Ministry Funds Lost in New Era Bankruptcy

At Spring Arbor College, they used to call Prof. Albert Meyer an alarmist. Today, he is something of a hero for his persistent efforts at questioning the now-bankrupt dealings of the Foundation for New Era Philanthropy.

A professor of accounting at Spring Arbor College, Meyer became concerned when the college began channeling large sums to a charity that promised to double those contributions in less than a year. When Meyer voiced his concerns to officials at Spring Arbor, in Michigan, and other Christian organizations funneling sums into the Radnor, Pennsylvania-based Foundation for New Era Philanthropy, "They said, 'You're biting the hand that feeds us,' " Meyer says.

Now that New Era has gone belly-up, and those groups-like the dozens of others that sent funds to New Era-stand to lose millions, they may wish they had listened more carefully.

Last month, in a move that sent shock waves through the nonprofit community, New Era's chairman, John G. Bennett, Jr., announced to his board that a pool of anonymous donors, ostensibly the source of tens of millions of dollars in matching grants, did not exist. On May 15, the group filed for bankruptcy, listing $551 million in liabilities and $80 million in assets. The next blow came when the Securities and Exchange Commission accused New Era of selling unregistered securities and Bennett of diverting at least $4.2 million from New Era donors to companies under his control.

Law enforcement officials are calling New Era's matching grants program a Ponzi scheme, an illegal business practice in which initial investments are paid off with extremely high returns, using the contributions of later investors. The scheme may continue to pyramid until there is insufficient new money coming in, leading to financial collapse.

The bankruptcy of New Era jeopardizes the original tens of millions staked by wealthy philanthropists and hundreds of nonprofit groups, including about 100 religious institutions and ministries. The episode has thrown boards of directors, organizational presidents, and donors into disbelief.

The Christian groups listed among New Era's creditors that are owed the largest amounts are Lancaster Bible College in Pennsylvania ($16.9 million); Colorado Springs-based Young Life (YL) ($11 million); Gordon-Conwell Theological Seminary of South Hamilton, Massachusetts ($9.8 million); Philadelphia College of Bible of Langhorne, Pennsylvania ($8 million); and Wheaton (Ill.) College ($4.6 million).

In many instances, the amount "owed" is much higher than the initial investment that an organization deposited with New Era. For example, YL's Greg Kinberg says the group had deposited $2.5 million of its own funds with New Era and that the remainder has been pledged through "a series of matches."

RED FLAGS: For many, one of the most troubling-and obvious-signs that all was not well was the group's requirement that participants deposit funds in New Era, rather than with an outside party, before they could be "doubled."

Barry Gardner, a financial consultant who investigated New Era, said he heard "alarm bells" over the requirement that money be placed under New Era's control. He says the money could have been put in escrow, or with a third party.

New Era had explained the requirement as a necessity because it would use the interest and earnings from the original contributions to pay its own expenses. But according to the group's 1993 tax return, New Era earned a slim $33,788 on $41.3 million in contributions.

Other participants had concerns over the secretive aura surrounding New Era. Robert Andringa, president of the Coalition for Christian Colleges and Universities in Washington, D.C., says, "New Era said specifically we could not use the name 'New Era' when soliciting funds."

Incorporated in 1989, New Era also escaped additional scrutiny in that it did not begin filing tax returns until February 1993. In addition, New Era did not register with the state Bureau of Charities until September 1993.

Andringa says that although the coalition's "attorneys and auditors said [the matching program] was unusual and that they can't give it a clean bill of health," the coalition nevertheless placed $350,000 on deposit with New Era.

Despite the warning signals, New Era's matching program had drawing power, including the reputation of Bennett. A former drug-and-alcohol-abuse program administrator, Bennett had developed the persona of an inspiring and warm-hearted Christian philanthropist.

Russell Rosser, president of the Seminary of the East, another New Era donor, told the Wall Street Journal, "I had every reason to trust him. He had a reputation for Christian values and commitment to Christ."

Bennett's credibility was bolstered significantly by his association with such prominent individuals as former Goldman Sachs chairman John C. Whitehead; former U.S. Treasury Secretary William E. Simon; and legendary billionnaire investor John Templeton and his son, John Templeton, Jr.

Another inducement was that the system was working spectacularly well for a while. Groups that became involved early on saw regular and handsome returns on their investments. "All your other friends were bragging about their checks," Gardner says. "These are not small potatoes-these are big bucks."

Christian apologist Ravi Zacharias, head of Ravi Zacharias International Ministries, a New Era creditor, says, "As far as we knew, right up to the moment of its exposure, every commitment had been met by them."

Peter Sorensen, a Zacharias Ministries board member, says that he also had initial reservations. "Bennett passed muster with so many people we looked up to [that] we didn't let these questions cause us to withdraw."

Bennett circulated among Christian leaders. Associate Glenn Blossom, senior pastor of Chelten Baptist Church of Dresher, Pennsylvania, funneled more than $1 million to New Era from church-related organizations. Chelten Baptist, which is owed $27.6 million, is New Era's largest single creditor.

J. Douglas Holladay, a former Reagan White House official, earned $162,500 in 1993 as a consultant to New Era. Holladay, who established the "Bennett Fellows," a scholarship fund for Christian leadership training at the Falls Church in Falls Church, Virginia, advised other nonprofits in conjunction with his work with New Era.

Seminary of the East president Rosser may have benefited from referring other groups to New Era. Rosser, who did not return CT's phone calls, told the Wall Street Journal that some organizations he recruited gave "thank offerings." "If they choose to give a thank offering, that is something they can do," he said.

UNANSWERED QUESTIONS: For some ministry leaders, the bankruptcy has forced a profound soul-searching into what went wrong or what could have been done to prevent financial disaster.

Michael Woodruff, an attorney with Washington, D.C.-based Gammon & Grange, says there are still too many unanswered questions to "draw any conclusions" about what went wrong. He says, "There's no immediate sense of where the fatal flaw is."

Bob Smucker, senior vice president of the Washington, D.C.-based Independent Sector, a leading organization in studies of the charitable community, calls the episode "a tragedy," but expects the long-term effect to be minimal. Paul Nelson, president of the Evangelical Council for Financial Accountability (ECFA), hopes the episode will "have a self-correcting effect" in the future.

Yet, some groups are facing the reality of immediate consequences. World Vision (WV), based in Monrovia, California, has $1 million on deposit with New Era. According to Ken Casey, WV senior vice president, that sum came from a fund held in reserves for emergencies. "That will affect our ability to respond quickly to crisis situations," he says.

Lancaster Bible College is immediately placing on hold plans to build a chapel. David Mains, head of the Wheaton, Illinois-based Chapel of the Air Ministries, which was expecting $950,000 returned in a joint venture with Scripture Union, says the loss could damage the ministry's relationship with some of its creditors and raises doubts whether he will be able to meet payroll. "We haven't the faintest idea what we're going to do," he says.

UNITED RESPONSE: Several organizations have formed a group called United Response to handle their dealings with the bankruptcy court. The sponsor, ECFA, says, "United Response will share legal and financial resources and expertise to assist member organizations."

Organizations are concerned about the possibility of being forced to give up matching funds recently received. A bankruptcy judge may order groups to give up payments received under certain circumstances prior to a bankruptcy filing.

The decision last month in U.S. Bankruptcy Court to change the bankruptcy classification of New Era means New Era must immediately liquidate all assets to settle with creditors.

Meanwhile, at least one organization is voluntarily returning matching funds. The Evangelical Association for the Promotion of Education has pledged to give back a $100,000 grant, says association president Tony Campolo.

Copyright © 1995 Christianity Today. Click for reprint information.

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