A group of 16 state attorneys general reached a deal with a Tennessee nonprofit charged with violating state law with its “Operation Teddy Bear” program.
Operation Troop Aid (OTA) engaged in a co-venturing relationship with Harris Jewelry, a retail jewelry store chain that specifically markets and sells to servicemembers. Together, OTA and Harris created Operation Teddy Bear, with teddy bears of various sizes dressed in military uniforms sold at Harris retail stores. Depending on the size of each bear sold, a fixed dollar amount was to be donated to OTA for the express purpose of sending care packages to servicemembers.
But OTA—and its founder, president and chief executive officer Mark Woods—ran afoul of Tennessee’s Consumer Protection Act between 2012 and 2017, when the program was in place, the AGs said.
“OTA acknowledges that it never undertook any oversight of Harris Jewelry’s Operation Teddy Bear, which was consistently publicly advertised as a promotion to support OTA,” according to the Agreed Final Judgment. “OTA never requested an accounting of the numbers of bears sold, nor sought any information from Harris Jewelry as to the appropriateness of the per-bear dollar figure that was purportedly sent to OTA. Moreover, OTA never provided Harris Jewelry with any specific or documented information as to how the funds donated by Harris Jewelry were used or how many care packages were sent to servicemembers.”
In addition, the defendants admitted that OTA failed to segregate any donated funds as restricted funds, even when designated for a particular purpose, and that the funds were improperly expended on noncharitable purposes.
“[B]oth in how it conducted the co-venture with Harris Jewelry, and for using donated funds for purposes other than those expressly represented as the charitable purpose of OTA, Defendants acknowledge that they engaged in unfair, false, misleading, or deceptive solicitation and business practices,” the Agreed Final Judgment stated.
The AGs—representing California, Delaware, Georgia, Idaho, Illinois, Kansas, Louisiana, Maryland, Nevada, New York, North Carolina, Pennsylvania, Tennessee, Virginia and Washington, along with the Hawaii Office of Consumer Protection—settled the charges with a permanent injunction against the defendants. OTA agreed to dissolve its operations and corporate identity, and Woods promised to refrain from certain involvement with nonprofit corporations, charitable organizations and charitable trusts.
A $10,000 civil penalty assessed against the defendants will be held in abeyance unless OTA and/or Woods fails to fully comply with the terms of the Agreed Final Judgment.
To read the Agreed Final Judgment in Tennessee v. Operation Troop Aid, Inc., click here.
Why it matters: The AGs’ charges of operating a deceptive marketing campaign and failing to supervise the co-venturing relationship as required by charities statutes provide an important reminder to businesses involved in charitable efforts that they must ensure compliance with all relevant state laws. In combination with the recent launch of “Operation Donate with Honor,” a crackdown by the Federal Trade Commission on fraudulent charities that deceive consumers by falsely promising their donations will help veterans and servicemembers, it appears as if enforcement against charities and their partners is on the rise.