Prudential Securities, broker for the bankrupt Foundation for New Era Philanthropy, will pay $18 million to settle related lawsuits.
In November, Prudential and 33 organizations that took legal action against it agreed to the settlement, which will add funds to the pool of money going to reimburse New Era’s victims. The move will boost the recovery of the $135 million that about 200 charities lost in the investment scandal.
Paul D. Nelson, president of the Evangelical Council for Financial Accountability (ECFA), says the additional funds mean it is realistic to project that charities will recover between 85 and 90 percent of lost funds. Before the Prudential agreement, organizations that lost money had little hope of receiving more than 65 percent back (CT, Nov. 11, 1996, p. 109).
ECFA played a leadership role by forming the ad hoc group United Response to New Era, which attempted to address the crisis equitably and without expensive litigation. “Our goal all along was to achieve a 100 percent recovery,” Nelson says. “But those who were negotiating with Prudential apparently made the judgment that it was in their best interest to take the eighteen million dollars.”
Nelson says it is likely that concerns about delaying the repayment figured prominently in reaching the agreement with Prudential. He noted that some organizations hurt by New Era are teetering on the edge of financial ruin and would rather receive an 85 percent return soon than a 100 percent return years later. “I’m not aware of any creditor who is unhappy with this decision,” Nelson says. “I would almost defy somebody to find a bankruptcy case where that much money is returned to the creditors.”
Prudential had been sued because of its alleged role in facilitating New Era and its founder, John G. Bennett, Jr., in the failed investment scheme. According to the New Era plan, investors could double their money thanks to the generosity of anonymous donors. But those donors turned out not to exist. Early investors profited only from the contributions of later investors.
Now all that remains is for the bankruptcy court judge—as well as the judge considering the legal action involving Prudential—to approve the agreement. Nelson says groups that lost money to New Era could probably expect a partial refund by the beginning of the year, with the remainder arriving a few months later.
Nelson gives high marks to the evangelical community for working toward a sensible resolution of the New Era crisis. “You have a case where reasonable people have prevailed,” he says. “Not only did the body of Christ come together, but it came together and provided leadership.”
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