March 26, 2010
A California nonprofit corporation that used questionable tactics to sell college entrance test preparation materials is in big trouble in Minnesota.

The lawsuit filed by Attorney General Lori Swanson against Dream Scholars Foundation claims the company misled parents into believing that their child had requested the materials, that the organization was affiliated with the child's school, and that the proceeds from their purchase would be used to make extensive scholarships to underprivileged children.

"Minnesotans are generous people who are always willing to lend a hand to help a good cause. Especially in this bad economy where so many budgets are stretched thin, people should research any organization that calls asking for money to make sure their generosity goes to reputable charities," said Swanson.

"Many nonprofits have had to do more with less money as donations have fallen and the need for their services has risen in this recession," Swanson added. "People should do their homework before responding to telemarketing solicitation calls so that their donations are used as intended."

According to an October, 2009 report by GuideStar USA, 51 percent of charities that accept public donations saw a decline in donations in the first nine months of 2009 compared with the same period in 2008, and 62 percent reported an increase in demand for their organization's services.

The lawsuit claims the San Diego, California nonprofit corporation calls parents asking them to purchase test preparation software for the SAT and ACT college entrance exams for $165, often calling this amount a "donation" or "contribution." Dream Scholars also is accused of misleading parents into purchasing the software by falsely telling them that their children wanted to purchase the products and that the child's school had sponsored or endorsed the products.

Dream Scholars also enrolls parents who purchase the test preparation materials into a free "30 day trial" of its online scholarship and college entrance test "study desk" databases without adequate notice or permission, for which it charges their credit cards a $55 monthly fee unless they cancel.

In telephone solicitations, written materials, and on its website, Dream Scholars tells parents that money from their purchase will help provide scholarships to underprivileged kids. For example, in written materials, Dream Scholars states:

• "Dream Scholars Foundation mission is to transform the lives of underprivileged high school students through the realization of a college education. Dream Scholars Foundation college scholarships and grants are designed to remove the financial obstacles hindering otherwise qualified and deserving students, transforming their dreams of a higher education into reality."

• "Dream Scholars Foundation is a non-profit organization that depends on private contributions to fund our scholarship programs and our mission. Your purchase will help support hundreds of deserving college-bound students who aspire to learn, grow, and give back."

• "The purpose of Dream Scholars Foundation is to provide financial assistance to underprivileged but academically qualified high school students. This assistance is provided through funds raised from private/corporation donations as well as through other fundraising activities."

In fact, Dream Scholars has not received 501(c)(3) or other tax-exempt status as a charity from the Internal Revenue Service and is not registered to solicit charitable contributions with the Minnesota Attorney General's Office. The company earned revenue of at least $1,575,000 since it was formed in 2008.

Additionally, Dream Scholars admitted that as of November, 2009, it had not awarded any scholarships directly to students and that it made only $23,000 in charitable contributions since its inception.

The lawsuit, filed in Hennepin County District Court, accuses Dream Scholars of consumer and charities fraud and of soliciting charitable contributions in Minnesota without being registered as a charity with the Attorney General's Office.

Swanson's office is investigating other organizations that sell commercial products by using questionable charitable appeals. She issued a Consumer Alert entitled, "Phony Charity or Real One: How to Tell The Difference" to provide guidance to help people differentiate between real charities and scams. The alert notes that:

• Organizations must register with the Minnesota Attorney General's Office before soliciting charitable contributions in Minnesota if they raise or plan to raise more than $25,000 anywhere or have paid staff. Before anyone responds to a telemarketing call for a donation, they should call the Minnesota Attorney General's Office at (651) 296-3353 or (800) 657-3787 to find out if the organization is registered as a charity, or they may look up the organization online at online .

• Under Minnesota law, a charity that places telemarketing calls or sends written solicitations for money is required to: (1) identify itself by name and location; (2) state whether or not contributions to it are tax-deductible; and (3) provide a description of the program for which the solicitation campaign is being carried out.