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What the Supreme Court's Decision in Madigan
v. Telemarketing Associates Means for Fundraising
The
Court’s Decision
On May 5, 2003, the United States Supreme Court issued a
unanimous decision in Madigan v.
Telemarketing Associates, allowing states to pursue fraud
charges against fundraisers who intentionally mislead donors
while reaffirming its earlier decisions that high fundraising
costs or failure to disclose the terms of fundraising contracts
are not adequate measures of fraud.
As
Independent Sector and other
nonprofit organizations had asked it to do, the Court reaffirmed
the principles established in three earlier Supreme Court
decisions (Schaumburg, Munson, and Riley) stating that
charitable solicitation is protected speech under the First
Amendment. However, the Court clearly stated that the First
Amendment does not shield fraud and that the Constitution allows
a state to prosecute a fraud case based on misleading
“affirmative misrepresentations” about how donations will be
used. The Court made clear that these affirmative
misrepresentations can be the basis of a fraud case, but that a
fraud case cannot be made only on the basis of high fundraising
costs or failure to disclose the terms of a telemarketing
contract.
To successfully prove fraud, the state of Illinois must prove
that the fundraiser knowingly provided incorrect information,
intended to mislead the listener, and that the fundraiser did in
fact succeed at misleading the donor. The state bears the burden
of proof.
The Supreme Court sent the case back to Illinois to proceed with
a new trial against Telemarketing Associates and instructed that
the state should build its case by using evidence that the
telemarketing firm lied about the amount of funds that would be
going to the charity.
Independent Sectorwill be
monitoring the development and outcome of this new case. |
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Madigan v.
Telemarketing Associates
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What This Means for Fraud Prosecutions
While in the past the law allowed prosecutions for fraud based on
affirmative misrepresentations, this new decision gives clearer
direction to state charity officials about what can and cannot be
considered. In this environment of heightened scrutiny of nonprofit
operations, we expect that several states will renew their efforts
to pursue fraud cases against charities or fundraisers that are
misleading the public. Responsible charities can only benefit
from vigorous prosecution of those who commit fraud in the name of
charity.
What This Means for the Nonprofit Community
Charitable organizations—and the fundraisers they employ—should be
held to the highest standards of transparency and accountability.
This Supreme Court case, heightened scrutiny by policymakers, and
increased media attention across the country demonstrate the
importance of nonprofits living up to high standards of
accountability.
Leaders of individual nonprofit leaders should ensure full
compliance with the spirit and letter of the
law. Suggested actions include:
- Developing a process for review of any
fundraising contracts that involves competitive bidding, board
review of major contracts, and regular re-assessment and
negotiation.
- Reevaluating fundraising operations and
communications with donors to ensure
transparency and honesty.
- Ensuring that all solicitations made on an
organization’s behalf—whether by staff,
volunteers, contracted solicitors, or other partners, and whether
through telephone, mail, or electronic means—allow donors to be
fully informed about the use of their gifts.
- Fostering a culture of accountability and
ethics within the organization.
Last Updated May 19, 2003
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Copyright ©
2004 Independent Sector. All Rights Reserved.
