Minnesota attorney general finds that less than 1 percent of donations to Kars4Kids charity goes to Minnesota kids

Minnesota Attorney General Lori Swanson is taking aim at Kars4Kids, a New Jersey charity that spent less than 1 percent of the $3 million it raised from Minnesota donors on programs in the state.

The charity, one of the largest vehicle donation charities in the country and perhaps best known for its radio jingle, solicits vehicles from donors and raises money by selling and scrapping them.

But according to a compliance review issued Thursday by Swanson's office, Kars4Kids spent just $11,600 on charitable programs for Minnesota residents from 2012 to 2014.

Swanson questioned Kars­4Kids' bookkeeping, saying that the charity had misstated the amount of money that goes to its mission, and she called into question its transparency.

"We are concerned and troubled. Minnesotans are good-hearted. They want to help a good cause," Swanson said. "Donors need accurate and straightforward information to make informed choices."

Kars4Kids, which operates in all 50 states, defended its practices and said it made sense to spend most of its money on the East Coast.

"Headquartered in the Northeast, many of our programs and recipients naturally come from this area," spokeswoman Wendy Kirwan said in a statement.

"As the attorney general's report makes clear, there has never been any question of diversion of funds from the charity. We believe Minnesota residents understand that charity needs cross state borders and appreciate that their generous donations to Kars4Kids help children both in and out of state."

Kars4Kids reports spending 63 percent of its proceeds on its mission, which according to its website includes summer camps and mentorships for children, and school and family programs.

According to Swanson, however, only about 44 percent of the $88 million it raised nationally from 160,000 donated vehicles between 2012 and 2014 went to good works.

Most of that money, amounting to $40 million, was given to an affiliated nonprofit called Oorah, which promotes Orthodox Judaism among children mostly in New Jersey and New York.

During that time, only one Minnesota child was thought to have benefited from an Oorah program.

The attorney general's office forwarded its 300-page report to the Internal Revenue Service, which can revoke the tax-exempt status of a charitable organization. Swanson said she is talking with officials in other states about the findings.

Kars4Kids and Oorah share offices in Lakewood, N.J., and many of their employees serve both organizations. Oorah receives the "majority of its budget in the form of grants from Kars4Kids," according to documents obtained by the attorney general's office, and most of its programs are held at boys' and girls' camps in upstate New York.

According to the report, Kars4Kids and Oorah lost $9.2 million in failed real estate projects controlled by a second cousin of the charity's president, Rabbi Eliyohu Mintz. Kars4Kids also invested in what turned out to be a Ponzi scheme, according to Swanson's report.

Kars4Kids began running AM radio ads soliciting donations in Minnesota in 2011. At that time, the Star Tribune reported that the nonprofit and its affiliates were in the cross hairs of charity watchdog groups and attorneys general in Oregon and Pennsylvania, which alleged it had misled donors into thinking contributions benefited a broad group of children and not a "narrow religious purpose."

Kars4Kids and affiliate Joy To Our World paid fines in both states and agreed to change some of their advertising practices.

CharityWatch, a Chicago-based nonprofit that evaluates and rates other nonprofits, gives Kars4Kids a D grade.

"They ought to [say] you are helping proselytize to secular Jews so they can become orthodox," said Daniel Borochoff, president of CharityWatch, who said he is Jewish. "What's even worse is their ad makes it out that they are helping kids in general."

When it comes to getting rid of an old, unwanted vehicle, people want convenience and a tax deduction, Borochoff said. "This is why it's allowed to proliferate like this," he said.

Mintz told the Star Tribune in 2011 that Kars4Kids was not trying to mislead anyone and that people seeking more information could go to its website. "You have a 60-second spot. You don't have time to inform people of your mission," he said.

Swanson's staff of attorneys and forensic accountants spent more than a year pouring through the books for Kars4Kids and Oorah as part of a larger investigation into vehicle donation charities. Complaints and questions from consumers triggered the investigation.

"These are laborious investigations; you really have to drill into the books," Swanson said.

Notifying the IRS and the public is the heaviest hammer that Swanson said she could bring down on Kars4Kids. She said the U.S. Supreme Court has ruled that charities have free speech rights when it comes to fundraising and how they spend those dollars.

"We have given a copy of the compliance report to the charity. We are awaiting their response," Swanson said.

Shannon Prather • 612-673-4804