LDS Church And Investment Fund To Pay $5 Million To SEC For Failing To Disclose Equity Investments
The Securities and Exchange Commission announced Ensign Peak Advisers Inc. and The Church of Jesus Christ of Latter-day Saints agreed to pay $5 million in penalties to settle charges against the investment fund operating inside the nonprofit entity of the church.
“We allege that the LDS Church’s investment manager, with the Church’s knowledge, went to great lengths to avoid disclosing the Church’s investments, depriving the Commission and the investing public of accurate market information,” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement. “The requirement to file timely and accurate information on Forms 13F applies to all institutional investment managers, including non-profit and charitable organizations.”
The SEC charged the firm with:
“Failing to file forms that would have disclosed the Church’s equity investments.” The SEC said it found that Ensign Peak, between 1997 and 2019, failed to file Forms 13F, which are forms investment managers must file to disclose the value of securities they manage.
“Instead, filing forms for shell companies that obscured the Church’s portfolio and misstated Ensign Peak’s control over the Church’s investment decisions.” According to the SEC, the church was concerned that disclosure of its portfolio, which by 2018 grew to approximately $32 billion, “would lead to negative consequences.” The SEC says to obscure the amount of the church’s portfolio, and with the church’s knowledge and approval, Ensign Peak created 13 shell LLCs, ostensibly with locations throughout the U.S., and filed Forms 13F in the names of these LLCs rather than in Ensign Peak’s name.
The SEC also announced charges against the church for causing these violations. The 9-page order from the SEC offers an unusual glimpse of a religious organization working to avoid negative public perceptions about its investment operations and its use of shell companies to shield awareness.
The SEC said Ensign Peak agreed to pay a $4 million penalty and the church agreed to pay another $1 million penalty.
“We affirm our commitment to comply with the law, regret mistakes made, and now consider this matter closed,” the church said in a press release on its website.
Yet some observers from Wall Street in New York City to Salt Lake City in Utah wondered whether this is the end of the penalties and settlement for Ensign Peak Advisors.
“Under the deal, which appears to conclude the probe,” reported The Salt Lake Tribune, the church must pay the penalties “within 10 days” to the U.S. Treasury.
The Salt Lake Tribune quoted tax law professor Sam Brunson, saying the church is “far from perfect, but this feels beyond the pale.” Brunson, a Latter-day Saint who teaches tax law at Loyola University Chicago, said the church “legitimately acted badly here by deliberately trying to evade a law that applied to it. I can’t see any light in this or any way to justify it.”
Brunson also told the news outlet that the settlement’s likely not the end of the matter for the church. “The apparent hypocrisy is potentially harmful in its relationship with its members,” he said. “The church needs to explain what it plans to do to prevent this in the future and to rebuild trust.”
When answering the question of whether it knew about the practices at Ensign Peak, the church blamed it’s lawyers: “The Church’s senior leadership received and relied upon legal counsel when it approved of the use of the external companies to make the filings. Ensign Peak handled the mechanics of the filing process. The Church’s senior leadership never prepared or filed the specific reports at issue.”
“I am curious who Ensign Peak’s legal advisor was,” said Brunson, a law professor specializing in tax law at Loyola University of Chicago and a practicing Latter-day Saint, in a tweet. “It strikes me as tremendously aggressive to establish various LLCs with the purpose of avoiding filing.”
“This is just the first of many fines,” said Lars Nielsen, a former Latter-day Saint who lives in the twin cities of Minnesota and gained notoriety in 2019 when he released a document he and his twin brother had prepared for the IRS and which his twin brother, David Nielsen, had submitted to the IRS as a whistleblower. David Nielsen had worked as an investment professional at Ensign Peak in Salt Lake but left the firm in 2019.
A whistle blown in 2019
A series of stories by ReligionUnplugged.com in December of 2019 revealed a whistleblower complaint filed with the Internal Revenue Service that alleged The Church of Jesus Christ of Latter-day Saints funneled member tithes into EPA, a nonprofit supporting organization controlled by the church, and amassed more than $100 billion in owned assets under management over 23 years. The complaint alleged that EPA, a nonprofit registered as a 501(c)3 and a 509(a)3 supporting organization, did not make charitable distributions but that it did send $2 billion to help two for-profit companies.
If EPA were a hedge fund, it would rank among the top five hedge funds for assets under management. Its holdings dwarf those of endowments at any university, such as Stanford, Harvard or Yale. The financial acumen of the church and its members, often referred to as Mormons, is a significant attribute of a distinctly American religious minority that recently celebrated its bicentennial — a 200-year history that includes persecution, resilience and ambition.
The 2019 stories in ReligionUnplugged.com and other outlets rocked both the investment world and the religion world, gaining hundreds of thousands of page views as readers were intrigued by the revelation of previously hidden church finances. More than 150 other stories followed in other media outlets. The whistleblower complaint and related YouTube videos were also hot topics by Mormon and ex-Mormon communities on social media.
For the original stories in December of 2019, ReligionUnplugged.com received awards from Religion News Association and The Society for Advancing Business Editing and Writing and was a finalist for an EPPY Award for best business reporting from Editor & Publisher. Although the stories broke in 2019, the continued coverage and fallout was included among the top 25 religion stories of 2020 by the Religion News Association.
EPA started filing a quarterly 13F form on Feb. 14, 2020, with the Securities and Exchange Commission, which regulates publicly traded companies and other financial firms. Its initial filing revealed EPA had $38 billion in stocks and mutual funds at the end of 2019, including $1.5 billion in Apple and Microsoft. The firm had nearly $1 billion worth of shares in Amazon and Google’s parent company, Alphabet, as well. The filings do not include all the church’s financial holdings, such as bonds, and the church isn’t required to disclose its holdings in property or private companies. The SEC requires any institutional investor with more than $100 million in assets to file a 13F.
“It wouldn’t completely shock me if the reporting kickstarted the disclosure,” said Sam Brunson, a law professor specializing in tax law at Loyola University of Chicago and a practicing Latter-day Saint.
Leaders of EPA declined to comment in the original stories at ReligionUnplugged.com. They also did not respond to a request to comment this week for this update story. After the stories broke in 2019, the church published a statement to its members and constituents worldwide and posted three short videos to YouTube.
“We take seriously the responsibility to care for the tithes and donations received from members,” the church statement said. “The vast majority of these funds are used immediately to meet the needs of the growing Church including more meetinghouses, temples, education, humanitarian work and missionary efforts throughout the world. Over many years, a portion is methodically safeguarded through wise financial management and the building of a prudent reserve for the future.”
The Wall Street Journal, which didn’t cover the story until February 2020, made a unique contribution by visiting Salt Lake City and interviewing leaders of EPA and the church who confirmed the previous reporting of ReligionUnplugged and the Post. It noted that the whistleblower report and media reporting on it “heaped pressure on the church to be more transparent about its finances, something the church has avoided for decades.”
The Journal reported that employees of the firm sign lifetime confidentiality agreements and most current employees were no longer told the assets under management figures for the firm. The Ensign Peak Advisors office is located above a food court in Salt Lake City and doesn’t appear in the list of companies at that building lobby.
The head of EPA, Roger Clarke, indicated to the Journal that EPA is a “rainy-day account to be used in difficult economic times.” Some church leaders suggested the fund could be used in the event of an economic or financial crisis. Other former employees said the firm’s war chest related to preparation for the second coming of Jesus Christ. Clarke told the Journal, “We don’t have any idea whether financial assets will have any value at all” during a second coming.
A recent 90-Page document
In a more recent story on Feb. 8, ReligionUnplugged.com reported lawyers for David Nielsen had submitted a memorandum to the U.S. Senate Finance Committee and its subcommittee on taxation and IRS oversight about the operations of the Salt Lake City-based Ensign Peak Advisors Inc.
The 90-page memorandum obtained by ReligionUnplugged.com and embedded in the story “summarizes evidence of false statements, systematic accounting fraud, private inurement violations of the Internal Revenue Code and other federal statutes and a ‘Klein conspiracy’ by Ensign Peak Advisors, Inc. (‘EPA’) and others.”
Nielsen’s document claims the EPA firm was involved in a “Klein conspiracy” to “subvert the lawful functioning of the IRS, through EPA’s false and fraudulent statements in SEC and IRS filings, and other corrupt actions intended to conceal EPA’s billions of dollars of income obtained through EPA’s $100 billion for-profit investment business — income on which EPA should have paid tax.”
According to lead counsel for Nielsen, Michael A. Sullivan of Finch McCranie LLP, the team representing Nielsen includes a former senior official of the SEC, more than one former federal criminal prosecutor, a former IRS Criminal Investigative Division agent, another former IRS official and an international tax lawyer, all with decades of experience. David Nielsen and his attorneys do stand to collect compensation from the SEC and the IRS as part of whistleblower actions. The Washington Post reported that “if Nielsen’s information was critical to the SEC’s enforcement action, he may stand to collect up to $1.5 million, or 30 percent of the civil penalties the agency collects.”
ReligionUnplugged.com reporters also made similar calls and sent emails to leaders of Ensign Peak Advisors and to the media relations office of The Church of Jesus Christ of Latter-day Saints in Salt Lake City.
“The church along with our investment manager, Ensign Peak Advisors, have only recently been made aware of allegations brought forward by a former Ensign Peak employee,” said Doug Andersen, a church spokesman. “We have not seen the actual document in question; however, it appears they are dated allegations. We are always willing to work with government regulators to resolve concerns and are committed to full compliance.”
The SEC said Paul Feindt conducted its investigation under the supervision of Tracy Combs and Tanya Beard of the Salt Lake Regional Office and Laura Metcalfe of the Denver Regional Office.
Paul Glader is executive editor of ReligionUnplugged.com and a professor of journalism at The King’s College NYC. He has reported from dozens of countries for outlets ranging from The Wall Street Journal, The Washington Post, Der Spiegel Online and others. He’s on Twitter @PaulGlader.