CA AG Brings Enforcement Actions Against Charitable Platforms Omaze, Prizeo & Charitybuzz
The California Attorney General quietly brought enforcement actions against charity-fundraising platforms Omaze, Prizeo, and Charitybuzz last year – alleging that each operated as a commercial fundraiser for charitable purposes without registering or filing periodic reports, as mandated by California law.
Omaze
Omaze settled the claims in January 2020. The settlement revealed that Omaze had initially entered into an agreement with the California AG on May 2019, the purpose of which was to allow Omaze to continue operations while the AG investigated whether sweepstakes run on Omaze constituted illegal lotteries. (The difference between an illegal lottery and a lawful sweepstakes hinges on whether entrants are required to offer money or other consideration to participate or whether they can play for free.)
Omaze’s 2020 settlement superseded the May 2019 settlement and resolved both the lottery-related investigation and a dispute between the parties as to whether Omaze was operating as a commercial fundraiser. Under the new settlement, Omaze will:
Pay the AG’s Office $90,000 (in addition to $30,000 previously paid in fees/penalties, and a $125,000 stayed penalty that will be waived after five years of compliance with the agreement) ;
Take a number of steps to disclose the availability of a free entry mechanism for sweepstakes offered on its platform and to ensure that those who enter using the free method are provided equal treatment with those who make a donation to participate;
Comply with all CA requirements related to its activities fundraising for a charitable purpose; and
Not misrepresent its relationship with any charity or claim that it has a fundraising relationship with any charity unless it complies with CA’s requirements for commercial fundraisers in connection with that charity.
Per the settlement (and Omaze’s website), Omaze provides charitable fundraising services solely to Charities Aid Foundation America (CAFA). Monies raised via Omaze sweepstakes are provided to CAFA, which in turn provides them to an ultimate charity recipient. The settlement prohibits Omaze from falsely suggesting it has a direct relationship with the ultimate recipient unless it take the steps necessary to become a bona fide commercial fundraiser for that charity.
Prizeo & Charitybuzz
On November 22, 2019, the CA AG sent cease-and-desist orders to charitable fundraising platforms Prizeo and Charitybuzz. (Prizeo and Charitybuzz are operated by the same parent company, Charity Network.)
In each order, the AG concluded that the platform had been operating as a commercial fundraiser without satisfying CA’s registration and report-filing requirements. Each platform was ordered to immediately cease all operations in California or on behalf of a California charity and to distribute all charitable funds under its control. (Prizeo is based in LA, while Charitybuzz is based in NY.) Per the order, each platform is to be fined $1000 for failure to register as a charitable fundraiser and $100 each day a delinquent report remains outstanding.
Both Prizeo and Charitybuzz appealed and requested a hearing. In its appeal, each argued that it merely operates a platform that allows charities to conduct their own fundraising sweepstakes or auctions (as applicable) and that it does not itself solicit contributions to any charity in such a way that would render it a “commercial fundraiser” for purposes of California’s law.
Each also argued that, in 2018, the California legislature considered and failed to adopt a bill that would have expanded CA’s charitable fundraiser laws to specifically address platform operators like Prizeo or Charitybuzz. Prizeo and Charitybuzz argued that this legislative history undercuts the AG’s argument that CA’s existing law regarding commercial fundraisers already reaches Prizeo and Charitybuzz. Those appeals remain pending.
Take-Aways
As noted by InfoLawGroup’s Heather Nolan in her recent Adweek article (registration required; also available on our blog), there are many considerations to account for when contemplating a charitable promotion. For any business planning a long-term charitable campaign that will rely on a third-party platform, one consideration is whether there is any reason to suspect that a regulatory or other action might disrupt your ability to proceed on that platform and, if so, whether you should explore alternatives and/or push for additional contractual protections.
In addition, the Omaze settlement is a good reminder for all sweepstakes operators (charitable or otherwise) that sweepstakes with a paid entry method not only need to offer a free entry method, but to prominently disclose its existence and to treat entries received via the free method the same as other entries (i.e., to provide “equal dignity” in sweepstakes parlance).