In March 1989, when Food for the Hungry began planning to build a new school in the Dominican Republic, Chicago commodities trader Michael S. Douglas came through with a $10,000 donation. In April 1989, after meeting with International Students, Inc. (ISI) president Gordon Loux, Douglas presented the group with a $100,000 check. Between January 1988 and October 1989, he gave $297,000 in offerings to Lakeland Evangelical Free Church in suburban Gurnee, Illinois, where he was a member. Indeed, throughout the late 1980s, Douglas was every charity’s dream: a wealthy contributor who could be counted on for big gifts.

But that dream has turned into a legal nightmare for 15 evangelical churches and organizations following Douglas’s conviction for swindling about $30 million from investors in a stock fraud. Douglas is currently serving a 12-year prison sentence in Minnesota. And the ministries involved have found themselves caught in a complex legal dilemma that could have wide-ranging implications. At issue is whether nonprofit groups may be forced to return donations if it turns out the donor obtained the money through unscrupulous means.

Between August 1987 and November 1989, Douglas donated about $2 million to charities, most of them evangelical groups. Steven Scholes, the court-appointed receiver who is attempting to recover some of the money owed to Douglas’s investors and creditors, believes those donations rightfully belong to Douglas’s investors, some of whom are Christians themselves. He has filed a lawsuit against the 15 charities, seeking the return of more than $1 million.

Lawsuits against two churches were settled, with the churches agreeing to repay more than $85,000 that Douglas donated to them. Five ministries have ...

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