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Tuesday, July 8, 2014

Parent of Pep Direct in Wilton agrees to $24 million settlement in veterans-donation scheme

WILTON – The parent company of Pep Direct in Wilton has agreed to a $24.6 million settlement to resolve allegations that it used false claims about assistance for wounded veterans to solicit $116 million in donations over six years.

So much of the money was spent on marketing that the charity it represented is now in debt. ...

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WILTON – The parent company of Pep Direct in Wilton has agreed to a $24.6 million settlement to resolve allegations that it used false claims about assistance for wounded veterans to solicit $116 million in donations over six years.

So much of the money was spent on marketing that the charity it represented is now in debt.

The solicitations included letters that told emotional stories about veterans who don’t exist, according to a settlement announced last week by New York Attorney General Eric Schneiderman.

Quadriga Art and Convergence Direct Marketing, the direct-mail vendors for the Disabled Veterans National Foundation, allegedly misled potential donors and failed to disclose conflicts of interest, the settlement says. It paints a picture of the DVNF, an offshoot of a tiny Louisiana veterans group with an unpaid board of directors, being used as a “brand” for direct mailings that drew $116.3 million in donations from 2008-13, during which time $121 million was spent on marketing.

Pep Direct, a direct-mail marketing agency that has operated under various owners in Wilton for many decades, was bought by Quadriga 10 years ago. That purchase is marked by the large orange statue of the letter Q outside Pep Direct’s headquarters on Route 31. Quadriga has a major office in New York.

Pep Direct and a subsidiary, Pep Response Systems, works as a “cager,” an industry term for companies that collect and process donations for fundraising programs – tasks such as opening envelopes, depositing money and updating donor lists. In the June 30 settlement, Schneiderman’s office said Pep Direct and a subsidiary, Pep Response Systems, “served as DVNF’s ‘cager’, the entity that collects and processes donations received in response to DVNF’s direct mail campaigns from 2008 to present.”

Pep Direct’s facility was visited in 2009 by DVNF board members, in the early days of the arrangement.

A statement from Quadriga Arts blamed the problems on an “accelerated direct mail program” that “included a fundraising strategy that outpaced the charity’s programs and services. We mailed too much, and too quickly, for a young charity. We made mistakes that permitted donors to believe that greater programs were in operation before they could be fully realized.”

The statement promised that it had “taken steps to ensure that this situation will never occur again.”

As part of the settlement, Quadriga can not do business with DVNF.

It’s unclear what effect the settlement will have on Pep Direct, which has been doing a variety of direct-mail-related business in its current location since 1973. It was originally established as a nonprofit fundraising arm of the Paralyzed Veterans of America, a group which no longer exists.

The Quadriga fundraising program has been covered by CNN since 2010 and was the topic of a Senate Finance Committee investigation, as well as an investigation by the New York State Attorney General’s office that led to the recent settlement, legally called an “assurance of discontinuance.”

The document paints a complex picture of overlapping companies and organizations in a half-dozen states connected to DVNF, whose stated goal is to help veterans “who came home wounded or sick after defending our safety and freedom.”

The New York settlement names RBS, a Delaware-based holding company involved in the direct-marketing industry that was contracted in 2007 to help DVNF raise money. It is the parent of Quadriga and Pep Direct as well as several other companies, including Brick Mill Studios, which was created by a predecessor to Pep Direct.

These organizations and firms were so intertwined, the settlement says, that “clients, including DVNF, may not draw a distinction between the different corporate entities, and often refer to them collectively as Quadriga.”

The settlement alleges that in 2007 Brick Mill Studios convinced a small Louisiana not-for-profit called the National Association of State Women’s Veterans Coordinators, whose “principal activity is to hold an annual conference for its members,” to establish a new group called Disabled Veterans National Foundation, which hired Brick Mill as a fundraising consultant.

Almost immediately the group began soliciting donations on a vastly greater scale than DVNA had expected – one board member expected only $50,000 in total donations – with Pep Direct acting as “cager” for the money, the settlement says.

The settlement alleges that RBS took advantage of a type of direct-donation campaign known as “funded mailings,” in which the fundraising company rather than the charity itself takes control of the money-raising program. The program is designed to help start-up charities, the settlement states, but “may cause the charity and its fundraisers to authorize funded mailings that generate substantial donations but comparatively small proceeds for the charity.”

Since the 2007 agreement, the settlement says, the organization took in $116 million in donations, doing such things as paying $2.34 million to a man named Larry Rivers, who allegedly brought the groups together in the first place.

The settlement tells of excitement over the money that could be collected under the umbrella of the Disabled Veterans: “With the superior fundraising appeal of the DVNF brand … fundraising picked up steam in 2009” when gift-in-kind donations were accepted. Those gifts, such as clothing, support for shelter, and even vitamins sent to the veteran’s group, were poorly overseen, including a persistent failure “to direct the donated goods to support disabled veterans, or ensure that the goods had any useful purpose at all.”

The settlement described solicitation letters, “mailed by the Quadriga entities on behalf of DVNF,” that contained “numerous misleading statements” about the foundation and the people it helped.

Solicitations said DVNF “helps specific veterans, movingly described in the solicitation letters,” yet “many of these characters are either fictional or composite figures compiled from the stories of veterans who may or may not have had any connection with DVNF.”

One letter, cited in the settlement, talks of an Afghanistan veteran named Arnie and goes into great detail about his injuries and how DVNF found him – yet Arnie doesn’t exist.

David Brooks can be reached at 594-6531 or dbrooks@nashua
telegraph.com. Also, follow Brooks on Twitter (@GraniteGeek).