The “American Cancer Society of Michigan,” state authorities say, was a faux charity. And not even a good faux.
It was not in Michigan, for one factor. When the group utilized to the Internal Revenue Service to turn into a tax-exempt nonprofit in 2020, it listed its handle as a rented mailbox on Staten Island. It was not the American Cancer Society, both: In reality, the true American Cancer Society had already warned the I.R.S. that the chief of the sound-alike group, Ian Hosang, was operating a fraud.
The I.R.S. approved the group anyway. Soon after, it additionally permitted one other operation run by Mr. Hosang: “the United Way of Ohio,” which was additionally registered to the Staten Island handle.
Mr. Hosang, 63, is now accused by prosecutors in New York of working a long-running charity fraud that has astounded nonprofit regulators and watchdogs — and raised considerations in regards to the I.R.S.’s capability to function gatekeeper for the American charity system.
Not as a result of the alleged scheme was so good.
Because it was horrible. And it labored.
Mr. Hosang — a convicted stock-market fraudster as soon as accused of dangling a man out of a constructing — acquired the I.R.S. to approve 76 nonprofits, usually regardless of evident pink flags of potential fraud. His operations stole the names of better-known charities. They claimed to be positioned the place they clearly weren’t.
But the I.R.S. saved saying sure. And in doing so, the company has attracted scrutiny of its new fast-track system for approving charities — an innovation carried out to take care of backlogs and price range cuts that now denies just one software in 2,400, in line with company statistics.
“Nobody’s watching the store,” stated Nina E. Olson, who was the I.R.S.’s in-house nationwide taxpayer advocate from 2001 to 2019 and warned repeatedly in regards to the decreased degree of vetting. “They’re the gatekeeper to this whole universe of charitable subsidies. And if the I.R.S. is not doing its job as a gatekeeper, then you’ve got real problems.”
The company declined to reply questions on Mr. Hosang’s case, citing taxpayer privateness legal guidelines. It additionally declined to make officers accessible for in-person interviews, however it launched a written assertion saying that the fast-track approval system “continues to reduce taxpayer burden and increase cost effectiveness of I.R.S. operations.”
Mr. Hosang, was indicted in Brooklyn in May, on fees of grand larceny, identification theft and conducting a scheme to defraud. He has pleaded not responsible. The Brooklyn district lawyer stated he stole about $152,000 in donations that flowed via 23 of his nonprofits. Mr. Hosang didn’t have to do a lot to advertise the teams; the cash got here in via on-line giving platforms that permit customers select amongst I.R.S.-approved charities.
Mr. Hosang, prosecutors stated, spent the cash on mortgage funds, bank card payments and at liquor shops.
“I did very wrong. I know that,” Mr. Hosang stated in an emotional interview with The New York Times at his residence in Staten Island. His voice breaking, Mr. Hosang stated he had modified his life after a near-death spike in blood sugar in 2020, which he took as a signal from God. He stated he needed to make restitution for what he had executed.
But, Mr. Hosang identified, each one among his charities had been permitted.
“If you file something with an agency,” he stated, “and they approve it, do you think it’s illegal?”
Mr. Hosang was born in Trinidad, grew up in Brooklyn, and graduated from New York University in 1984 with a diploma in finance. He wound up on the ugly aspect of Wall Street — accused of operating “pump and dump” operations that conned prospects into paying excessive costs for low-quality shares.
Prosecutors later said Mr. Hosang and his associates recruited salesmen on the subway, rewarded them with marijuana and labored with an affiliate of the Gambino crime household. Once, when a rival visited to complain, investigators stated, Mr. Hosang and the mob affiliate “dangled him out the window of the ninth-floor office.”
In 1997, he was barred from the industry by a self-regulatory physique then known as the National Association of Securities Dealers.
In 1999, he pleaded responsible to federal fees of fraud and cash laundering. Mr. Hosang’s lawyer, Yusuf El Ashmawy, stated Mr. Hosang cooperated with authorities and helped convict 150 folks. He spent about two years in federal jail, in line with federal data.
After his launch, Mr. Hosang targeted on a new enterprise. In 2014, federal data present, he requested the I.R.S. to approve tax exemption for a new nonprofit: “The American Cancer Society for Children, Inc.” It wasn’t linked to the American Cancer Society.
“I got sidetracked. My son passed away,” Mr. Hosang stated within the interview at his residence, explaining how he had turned to establishing charities. “It was not a stable mind at the time.”
He started operating the operation at a time when the company was already unwell ready to detect indicators of fraud in new candidates.
The first drawback, in line with former I.R.S. officers: Tax legislation doesn’t prohibit nonprofits from impersonating better-known nonprofits by utilizing sound-alike names. The second: There are not any systematic checks for a historical past of fraud.
“You could be Jesse James or John Dillinger,” stated Marcus S. Owens, who headed the company’s tax-exempt part till 2000 and now represents charities on the legislation agency Loeb & Loeb. “There’s nothing that says you can’t apply for tax-exempt status from a jail cell, having been convicted of charity fraud.”
Still, former officers stated, the I.R.S. forms as soon as provided a highly effective weapon in opposition to potential fraudsters.
Examiners who suspected fraud may decelerate purposes by asking for monetary data, plans for the long run or details about their officers. The requests had been usually a bluff of types, supposed to discourage candidates from continuing, despite the fact that the company had little energy to dam them in the event that they pressed forward.
“Congress hasn’t given the I.R.S. authorization to issue rules to make sure charities are not run by crooks,” Mr. Owens stated.
The company, in its written assertion, stated that workers reviewing new purposes “have been trained to identify fraud.”
Mr. Hosang nonetheless acquired via. Between 2014 and 2018, the company permitted 17 of his purposes for teams with “American Cancer Society” of their names, in line with I.R.S. data.
That caught the eye of the true American Cancer Society. The group started contacting state attorneys normal, who usually have the ability to close down fraudulent nonprofits of their jurisdictions. That labored in North Dakota, Washington and California, however the state-by-state method was gradual.
In 2018, the American Cancer Society determined it wanted a nationwide method. It wrote to the I.R.S., laying out the sample it had recognized in Mr. Hosang’s teams.
“It feels a little like ‘Scooby Doo,’” stated Meghan Biss, a former I.R.S. lawyer who represented the American Cancer Society. “It shouldn’t have been that hard to figure out who the bad guy was.”
“Using the exact same mailing address? ‘I am the American Cancer Society of, like, 19 different cities?’ she said, adding, “That didn’t raise flags to anyone?”
American Cancer Society officers stated they by no means heard again from the I.R.S.
“Sometimes you can get away with things,” Ms. Biss stated. (*76*)
As it turned out, Mr. Hosang had switched to utilizing a new I.R.S. course of for smaller charities. The new program was established in 2014, in response to price range cuts and a scandal wherein the company was accused of concentrating on conservative teams for undue scrutiny.
The new “EZ” software stripped 11 pages of questions down to a few, 9 bins to verify and a small clean for teams to explain their mission. There was little room for I.R.S. officers to mire suspected scammers in forms. The denial price for brand spanking new charities — which had been as excessive as one in 53 candidates within the outdated system — fell to at least one in 2,400 on this one.
One 2019 study by the company’s taxpayer advocate discovered that 46 % of the candidates it permitted weren’t truly certified, often as a result of their charters didn’t conform to charity legislation. It additionally famous that the “mission statements” had been usually so obscure as to be ineffective. In 2021, federal records show, the I.R.S. permitted teams whose mission statements had been, of their entirety, “CHARITABLE ACTIVITY,” “NON-PROFIT” and “Need to fill in” (probably a forgotten notice to self).
Mr. Hosang switched to the fast-track system in 2019, in line with company data. His mailbox in Staten Island was the identical. The pink flags had been nonetheless pink: Among the “directors” listed in these supposed charities, there was a long-dead classmate from N.Y.U., a long-estranged good friend from Wall Street, and at the least one one who gave the impression to be imaginary, dwelling on a avenue in Brooklyn that doesn’t exist.
But, regardless of the American Cancer Society’s warning, Mr. Hosang was much more profitable than earlier than: In two years of utilizing the fast-track system, Mr. Hosang acquired the I.R.S. to approve 56 new charities.
Zachary Weinsteiger, on the nonprofit-rating group Charity Navigator, stated his group’s analysts had seen the sample within the I.R.S.’s knowledge — and stated it grew to become nearly comedian, like a single miscreant fooling the identical border guards with unhealthy disguises.
“One guy coming in, in a bunch of dollar-store costume pieces,” Mr. Weinsteiger stated. “He keeps crossing the border, and everyone keeps thinking he’s a different person.”
But Mr. Weinsteiger stated Mr. Hosang’s success highlighted an unsettling drawback. The total regulatory system for U.S. charities rests on the I.R.S.’s vetting course of. Its approval indicators to state governments and potential donors that a charity is authentic. It indicators to web giving platforms that a charity is price together with.
“It would be very expensive to do background checks on all the charities the I.R.S. has already approved,” since there are 1.4 million of them, stated Ted Hart, chief govt of Charities Aid Foundation America, one among a number of on-line giving platforms that allowed donors to present to Mr. Hosang’s teams after they had been permitted. Mr. Hosang stole greater than $3,000 via their platform, in line with the indictment in May.
“We need to be able to trust this list” of charities permitted by the I.R.S., Mr. Hart stated, or donors shall be misled once more.
When the fast-track course of was created, the company stated it could unlock personnel to look at current nonprofits. Instead, because the service’s manpower has shrunk, these examinations have declined by 45 % since 2013, in line with I.R.S. figures.
State charity regulators have asked the Federal Trade Commission to ban charities from impersonating better-known teams. In Congress, Representatives Betty McCollum, Democrat of Minnesota, and Fred Upton, Republican of Michigan, have launched a bill that scraps the “EZ” kind and fast-track system totally.
“This form is doing damage,” stated Ben Kershaw of Independent Sector, a nonprofit affiliation that helps the invoice. “It needs to be stopped now.”
In New York, Mr. Hosang’s lawyer stated he’s in plea negotiations with prosecutors and “intends to make full restitution.”
“He’s in no shape to go to jail,” Mr. El Ashmawy stated. “He’s hurt by this.”