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76 Fake Charities Shared a Mailbox. The I.R.S. Kept Approving More.


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 change into a tax-exempt nonprofit in 2020, it listed its deal with as a rented mailbox on Staten Island. It was not the American Cancer Society, both: In truth, the true American Cancer Society had already warned the I.R.S. that the chief of the sound-alike group, Ian Hosang, was working a fraud.

The I.R.S. approved the group anyway. Soon after, it additionally authorized one other operation run by Mr. Hosang: “the United Way of Ohio,” which was additionally registered to the Staten Island deal with.

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 concerning the I.R.S.’s potential 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 once accused of dangling a man out of a constructing — obtained the I.R.S. to approve 76 nonprofits, usually regardless of evident crimson flags of potential fraud. His operations stole the names of better-known charities. They claimed to be situated the place they clearly weren’t.

But the I.R.S. stored 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 budget cuts that now denies just one software in 2,400, based on company statistics.

“Nobody’s watching the store,” mentioned Nina E. Olson, who was the I.R.S.’s in-house nationwide taxpayer advocate from 2001 to 2019 and warned repeatedly concerning 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 prices of grand larceny, identification theft and conducting a scheme to defraud. He has pleaded not responsible. The Brooklyn district lawyer mentioned he stole about $152,000 in donations that flowed via 23 of his nonprofits. Mr. Hosang didn’t must 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 mentioned, spent the cash on mortgage funds, bank card payments and at liquor shops.

“I did very wrong. I know that,” Mr. Hosang mentioned in an emotional interview with The New York Times at his residence in Staten Island. His voice breaking, Mr. Hosang mentioned he had modified his life after a near-death spike in blood sugar in 2020, which he took as a signal from God. He mentioned he wished to make restitution for what he had executed.

But, Mr. Hosang identified, each certainly one of his charities had been authorized.

“If you file something with an agency,” he mentioned, “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 side of Wall Street — accused of working “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 worked with an associate of the Gambino crime household. Once, when a rival visited to complain, investigators mentioned, 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 guilty to federal prices of fraud and cash laundering. Mr. Hosang’s lawyer, Yusuf El Ashmawy, mentioned Mr. Hosang cooperated with authorities and helped convict 150 folks. He spent about two years in federal jail, based on federal information.

After his launch, Mr. Hosang centered on a new enterprise. In 2014, federal information 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 related to the American Cancer Society.

“I got sidetracked. My son passed away,” Mr. Hosang mentioned within the interview at his residence, explaining how he had turned to organising charities. “It was not a stable mind at the time.”

He started working the operation at a time when the company was already in poor health ready to detect indicators of fraud in new candidates.

The first drawback, based on former I.R.S. officers: Tax legislation doesn’t prohibit nonprofits from impersonating better-known nonprofits through the use of sound-alike names. The second: There aren’t any systematic checks for a historical past of fraud.

“You could be Jesse James or John Dillinger,” mentioned 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 mentioned, the I.R.S. paperwork as soon as provided a highly effective weapon towards potential fraudsters.

Examiners who suspected fraud might decelerate purposes by asking for monetary information, plans for the long run or details about their officers. The requests have been usually a bluff of types, supposed to discourage candidates from continuing, though 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 mentioned.

The company, in its written assertion, mentioned that staff reviewing new purposes “have been trained to identify fraud.”

Mr. Hosang nonetheless obtained via. Between 2014 and 2018, the company authorized 17 of his purposes for teams with “American Cancer Society” of their names, based on I.R.S. information.

That caught the eye of the true American Cancer Society. The group started contacting state attorneys basic, 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 strategy was gradual.

In 2018, the American Cancer Society determined it wanted a nationwide strategy. 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,’” mentioned 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 mentioned they by no means heard again from the I.R.S.

But then, in 2020, the company authorized 4 new teams related to Mr. Hosang: The “American Cancer Society” of Michigan. And of Detroit. And of Green Bay. And of Cleveland. Same Staten Island mailbox.

“Sometimes you can get away with things,” Ms. Biss mentioned. “Not because you were so smart but because the people who were supposed to be watching out were not.”

As it turned out, Mr. Hosang had switched to utilizing a new I.R.S. process for smaller charities. The new program was established in 2014, in response to funds cuts and a scandal by which the company was accused of targeting conservative groups for undue scrutiny.

The new “EZ” software stripped 11 pages of questions down to a few, 9 containers 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 paperwork. The denial price for brand new charities — which had been as excessive as one in 53 candidates within the previous system — fell to at least one in 2,400 on this one.

One 2019 study by the company’s taxpayer advocate discovered that 46 p.c of the candidates it authorized weren’t really certified, often as a result of their charters didn’t conform to charity legislation. It additionally famous that the “mission statements” have been usually so obscure as to be ineffective. In 2021, federal records show, the I.R.S. authorized teams whose mission statements have been, of their entirety, “CHARITABLE ACTIVITY,” “NON-PROFIT” and “Need to fill in” (presumably a forgotten notice to self).

Mr. Hosang switched to the fast-track system in 2019, based on company information. His mailbox in Staten Island was the identical. The crimson flags have been nonetheless crimson: Among the “directors” listed in these supposed charities, there was a long-dead classmate from N.Y.U., a long-estranged pal from Wall Street, and not less than 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 obtained the I.R.S. to approve 56 new charities.

Zachary Weinsteiger, on the nonprofit-rating group Charity Navigator, mentioned his group’s analysts had observed the sample within the I.R.S.’s information — and mentioned it grew to become virtually 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 mentioned. “He keeps crossing the border, and everyone keeps thinking he’s a different person.”

But Mr. Weinsteiger mentioned 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 alerts to state governments and potential donors that a charity is reliable. It alerts to web giving platforms that a charity is value 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, mentioned Ted Hart, chief govt of Charities Aid Foundation America, certainly one of a number of on-line giving platforms that allowed donors to offer to Mr. Hosang’s teams after they have been authorized. Mr. Hosang stole greater than $3,000 via their platform, based on the indictment in May.

“We need to be able to trust this list” of charities authorized by the I.R.S., Mr. Hart mentioned, or donors will probably be misled once more.

When the fast-track course of was created, the company mentioned it would free up personnel to look at current nonprofits. Instead, because the service’s manpower has shrunk, these examinations have declined by 45 p.c since 2013, based on 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 fully.

“This form is doing damage,” mentioned 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 mentioned 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 mentioned. “He’s hurt by this.”



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