New Era Bankruptcy Case Moves Toward Resolution

A solid majority of organizations-both those that gained and those that lost money as a result of last year's collapse of the Foundation for New Era Philanthropy-have registered their support for a unique settlement agreement designed to resolve the controversy without costly litigation.

The agreement was developed by the Evangelical Council for Financial Accountability (ECFA) on behalf of the ad hoc group United Response to New Era. If all goes according to plan, organizations that lost money could receive as much as 65 percent of it back by year's end.

The plan requires the support of organizations representing at least 80 percent of the money lost to New Era. It also calls for the endorsement of donors representing at least 80 percent of the amount given to New Era with the misguided expectation that their gifts would be doubled by wealthy, and apparently nonexistent, anonymous donors.

AGREEMENT PROPOSED:

According to ECFA President Paul D. Nelson, the percentage of support now stands at close to 90 percent, both for organizations and donors. At a two-day hearing last month in Philadelphia, the plan-with the full endorsement of bankruptcy trustee Arlin Adams-was presented before Bankruptcy Court Judge Bruce Fox.

Nelson described the hearing as "an impressive display of a unified effort by strikingly diverse interests." He said, "One attorney after another stood to voice support for the plan. They called it 'fair,' 'creative,' and 'landmark.' "

If the plan is approved, organizations that profited from New Era would have two months to return a total of $39 million for redistribution among those that lost money. Nelson says he is optimistic, but adds that a ruling in favor of the plan is not a "slam dunk." The greatest threat, he says, comes from Prudential Securities, which opposed the plan at the August hearing and, according to Nelson, may attempt to nix it through further legal maneuvering. The bankruptcy trustee has sued Prudential, which provided financial services to New Era, for allegedly giving credibility to New Era despite evidence of problems.

DISSENTING VIEWS:

Garnering support for the United Response agreement to New Era has been a tedious process (ct, April 8, 1996, p. 95). While most of the more than 180 evangelical schools and Christian organizations are solidly behind the United Response, support is not unanimous.

President James A. Gwinn and Chair Robert C. Screen of the Seattle-based Crista Ministries drafted and circulated a 13-page letter to Nelson, claiming that the plan "favors those who gained money at the expense of those who lost."

In its objection, Crista says its division World Concern forwarded $2 million to New Era and received no monies in return. Gwinn and Screen contend that, as the case developed, "United Response moved far beyond its originally announced role and developed its own agenda which was in the best economic interest of some members, but certainly not all." Many ECFA members agreed to the United Response approach, Gwinn and Screen say, based on incomplete information.

The agreement encourages "net positive" organizations to give back the full 100 percent. But it requires repayment of just 65 percent, and less than that in cases of financial hardship. Thus, in theory, the plan allows for some organizations, in the end, to gain from New Era 35 percent or more of what they put in, while others stand to lose 35 percent.

Furthermore, the plan makes special allowances for the individuals who lost donated money through New Era. They may apply their New Era losses toward reducing the repayment obligations of a net-positive organization.

Defending this provision, Nelson said individual donors feel terrible about what happened, and this enables them to repair some of the damage done to organizations they care about.

ACTS OF FAITH:

Nelson acknowledges that the settlement agreement's success is based, to some extent, on the integrity of net-positive organizations, specifically on the hope that they will return all they can afford to return. But he says there is a "long list of charities" that already have returned the full 100 percent to the bankruptcy trustee. Many organizations, however, spent the money on projects they would not have undertaken had they known the funds were tainted.

"There is a body of thought according to which a financial gift accepted in good faith and spent for the purposes it was given should be considered inviolate," Nelson says. Otherwise, charities would be saddled with the burden of having to verify donors' sources of funds. Nelson says he suspects that some organizations making this argument would be on the other side if they had been among the losers, adding that had New Era declared bankruptcy "a week later or a week earlier, there might be different players on different sides of the fence."

Gwinn and Screen say any unity achieved in the settlement will be short lived.

"The true unifying factor must be found in the answer to the simple question of whether it is right for a ministry or charity to maintain its financial health, or even its existence, by keeping money which was obtained by defrauding others," they said in their letter to Nelson. "United Response has taken a primarily economic approach to this case and has neglected the opportunity for blessing involved by encouraging the open hand of stewardship and the sacrificial return of inappropriately gained profits."

Describing the complexities of the case, Nelson says that on the one hand money gained fraudulently should be returned. But in this case, the charities that gained "did not steal it and did not know it was stolen." Nelson says, "Extremist positions on either side will lead right to the courthouse and gridlock this thing for years. You can stand on principle and we will all die on this hill, or you can recognize that this case is different and try to come together."

To this point at least, the majority of organizations who participated in New Era have made the latter choice.

By Randy Frame in Philadelphia

Copyright © 1996 Christianity Today. Click for reprint information.

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