legal implications of fundraising via social media bob carlson missouri attorney general’s office...

Legal Implications of Fundraising via Social Media

Bob CarlsonMissouri Attorney General’s Office

Jeremy SherPresident, Grassroots Giving

Group, Inc.

We ♥ Question

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Attorney General’s Powers

Attorney General oversees charitable solicitations1. As Guardian of Charitable Assets, and2. Under State consumer fraud laws.

Aggressively pursue fraudulent solicitations and other deceptive practices.

Maintain registration of nonprofits and professional fundraisers who solicit donations.

Attorneys General are active

States are more active than most realize Cases go unreported AGO’s exercise discretion so to preserve nonprofits

fundraising abilityEx: Missouri is a mid-sized state with mid-sized

staff. 80 to 100 cases or investigations per year.

Everything under nonprofit authority Follow up on more complaints too

Interested and active in online solicitations, too Remember: we can see these from our desks

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AboutGrassroots Giving Group

Consulting on Internet fundraising issuesFocus on ethics/transparency, public policyPotential new fundraising websites in beta

testing Informed by political fundraising experience

-- Tightly regulated sector (nonprofit space

does not need regulations that tight)

-- A system that basically works; can inform

nonprofit “conduit” policy

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Where we’re going today

1. Attorney General and/or Secretary of State powers for registration and fraud laws

2. Legal bounds of our jurisdiction over online solicitations

3. Who needs to register?4. Who is a professional fundraiser?5. Other, new considerations

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Overview of fundraising laws

1. Failure to register If you solicit donations, you may need to register in the

states in which you solicit Consequences may be severe. On September 2, 2008

Pennsylvania obtained a judgment of over $1,290,000 for failure to register

2. Misrepresentations or fraud Obviously, fraud and misrepresentations in soliciting

donations are forbidden But….


Registration with statesIn General,1. If a nonprofit solicits donations, it

must register with the AGO or SOS

o Some exceptions

2. All Professional Fundraisers must register with the AGO or SOS

Few exceptions here3. Fundraising

Counsel/Consultant may have to register

Overview of fundraising laws Who Must Register?

1. Charitable organization, any person or entity who solicits funds for any charitable purpose.§ 407.453(2), RSMo

2. Professional fund-raiser,any person or entity who is retained under contract or otherwise compensated by a charitable organization primarily for the purpose of soliciting funds.§ 407.453(4), RSMo “Professional fund-raiser” doesn’t include bona fide

employees of charitable organizations who receive regular compensation.

Salaried development directors are usually exempt

3. Fundraising Counsel/Consultant

Definitions do vary by state but concepts are similar


Common registration exceptions• Who Doesn’t have to Register? (Missouri list)

• Religious organizations (breadth of definition varies)• Educational institutions and their related

foundations; An institution with a defined curriculum, student body and

faculty, and which conducts classes on a regular basis; Bob’s Fantasy Football Institute does not count

• Fraternal, benevolent, social, educational, alumni, and historical organizations, when solicitation is confined to the membership of such organizations or auxiliaries;

• Hospitals and auxiliaries of hospitals,

Exceptions vary by state, these are the most common

Overview of fundraising laws Misrepresentations in Solicitations

Missouri example: The use by any person of any deception, fraud, false pretense, false promise, misrepresentation…. in connection with the solicitation of any funds for any charitable purpose, is declared to be an unlawful practice.

Penalties can be severeIn Missouri: $1,000 per actionIn Arkansas: $10,000 per violation

Expectation of aggressive enforcementObviously, misrepresentations in soliciting donations are

forbidden. But social media and online soliciting have created more

opportunities for inadvertent (or intentional) violations

The Questionswe get about online fundraising

1. How do I know what states I need to register in?

2. How do I assure that I don’t violate laws forbidding misrepresentations and other malarkey in online solicitations?

And if my nonprofit does mess up, who is going to take action?

Please don’t mess up. We have a whole sector to protect and don’t need good organizations doing stupid things while we’re trying to protect them.

3. What else has changed?

Going to try to provide the tools to find the answers 12

New Issues for Conduit Fundraisers

Reasonable User ExpectationsNo current vendor is in trouble. These are just

questions and potential complications to watch out for as the market evolves. Regulators can help the sector grow in a healthy way.

Disbursement of Donated Funds Regardless of fine print, the donor expects their designated

organization to receive their funds. Donor expects their funds to be forwarded timely. Donor expects to be credited for the full amount of their gift,

even if a transaction fee is deducted. Donor will be shocked if their funds are commingled with

somebody else’s operating budget. They did not consent to make a zero-interest loan to a portal operator. (e.g. PipeVine)

Ownership of Data Regardless of conduit ownership, nonprofits need their data.

What the courts say about jurisdiction

A state (and its AG) have jurisdiction if the organization has “minimum contacts” with state, and “purposefully avails itself of the privilege of conducting activities within that forum state, thus invoking the benefits and protections of its laws.”

The Zippo test (952 F. Supp. 1119 (W.D. Pa. 1997)). If a Web site is passive andmerely posts information,

there is no jurisdiction. If a Web site is interactive, there may be jurisdiction If “clearly doing business” online, there is jurisdiction.

Accepting donations could be “doing business.” 15 years after Zippo, very few websites are “passive.” 14

What the courts say, part 2

Calder v. Jones 465 U.S. 783, 789 (1984) Intend to direct activities into a certain state

A/k/a “purposeful availment”

Intent has two interpretations1. Grokster/Kazaa purposefully availed themselves

of doings business in California because they knew significant number of users were from California.

Actual intent to go to CA was not necessary MGM Studios, Inc. v. Grokster 243 F.Supp.2d 1073,

1087 (C.D. Cal. 2003).2. Other jurisdictions require actual intent.

Tamburo v. Dworkin, 601 F.3d 693, 704 (7th Cir. 2010). 15

What that means1. Misrepresentations and deceptive acts

If a donor in a state is the victim of a deceptive act, there is jurisdiction. Transaction = “Doing business”

Courts will allow AG’s and SOS’s to protect their citizens

2. Registration Jurisdiction to require registration is based on

“purposeful availment” and “intent to direct” Means: One Big Grey Area Charleston Principles

Recommended guidelines from NASCO Adopted 2001 – technologically rather behind the times In general, not enacted into law; just ethical guidelines

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The Charleston Principles Written in 2001, i.e. well before Mark Zuckerberg got shot

down on a date, went back to his dorm, and created Facebook while drinking away his sorrows

Thus, language only addresses websites but based on same law as outlined above

Principles are still good, need to register if:1. In State where the nonprofit is domiciled (HQ, etc.)2. In other states if:

A. Specifically targets persons physically located in the state for solicitation, or

B. Receives contributions from the state on a repeated and ongoing basis or a substantial basis

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The Charleston Principles in 2011

Registration examples: What is “specifically target”?Posts on Twitter, Facebook, etc.Software platform, i.e. First Giving, Crowdrise,

changethepresent.org Platform (aka conduit) Those who use platform

Matching servicesNote actions of all involved matter, but not all may

need to register.

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Part II, Who & What1. Who is making the solicitation?

And thus needs to register

2. Who is considered a pro fundraiser? And thus needs to register

3. Who is considered responsible when deceptive acts happen?

And what you should do to protect yourself

4. What could be considered deceptive in 2011? The issues we’re seeing and are concerned

about

5. What is Charitable? 19

Part II, Who & What1. Who is making the

solicitation?Need a solicitation before any of these laws kick in

Missouri defines solicitation as: any request, either oral or written,….for funds, property, financial assistance or other thing of value

But who is soliciting? Example 1: doGoodr.com, probably notExample 2: changethepresent, it could beNote: all examples are good sites (if they were in

trouble, they would NOT be listed).

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Part II, Who & What2. Who is making the

solicitation? If you are making a solicitation, you must register


But who is soliciting?

Example 1: doGoodr.com, probably notNot compensated by the nonprofits who are listedContent is supplied by nonprofits, not

doGoodr.comDonation button goes to nonprofit’s website

Example 2: changethepresent, it could be

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Part II, Who & WhatWho is making the

solicitation? If you are making a solicitation, you must register


But who is soliciting?

Example 2: changethepresent, it could be1. Has cart for donations2. Fees are based on amount donated

Above and beyond the credit card fees3. Creates its own content4. Advisors give impression of vetting and

recommendationsTaken together, could be a “request for funds”

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Part II, Who & What 2. Who is considered a pro fundraiser?

If you’re a pro fundraiser, you need to registerMissouri definition: anyone who is retained under

contract or otherwise compensated by or on behalf of a charitable organization primarily for the purpose of soliciting funds.

Example1: The platform that somehow endorses Many sites provide online platform for charities to

build online presence. My fave: First Giving When could they be considered a pro fundraiser:

Place nonprofit into an issue portfolio, higher search rank, “featured” nonprofit – all for higher fee (or a fee)

All original content that requests funds, for a fee see definition

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Who is considered a pro fundraiser?

Examples 2 and 3: CrowdriseExample 2: A pro fundraiser is someone is

compensated by or on behalf of a charitable organization If create online presence to ask for funds and are

not compensated, not a pro fundraiser Like Will Ferrell in example

Example 3: Many entities in one place Although Will does not have to register, that does

not necessarily mean Crowdrise and the recipient nonprofit are off the hook.

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3. Who is responsible when deceptive acts happen?

I assume none of you intend to defraud folksExample: Mr. Scam and Ripoff Foundation create a page

on an otherwise legit online platform and collect $50,000 by claiming to help lemurs, but use funds for Mr. Scam’s Corvette

When is the platform responsible? Actual knowledge of fraudulent misuse = in trouble FTC v. Neovi , Defendant engaged in an unfair practice

thru its online services when it "engaged in a practice that facilitated and provided substantial assistance to a multitude of deceptive schemes.“ 604 F. 3d 1150

Means you must take some action to prevent being used as a facilitator for deceptive schemes.

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Who is considered responsible when deceptive acts happen

And what you should do to protect yourself

Need to do somethingThe specific actions depend on the services you

offer, but would suggest these four guideposts, you need a system that:1. Stops basic misuse automatically

Common examples2. Detects more sophisticated attempts at fraud3. Requires some active effort by you

no head in the sand4. Fixes flaws as they become known

Please cooperate with law enforcement29

4. What could be considered deceptive in 2011

Reasonable consumer standard Not a jaded, cynical nonprofit expert standard

Issues regulators have seen that cause concern:1. Failure to adequately disclose ALL fees

As stated: Disclose. All. Fees. Upfront. Stating 100% goes to nonprofit when PayPal gets 3% is not 100% honest

2. Holding money meant for another organization or cause for longer than reasonable.

3. Profile hi-jacking on platforms and other forms of ID theft

Platforms should aggressively watch for this4. Charging unnecessary fees

Saw one website that listed nonprofits then demanded joining fee to tweak address information.

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Remember:

We ♥ Question

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5. What is charitable? (c)(3) v. L3C v. LLC

For now, only actual nonprofits are… Check back next week though

But… Can you have a charitable solicitation for a for-

profit or low-profit entity? Many of our definitions only say “charitable purpose”

No distinction on recipient entity classification Where does Social Enterprise fall

See example

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Part III, Wait, there’s more

1.The Communications Decency Act

2.Older statutes that are still good law

3.Privacy issues (the sleeping giant)

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The Communications Decency Act

Section 230 of the Communications Decency Act (CDA), 47 U.S.C. § 230(e)(3) Gives providers of interactive computer services immunity from some state law claims.

The immunity is provided to service providers but not content providers. A service provider is completely passive and displays content that

is wholly provided by third-parties while a content provider displays content for which it is wholly or partly responsible.

A website can be both Can be immune for some content on its website and not immune

for other content. Could have immunity as long as the website isn’t encouraging

or facilitating unlawful conduct.

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Communications Decency Act Case examples

1. Roommates.com ran a website designed to match people renting out spare rooms with people looking for a place to live. Then it asked about gender, sexual orientation, and children.

Sued for Fair Housing Act violations, 521 F.3d 1157 (9th Cir. 2008). Not immune because CDA provides immunity only if the interactive

computer service does not ‘create or develop the information in whole or in part. By mandating information in violation of the FHA, Roommates.com was ‘developing’ that information rather than just passively allowing it to be posted.

2. Carafano v. Metrosplash.com, Inc., 339 F.3d 1119 (9th Cir. 2003).

Anonymous person created a profile for Carafano, an actress, on an internet dating site.

Website was immune because the libelous content was created “entirely by the user without prompting or help from the website” 36

Older statutes that are still good law

Laws created for good purposes years ago Obviously not in every state But, as I’ve been saying, you need to be aware of

these issues and respond to them. 1. Some states require that if you are going to

solicit for a nonprofit, you need its written permission

2. Some states require that funds solicited be placed into a bank account controlled by the nonprofit.

3. Others?37

Privacy issuesWell beyond the scope of this presentation

Will be important in the coming yearsSome general concepts:

1. Must protect data against theft2. Also, must disclose when will use or sell data

Data is an asset Donor lists, etc.

3. Remember what your donors and constituents expectations are.

If they believe you violated their privacy they won’t give and will tell their friends

Even if you violated no laws. 38

Contact InformationBob Carlson

Missouri Attorney General’s Office815 Olive St., St. Louis, MO 63101

314-340-6816 / 314-340-7957 (fax)[email protected]

Jeremy SherGrassroots Giving Group, Inc.

16 Union Park St., #7, Boston, MA 02118617-477-5825 / 617-249-0335 (fax)[email protected]

mailto:[email protected]

mailto:[email protected]

legal implications of fundraising via social media bob carlson missouri attorney general’s office...

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