in his opinion — said he co-founded Circle of Friends for American Veterans, a 501(c)(3) nonprofit charity, out of a bedroom in a small co-op apartment in Virginia. He later formed the Center for American Homeless Veterans, a 501(c)(4) “social welfare” nonprofit, which operates from the same office as Circle of Friends for American Veterans according to tax records.

The nonprofits’ early years proved rocky, the groups’ missions ever-changing.

Hampton said he and his business partners initially tried to raise funds themselves, but it was grueling, inefficient work.

They tried to run a donation call center on their own, too, but that also wasn’t worth the effort.

When they turned to telemarketers, they found they had more time to dedicate to charitable work, he said.

The charitable work initially involved running a transitional shelter for homeless veterans in Northeast Washington, D.C.

But running a shelter took up all their time.

Hampton decided he could help more veterans by putting to use his communications background, which involved working as a political campaign consultant and operating fundraising and communications businesses. He abandoned the shelter concept and launched a nationwide educational program instead, aimed at raising awareness of the needs of veterans.

The Circle of Friends for American Veterans began to stage rallies around the country. Hampton said he has hosted more than 100 members of Congress across 196 veterans shelter-themed forums in 46 cities.

But Hampton stopped hosting rallies earlier this decade. They were too expensive and took too much time to plan, he said.

Now, Hampton said the nonprofit focuses on communicating the needs of veterans to politicians, donors and the public. The Circle of Friends for American Veterans sometimes goes by the name “American Homeless Veterans” and the Center for American Homeless Veterans sometimes uses “Association for Homeless and Disabled Veterans.”

“There is no group that I know of that does what we do, educate and advocate for 21 million American Veterans,” he wrote.

His small staff accomplishes this, he said, through a “massive bipartisan program” of phone, fax, email and snail mail contact with more than 500 candidates for Congress; an “earned media machine” that generates attention through news releases; and the publication of the “Veterans Vision” newsletter once every two years.

Hampton and his employees have convinced 330 current and former members of Congress — including several on the House and Senate veterans affairs committees — to get behind a four-paragraph Veterans Bill of Rights that calls for reforms at the U.S. Department of Veterans Affairs.

According to the 2015 tax statement filed by the Center for American Homeless Veterans, Hampton and his employees wrote news releases on behalf of candidates, which in turn sent them to media outlets. The tax statement says, “Approximately 4,000 media outlets received the advocacy news releases, ultimately reaching an estimated over twenty-eight million people nationwide.”

A search for Hampton and his related organizations on LexisNexis, a vast archive of press releases, news articles and transcripts, indicates the groups are not often mentioned in the press.

In an April fundraising letter signed by Hampton and obtained by the Center for Public Integrity, Hampton tells prospective donors that Center for American Homeless Veterans is supporting programs that are successful in “getting homeless veterans off the street and into productive lives.”

But the Center for American Homeless Veterans’ tax return offers little evidence that the organization is funding or otherwise directly supporting such endeavors. Its 2015 tax return indicates it provided just $200 in grants to other organizations out of $2.5 million in overall expenditures, the vast majority of which paid telemarketers.

‘The smell test’

Levite, a retired fundraising executive, joined the Circle of Friends for American Veterans’ board in 2006 at Hampton’s personal request.

Levite recalled that Hampton’s desire to help veterans appeared sincere, but Hampton’s board meetings were poorly attended. Members of the board didn’t spend much time reading his financial reports, either, Levite said. Hampton “played everything close to the vest,” Levite added.

Meanwhile, Hampton’s decision to engage telemarketers turned the organization’s financial books inside out.

The nonprofit’s fundraising budget rose from $3,106 during the 2006 fiscal year — less than 1.5 percent of its overall expenses — to $1.9 million in 2009, or 87 percent of its expenses, according to annual tax filings for those years.

Levite raised concerns. He reminded Hampton that the National Society of Fund Raising Executives, the organization that first brought the two friends together in the 1970s, cautioned against the use of telemarketers that kept a high percentage of the money they raised, Levite said during a phone interview from his home in Alabama.

Hampton told the Center for Public Integrity that he planned to let telemarketers keep no more than 20 percent of the proceeds they raised when he first turned to outside fundraisers.

But that didn’t happen. Telemarketing, Hampton said, proved to be more expensive than he thought:

• Outreach Calling, the telemarketer representing the Center for American Homeless Veterans, kept $3.7 million, or 90 percent, of the $4.1 million it raised for the nonprofit in the 2014 and 2015 tax years, according to the charity’s annual IRS tax filings. Records filed by Outreach Calling in Utah claim the telemarketer has kept $7.9 million out of $8.7 million it raised for the charity from 2011 to 2015.
• Since 2015, Outreach Calling has raked in $2 million from the Put Vets First! PAC, the political action committee Hampton runs out of the same Falls Church office as his nonprofits. That’s 89 percent of the $2.3 million in donations the PAC has received in the same time period, according to Federal Election Commission filings.
• Charitable Resource Foundation, the telemarketer working for Circle of Friends for American Veterans, kept $6.4 million, or 85 percent, of the $7.5 million it raised from donors between the 2011 and 2015 tax years, according to IRS filings.

Hampton’s veterans operation is a cog in an even bigger fundraising machine — one that’s funneled more than a hundred million dollars in charitable contributions out of donors’ pockets and into a private company, according to a Center for Public Integrity analysis of licensing records maintained by the Division of Consumer Protection in Utah’s Department of Commerce.

Outreach Calling, based in Reno, Nevada, raised more than $118 million on behalf of about two dozen charities from 2011 to 2015, according to Utah’s records. The company kept $106 million of that, leaving $12.2 million — or 10.3 percent — for its client charities, which include the Childhood Leukemia Foundation, the Disabled Police and Sheriffs Foundation and the Kids Wish Network.

That Outreach Calling keeps 90 percent of the donations it raises on behalf of the Center for American Homeless Veterans was shocking for Dave Silver, the president and founder of Operation Yellow Ribbon of South Jersey, a small nonprofit that sends care packages to active-duty American service members in the Middle East.

“Oh my goodness,” Silver said. “Ninety, as in 9-0? It’s disheartening to hear all this.”

Operation Yellow Ribbon of South Jersey doesn’t use professional fundraisers to generate income, and Silver doesn’t pay himself a salary. He said he spends 20 to 30 hours a week running the nonprofit in addition to his full-time banking job.

In his experience, it’s hard to raise money because potential donors are already stretched thin.

“The other nonprofits that are out there that are trying to do the right thing … it makes it harder for us,” Silver said.

The American Legion, which bills itself as the “nation’s largest wartime veterans service organization,” doesn’t monitor the fundraising practices of other organizations but is proud of its own financial record, spokesman John Raughter said in declining to comment on Hampton’s use of telemarketers. The American Legion, which is supported in part by membership dues, spent less than $7,000 — or .01 percent of total expenditures — on professional fundraisers last year, according to its 2016 tax return.

Randi Law, spokeswoman for the Veterans of Foreign Wars’ national headquarters, also declined to comment on Hampton’s practices.

Hampton said he doesn’t have a problem with the steep cost because fundraising is a risky enterprise. The telemarketers shoulder the liabilities and create awareness among potential donors while the charities, freed from the burden of dialing for dollars, focus on their mission.

But nonprofit watchdogs aren’t impressed with Hampton’s operations.

The Better Business Bureau of St. Louis issued an alert in June urging donors to “exercise caution” when deciding whether to give money to the Center for American Homeless Veterans.

According to the alert, a woman in Quincy, Illinois, told the Better Business Bureau a telemarketer led her to believe her contribution to the nonprofit would provide direct assistance to homeless veterans.

“Instead, it appears that more than 95 percent of the donations are used to pay the fundraising firms, salaries for Hampton and other employees and other expenses related to running the charity’s office,” according to the alert.

Both of Hampton’s nonprofits, the Circle of Friends for American Veterans and the Center for American Homeless Veterans, received “Fs” from CharityWatch, a nonprofit organization that uses an A+ to F scale to rate nonprofits based on their financial transparency and spending habits.

“It’s somewhat of a minefield for donors to locate a high-performing veterans charity,” said Daniel Borochoff, president of CharityWatch.

Nonprofits that get As and Bs on CharityWatch’s scale spend about 70 percent of their contributions on core programs and services, Borochoff said.

Charity Navigator, another watchdog that evaluates nonprofits, gives the highest ratings to charities that spend at least 75 percent on programs and no more than 25 percent on fundraising and administrative overhead. (Charity Navigator does not rate either of Hampton’s nonprofits.)

In the latest tax filing available for the Center for American Homeless Veterans, three telemarketers raised about $2.4 million — keeping a combined $2.2 million for themselves. This means the Center for American Homeless Veterans pocketed only about 10 percent of what was raised, or $244,529.

Yet the Center for American Homeless Veterans also states in the same tax form that it spent $681,178 on “programs” that year.

A closer look at the tax form indicates most of the Center for American Homeless Veterans’ “program” spending in late 2015 and early 2016 — $514,663 — ultimately paid for unspecified “consulting” services provided by a familiar source: telemarketers.

Hampton did not respond to a question about why so much of his nonprofit’s “program” expenses ultimately went to hired telemarketers.

As for Center for American Homeless Veterans programs that appear to directly benefit veterans, the nonprofit states in its most recent tax form that it distributed 20,000 copies of the 40-page “Veterans Vision” publication; conducted an “earned media” campaign; informed the public about veterans issues via radio interviews and news releases; and contacted more than 500 candidates for Congress, urging them to make veterans a high priority.

The Center for American Homeless Veterans’ tax filings contain “a lot of red flags,” said Marcus Owens, who for 10 years led the IRS’ exempt organizations division and today is a partner at law firm Loeb & Loeb LLP.

Both of Hampton’s nonprofits spend an “extraordinary” amount of money on fundraising — so much so that it might attract the attention of the IRS, state attorneys general and the Federal Trade Commission, Owens said. (The IRS did not respond to requests for comment about Hampton’s nonprofits.)

Borochoff of CharityWatch theorized that Hampton’s nonprofits are classifying some of the money spent on telemarketers as services to veterans. Hampton acknowledged in an email that certain expenses classified as “program” costs were payments to professional fundraisers.

”They may be able to do a few positive things, but you know, they are woefully inefficient,” Borochoff said. “Not much is going to happen with your donation to help veterans.”

Hampton dismissed as insignificant the “F” ratings his nonprofits received from CharityWatch.

“These charity sites contain no consideration of how a charity makes a difference in the lives of people,” Hampton said.

But a pair of U.S. congressmen said Hampton shouldn’t raise funds in the name of veterans if he’s not going to spend most of it helping them.

“Any person or organization who raises money under the pretense of helping veterans, but who then … profits from the exploitation of veterans and their families, should be ashamed of themselves and be held fully accountable,” said Rep. Tim Walz of Minnesota, the highest ranking enlisted service member ever to serve in Congress and the ranking Democrat on the House Veterans Affairs Committee.

Rep. John Sarbanes, D-Md., said Congress should look into ways to crack down on organizations that spend most of their money on fundraising. At the very least, it should be easier for donors to research how charities are using their money, he said.

As for Hampton’s operation?

“It doesn’t pass the smell test, and everybody knows that,” Sarbanes said.

The Center for Public Integrity contacted the offices of every Republican member of the House and Senate veterans affairs committees about Hampton’s operations. None responded to requests for comment.

President Donald Trump, for his part, declared November National Veterans and Military Families Month, proclaiming the importance of protecting the “heroes” that have “braved bitter winters, treacherous jungles, barren deserts and stormy waters to defend our nation.”

White House spokesman Hogan Gidley declined, however, to discuss Hampton’s veterans groups or whether federal laws governing the use of charitable contributions should be changed.

In the red

The financial future of Hampton’s two nonprofits appears fraught despite the millions of dollars telemarketers are raising in the groups’ names.

That’s because Hampton’s two organizations have been running a deficit in recent years, as expenses have outpaced revenue, tax returns show. Since 2010, the groups’ debts have also exceeded assets, such as cash and property.

Circle of Friends tax returns from 2006 and 2009.

Hampton said he has deferred more than $400,000 in salary owed to him because the organizations haven’t had enough cash to pay him. Hampton said these deferments are reported as liabilities.

Hampton’s groups also owed the IRS more than $100,000 in payroll taxes stemming from audits the agency conducted several years ago, according to its latest tax statements.

Owens, the former head of the IRS’s charities bureau, said operating at a loss for a number of years, maintaining negative net assets and delinquent payroll taxes are “pretty clear signs that the organizations are at risk” of financial failure.

Hampton’s nonprofits hired their own private auditor to review the organizations’ books.

Kenneth Taylor, a Falls Church-based auditor who completed audits of the two charities the past several years, said he didn’t see the need to formally question the solvency of either of Hampton’s nonprofits because they have cash flowing in every year.

Taylor also said he isn’t worried about Hampton’s organizations fulfilling their payroll tax obligations because they are on payment plans with the IRS.

If Hampton’s nonprofits become flush with cash at some point, Hampton stands to gain the salary he’s deferred.

Despite the fact that he hasn’t been able to fully pay himself, Hampton is hiring.

On Nov. 16, Hampton emailed staffers on Capitol Hill seeking applicants for a director of programs and communications position that would pay $73,000 annually. It’s unclear from where that money would come.

Accountability

Nonprofit organizations of all sorts are invariably led by boards of directors that, among their duties, provide financial oversight.

One of the board members who last decade provided financial oversight for Hampton’s Circle of Friends for American Veterans was an attorney later convicted of wire fraud for stealing money from a veterans charity of his own.

John Thomas Burch Jr., a Vietnam veteran and a former attorney in the U.S. Department of Veterans Affairs, ran the National Vietnam Veterans Foundation Inc.

After he left Hampton’s board, Burch was using his nonprofit’s “emergency assistance program” funds to pay women to have sex with him in hotels in Baltimore and inside his Rolls Royce, according to court documents filed by the U.S. Attorney’s office for the District of Columbia.

The New York attorney general’s office separately accused Burch of using the National Vietnam Veterans Foundation’s assets to pay for personal expenses, including travel, insurance, medical bills and parking. It also questioned the foundation’s fundraising practices.

Telemarketers captured about 90 percent of the tens of millions of dollars Burch’s National Vietnam Veterans Foundation raised in recent years. The telemarketing firm that earned the most? Outreach Calling, the same firm used by Hampton’s veterans organizations.

In November 2016, Burch settled a civil suit with the New York attorney general’s office, paying $100,000 in restitution, returning his $5,300 severance from the foundation and agreeing to cooperate with investigations into its fundraisers.

In June, Burch pleaded guilty to one count of wire fraud in the U.S. District Court for the District of Columbia. He was sentenced in October to five months in prison followed by 24 months of supervision, including five months of home detention.

At the sentencing hearing, Burch declined to comment to the Center for Public Integrity.

But as part of his settlement with the New York attorney general’s office, Burch wrote a letter of apology “to the millions of individuals that donated” to the National Vietnam Veterans Foundation, only to have most of their contributions fund anything but veterans programs.

“As donors, you put your trust in me to make sure that your donations helped veterans, not to pay fundraisers and finance my personal entertainment pursuits,” Burch wrote.

Hampton declined to discuss his relationship with Burch, likening the question to “McCarthyism.”

“Based on the news accounts I have seen,” Burch “got what he deserved and maybe even less,” Hampton said.

Political fundraising in an accountability vacuum

Hampton’s Circle of Friends was already bringing in more than $2 million a year in revenue in 2010 when he started the Put Vets First! PAC out of the same Falls Church office.

The PAC, which by law may promote and contribute money to politicians and political causes, didn’t report much financial activity early on, according to FEC records.

But starting in 2015, Put Vets First! contracted with Outreach Calling for telemarketing services.

Despite their high cost, Hampton said he chose to use Outreach Calling because they’re “the best in the industry” at raising funds.

During the 2016 election cycle, about $707,700 out of $782,200 in expenditures went to Outreach Calling.

About $25,600 was spent on unspecified “program services,” $6,100 was used on “program development” and $5,000 was spent on veterans advocacy. Four congressional candidate committees received $1,000 apiece, for $4,000 total.

The rest — about $31,300 — was spent on salaries, bank fees, legal services, payroll taxes and accounting services.

In the first nine months of this year, FEC filings show Outreach Calling has received $1.3 million out of $1.5 million spent by the PAC. Hampton received $75,000. None of the money went to candidate committees.

So far, Put Vets First! PAC appears to be the only federal PAC using Outreach Calling as a fundraiser, according to an analysis of FEC filings.

But one of Outreach Calling’s subcontractors, Eatontown, N.J.-based Residential Programs, also has expanded from the charity world into politics. (Residential Programs did not respond to a message left in person or to several phone calls.)

The company is now raising money for the Coalition for American Veterans, a super PAC with a P.O. Box in Alexandria, Virginia. The treasurer for the super PAC, which may raise and spend unlimited amounts of money to advocate for and against politicians, is Brent Evans, who could not be reached for comment. A former treasurer, Thomas Datwyler, declined to comment.

Out of $646,500 the super PAC spent in the first nine months of this year, telemarketers have received more than $595,000. The rest has gone to fundraising consulting and bank fees, according to federal disclosure reports.

Colton Strawser, a spokesman for the Coalition for American Veterans, said the super PAC is spending a large portion of its money on fundraising because it recently reopened after a period of inactivity and is trying to grow.

Strawser would not divulge the identities of the founders of the super PAC. He said they did not wish to speak to a reporter.

Massachusetts resident Karen Tyler got a call on her cell phone from someone who wanted her to donate $100 to the Coalition for American Veterans.

Tyler, who works in the Massachusetts Department of Veterans Services, prefers to give to local charities, and she doesn’t respond to unsolicited requests for money, so she told the caller no.

“They said to me, ‘What do you mean? Don’t you care about veterans?’” Tyler recalled. “And I was like, ‘Hold on here. I eat, breathe and sleep veterans issues.’”

Paul S. Ryan, vice president of policy and litigation at Common Cause, said there’s no federal campaign finance law requirement that super PACs or any political committee actually spend money on elections.

“People who set up a super PAC could use the money to buy a yacht and sail off into the sunset drinking margaritas without violating any federal campaign finance law,” Ryan said. “Super PACs that depend on major donor funding would never do so because the political professionals who run the PACs would destroy their professional reputations.”

As so-called “non-connected committees,” the Coalition for American Veterans and the Put Vets First! PAC fall into a gap in regulation between the Federal Election Commission and the Federal Trade Commission, said Brett G. Kappel, government affairs and public policy partner with the law firm Akerman LLP.

“Unscrupulous people have moved into this gap and are taking advantage of it because it’s there,” Kappel said.

The FEC cannot change its regulations to address this gap unless the law is changed, Kappel said. FEC officials have asked Congress to expand its fraud jurisdiction for at least a decade, to no avail.

Brendan Fischer, director of the federal and FEC reform program at the Campaign Legal Center, said he hasn’t seen fundraisers in the charity realm moving into the largely unregulated world of political action committees, but it makes sense.

“I wouldn’t be surprised if opportunists, if fundraising opportunists, are seeing … PACs as a new way to make money off of unsuspecting, well-intentioned donors,” he said.

Sarbanes, a vocal opponent of super PACs, condemned their use as fundraising mechanisms.

“The bottom line is this,” Sarbanes said. “The more money that sloshes around in our political system, the more opportunity there’s going to be … to take advantage of that and try to make a fast buck.”