Nonprofits take aim at securities firm.

Many ministries that trusted the Pennsylvania-based Foundation for New Era Philanthropy to double their money in six months have become shrewd financial managers themselves amid the legal maneuvering to recoup the millions lost in the alleged pyramid scheme.

Just weeks after Prudential Securities, which served as New Era's investments broker, sued to seize $44 million in secured loans made to New Era's founder, John G. Bennett, Jr., several ministries now are firing back at the giant firm.

Three of them (the Rescue Mission Alliance of Syracuse, New York; Sacred Works, Inc., of Lakeland, Florida; and philanthropist Wesley Skinner, also of Lakeland) in June filed a class-action suit against Prudential Securities to recoup more than triple the $1.7 million that they jointly lost to New Era.

The suit claims Prudential received money in escrow from charities and "wrongfully used those funds for unauthorized matters such as payment of credit cards, auto rentals, hotel stays, art purchases, and other activities" of New Era and Bennett.

It claims Prudential Securities fraudulently kept secret that charities' funds were not held in separate escrow accounts but rather were lumped together in one New Era account accessible by Bennett.

"Documentation uncovered since New Era filed for bankruptcy establishes that Prudential . . . and its employees acted inappropriately in using our funds to cover the exposure they had through their dealings with New Era and John Bennett," says John Benjamin Carroll, attorney for the three ministries.

Prudential Securities spokesperson Charles Perkins told ct the suit holds no merit. "I sympathize with the groups that were victimized by Mr. Bennett, but their grievances should be directed toward the responsible parties," Perkins says. "Our only involvement was that the foundation had a brokerage account with us."

However, documents obtained by Carroll and listed in the ministries' suit show six letters were sent to Bennett from Prudential brokers claiming some charities did have escrow accounts there. Perkins says the letters used the word escrow mistakenly.

MESSIAH COLLEGE: Meanwhile, Messiah College in Grantham, Pennsylvania, is filing a similar suit against Prudential Securities. The college claims $2 million in losses from the pyramid scheme. "We are claiming the $2 million . . . that [Prudential] indicated that they were holding on our behalf," says Messiah president Rodney Sawatsky.

Messiah apparently was one of the biggest losers among evangelical organizations that invested in New Era. However, differing ways in which ministries' New Era losses have been reported make it difficult to determine exactly how much evangelical ministries, seminaries, and churches lost.

Article continues below

Based on bankruptcy trustee numbers, other big evangelical losers included: International Teams ($2.5 million); cb International ($2.3 million); John Brown University ($2 million); and Scripture Union ($1.62 million).

DIFFERENT FIGURES: Yet some of these totals are proving wildly inaccurate.

In the case of the Wheaton, Illinois-based cb International, the missionary-sending organization never filed a claim with the bankruptcy trustee, who then assumed its loss to be $2.3 million because that is the amount the ministry had on deposit with New Era when it collapsed. Actually, cb International made $4.9 million from New Era, according to ministry treasurer Mark Weckesser, thus netting $2.6 million. "We received funds from New Era in excess of what we had deposited," he told ct.

International Teams, upon legal counsel, has reported losing a $2.5 million deposit, though the ministry received $1.2 million back from New Era, says Robb Hansen, vice president for development for the Prospect Heights, Illinois, missionary organization.

Such variation in calculating "losses" have some groups, which had reported net proceeds overall from New Era, hesitant about voluntarily returning some revenues to offset the still-uncertain losses of others. United Response to New Era, a coalition of 177 ministries burned by the scam, has urged voluntary return of net proceeds as an option to cover established losses of others.

Mercy Ships, in Lindale, Texas, reported $3.5 million in net proceeds. "We're waiting until the thing plays itself out," says David O'Connor, Mercy Ships spokesperson. "We've seen a real drop in the amount of money that is owed by New Era to the different charities. That's not to say we would refuse cooperation. We're still waiting to get some real answers."

Such complications face newly appointed bankruptcy trustee Arlin Adams, recently chosen by New Era's investors to unknot the tangled affair. The former federal appellate judge from Philadelphia replaced temporary trustee John T. Carroll III.

UP IN THE AIR: Among those supportive of Adams's appointment is Paul Nelson, executive director of the Evangelical Council for Financial Accountability, a watchdog group that helped form United Response (ct, July 17, 1995, p. 55).

Article continues below

Nelson knows it will take time to decipher what groups were really hurt by New Era and the best way to help them. Current loss and gain figures are too incomplete. "If you get in a voluntary give-back program, what will that net you?" Nelson asks. "We don't know."

United Response is exploring the idea of taking its own action against Prudential to recover some or all of the $44 million the broker seized, Nelson says. That $44 million added to the $30 million in leftover New Era assets would offset charities' total losses, most recently estimated at $107 million. Nelson says, "We need to work together" and avoid "a litany of suits going in all directions."

That may grow tougher to pull off, as ministries scramble to cover themselves.

In the light of the New Era debacle, Messiah's Sawatsky recently wrote college supporters saying that "as Christians we dare not become cynical [and] we must continue to trust each other. We must believe that our yes means yes and our no means no."

Yet, as the New Era cleanup job continues, some ministries including Messiah seem to indicate that trust inside the Christian community is one matter, while trust outside may be another. In the case of Prudential Securities, some Christian ministries are not so willing to take no for an answer.

By Joe Maxwell.


Have something to add about this? See something we missed? Share your feedback here.

Our digital archives are a work in progress. Let us know if corrections need to be made.