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So Dark The Con of Men

I recently read that Aaron Tonken, convicted felon who defrauded charities, celebrities and politicians alike is out of prison now working on his second book (his first one is at the left) and eager to consult with you on your next fundraiser, although he's legally barred from handling money or fund raising directly. You can find him him on LinkedIn and Facebook.

He tells the Los Angeles Times that he's a changed man, properly medicated and emotionally stable.

A charity I worked for partnered with Tonken who went to prison in 2003 for fraud. The charity lost $100,000 due to Tonken’s machinations, but we recovered the money in full within weeks and well before his prosecution and conviction.

That same charity nearly did a deal with Cameron Lewis, who is in prison in Minnesota for defrauding hundreds of school districts of nearly $40 million using a now-defunct charity called the National School Fitness Foundation (NSFF).

The fraud amounted to a Ponzi scheme.

I knew Cameron. Met him the first time over lunch at a Chinese restaurant along with several of his board members. I met with him subsequently a half-dozen more times. He had a certain charisma.

Tonken, unlike Lewis had no discernible charisma and a farrago of speech impediments and facial tics. Even in small group settings he was twitchy as a cat in a room full of wheelchairs.

What both men shared in common is that they were accomplished fabulists. When Lewis explained how the NSFF was paying for the fitness equipment, it seemed plausible.

When Tonken told you that he could get Cher, or the Backstreet Boys, or Diana Ross to your event, you believed him, in no small measure because there was that tape of Bill and Hillary Clinton toasting him at a star-studded 2000 Hollywood fundraiser, which Tonken produced.

The fact that Tonken told you what celebrities he could deliver for your charity event while George Hamilton sat next to him at dinner nodding agreeably only helped. Likewise, Lewis hired competent and honorable people, who themselves had no part in the fraud, but who believed in and spoke persuasively about the NSFF’s mission.

There are people out there who by dint of personality or sociopathic immorality are capable of defrauding well-meaning and otherwise prudent charities.

So how do you keep your charity’s nose clean?
  1. The test of time. Like all Ponzi schemes, the earliest participants do just fine. The NSFF was able to make equipment payments for the initial school districts with the earnest money paid by the ensuing school districts. But the whole NSFF enterprise rose and collapsed within the space of five years. If as a school district you said no to the NSFF the first time around, by the second time they came around it was all over but the shouting.
  2. Don’t be seduced by celebrity flash. Two of Tonken’s more common techniques for securing celebrity support was the use of expensive gifts (watches, jewelry and the like), and by making large pledges or actual donations to the celebrity’s own charity. Both were paid for with someone else’s money. For his part Lewis successfully wooed a number of prominent politicians, who publicly hailed the work of the Foundation. If you looked no deeper than the celebrity involvement or implied political endorsement, you were likely sunk.
  3. Don’t dismiss niggling doubts out of hand. The cost of the fitness equipment to each school cost in Lewis’s scheme was something like $50,000, which the NSFF pledged to repay in full. But there was no legitimate revenue stream to cover that expense. My mind reeled when Cameron first laid out those numbers. There’s about 90,000 public schools in the United States and 90,000 multiplied by $50,000 is $4.5 billion! There’s not too many $4.5 billion charities in the United States. But I said to myself, “they seem like capable people. Surely they’ve figured out something that isn’t apparent to me.”
  4. Curb your enthusiasm. The schools got sucked in because of the epidemic of obesity in American children these days. The school districts desperately needed something that worked, and the NSFF had compelling evidence that their program was effective. Likewise, the charity I worked for desperately needed a splashy event that announced its arrival. What better way to do that than with a bunch of A-list celebrities in attendance?
This is hardly an exhaustive list. I’ve left out obvious things like having a competent accountant or lawyer look over agreements or books. That’s probably prudent, but one of Lewis’ own financial people, a sophisticated and principled CPA, didn’t smell a rat until he’d been there nearly a year; but when he smelled the stench of fraud, he immediately resigned. And in the case of Aaron Tonken, he wouldn’t have shown you his books if you’d have asked and didn’t have to because he was organized as a for-profit.

It probably wouldn’t have been that helpful to check references either. The first schools in the NSFF program were all delighted. Until Tonken's tell-all book came out, so was every celebrity he dealt with.

Comments

gcw said…
Excellent post. It's worth noting that between 1989 and 1995, 180 organizations and 150 of the most financially-savvy philanthropists in America fell victim to the largest fraud ever to occur in the non-profit sector. More than $400 million was invested with the Foundation for New Era Philanthropy in what turned out to be a grand Ponzi scheme.

I was a new hire as media director for an international organization in 1994 when when informed of our ongoing role with New Era. we had invested $500K six months earlier. The president of the organization commented in a staff meeting (my first) that if New Era could hang on to our $1 million for six months, they would double our return.

My comment at the time was, "Gee, in San Diego we called that sort of game Airplane." As a new hire, I wasn't given a lot of credibility at the time. Six months later to the day, the WSJ had New Era's collapse as their lead story on Page One. Of course, we were listed on Page Two as one of the victims.

As media director, my job then became keeping the media alligators away from our door while the board tried to figure out how to restructure the organization to keep us afloat. It all ended well, but only because the board stepped up to the plate to compensate for the initial lost investment.

To this day, I'm amazed when I hear of another Ponzi crashing and burning. I guess people will never learn on either end of the equation.
Hi GCW:

Thanks for your comments. I think you hit the nail on the head. Nonprofits get greedy, too, and a skillful operator can play on that.

Your comments reminded me of a time when I was in Venice, Italy on the Academia Bridge. There were a couple of guys running a ball in the cup scam and this German fellow and his son were playing. I thought, man has this guy never seen this simple scam before?

Again, thanks for your insight.


Warm regards,
Paul
Aaron said…
Several things that you write are correct. However, some people do change and make it right. In the past five years I have personally paid back over 2.3 million to the Federal Government that went back to the victims plus recovered almost 2 million more for the State of California victims. All on record in the courts. I got and asked for nothing for my cooperation. The benefit I received was something else. Inner peace... That took commitment, dedication and with one goal in mind to do the right thing. My goal in my consulting firm is to help and teach non-profit organizations different ways to be able to raise and keep as much money as possible going straight to the cause. Thus far, I have only donated my time services to those charities that have sought my expertise.

The press doesn't care to write stories on real charity fraud going on in their community or pick and choose who they want to expose. It is interesting though that there are charities right here in Beverly Hills, California that none of the money goes to their cause yet they throw lavish galas every year for themselves and self-promote. Spending all the money on expenses and those same people are listed in the Forbes 400. I recommend everyone go to: charity naviator (google).
Faithful Readers:

The comment above is apparently from Aaron Tonken, and it when I received it took me completely by surprise.

In his profile in the Los Angeles Times... linked to in the Post above... Mr. Tonken makes many of the same assertions: that his time in prison, a conversion to Christianity, and the fact that he is now properly medicated, have changed him for the better.

I sincerely hope that that is the case.

Warm regards,
Paul

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