John G. Bennett, Jr., head of the bankrupt Foundation for New Era Philanthropy, has been sentenced to 12 years in federal prison for carrying out what experts believe is the biggest charity fraud case in American history.
On September 22, Federal Judge Edmund V. Ludwig in Philadelphia sentenced Bennett, 60, to prison for 82 counts of fraud and related charges. He had pleaded "no contest" to the charges and is expected to appeal the judge's ruling.
The judge handed down the prison term after an intense week of testimony during the sentencing hearing in which an emotional Bennett testified under oath for the first time (see "Bennett Confesses 'Dream' Became 'Delusion,'" p. 90).
Bennett defrauded donors and charities of $135 million by means of a pyramid scheme. Under the ruse, Bennett promised to double the amount of a donor's gift in six months with funds from anonymous wealthy benefactors. But in reality, Bennett used incoming donations to pay off his outstanding double-your-money pledges, all the while diverting substantial amounts to personal use and his for-profit companies.
RELIGIOUS FERVOR DEFENSE: Pyramid schemes demand an ever-accelerating cash flow. When it collapsed in May 1995, New Era was liable for hundreds of millions of dollars (CT, June 19, 1995, p. 40). The scandal touched 1,100 individuals and charities, including more than 180 evangelical groups, colleges, and seminaries.
Bennett's defense team says he was driven not by criminal intent but by unrestrained "religious fervor," a defense strategy the judge did not allow.
More than $354 million passed through New Era's hands. Bennett siphoned off at least $5 million for personal use and $3 million for support of his for-profit companies, court documents reveal.
The federal bankruptcy court has recovered more than 60 percent of the lost $135 million and through negotiation and lawsuits is attempting to recover as much as 90 percent of the money. Bennett's assets of $957,000 have also been used to reduce the losses.
The FBI has called the Foundation for New Era Philanthropy operation the largest financial scandal in the history of American charities. Nonprofit experts have made comparisons to Jim Bakker's PTL Club scandal in the late 1980s, but the New Era case entangled many more individuals and groups.
Behind every act that propelled the Foundation for New Era Philanthropy were strongly held moral and spiritual convictions. Spiritual enthusiasm led Bennett to exercise his entrepreneurial bent. It fostered the excitement of dedicated ministry leaders eager to expand their work for the cause of Christian evangelism, education, relief, and development. But New Era's failure sent a financial tidal wave across unsuspecting religious and charitable groups, devastating some ministries and weakening the bonds of trust with their donors.
In-depth interviews with dozens of individuals who knew Bennett at different times of his life revealed the hopes and aspirations that drove New Era's founder and president and showed him to be a gifted but troubled individual.
Bennett's life story bears the hallmarks of evangelical conviction, but something went terribly amiss when he moved into full-time ministry. Bennett still asserts that he never stole anything, and he says he retains a sincere Christian faith.
MODEST BEGINNINGS: Bennett was born in 1937 in Olney, just north of Philadelphia's business center. His Presbyterian father, who had a penchant for cigars and whiskey, struggled for survival in the midst of the Great Depression as a laundry-truck driver and part-time door-to-door insurance peddler.
For "Jackie," a college education, which might offer him a chance to leave a poor neighborhood, seemed beyond reach. But the First Presbyterian Church in Olney arranged a $3,500 interest-free loan for Bennett, and he began a lifelong quest to surmount his impoverished beginnings.
He supplemented his resources by working as a United Airlines reservations clerk at the Philadelphia Municipal Airport. Bennett, to introduce an aura of glamour, told college classmates his assignment was to hire pretty stewardesses and provide special handling for celebrities.
In 1963, he was hired to teach chemistry at the posh Agnes Irwin School for Girls. He established a new persona as a cultured, educated, and, most important, socially acceptable leader.
From teaching, he migrated to Temple University Medical School, enrolling as a 30-year-old first-year student. He adopted rigorous study habits, and his uninterrupted hours in the library earned him the nickname "Iron Butt."
"He was working hard," recalls classmate James P. Cain, now a physician in Pottstown, Pennsylvania. "He relied on doggedness rather than a brilliance he didn't possess."
Bennett's facility in coping with the relentless pressure of medical school was undermined in part when he was assigned to a foursome for lab work. The other three members were at the top of their class, and the dissimilarity of abilities took its toll. Barely halfway through his first year, Bennett requested a leave of absence from school, claiming he had Meniere's disease, a disorder causing ringing in the ears and severe vertigo.
A COMMANDING PRESENCE: However, Bennett did bring away something from medical school that proved enormously useful to him as an entrepreneur. He took a course on doctors' deportment, which included how to develop a bedside manner. That training taught Bennett how to project an authoritative and commanding personality. He developed a resonant voice, slow enough to convey emphasis or warnings, and acquired enough use of technical jargon to demonstrate superior knowledge and information.
In the late 1960s, after Bennett checked out of medical school, illicit drug use was a rising problem in Philadelphia and the rest of the nation. Desperate for help, authorities in Pennsylvania's wealthy suburban Montgomery County sorted through candidates to run drug-abuse control centers. Bennett's teaching background, his knowledge of chemistry and drugs, and his medical school connections made him stand out from among other candidates, and he was hired.
Within eight years, he had organized seven local centers for drug-abuse intervention and education. Bennett was recognized as the foremost program manager in the state. He attained status, power, and political influence, including an appointment to the prestigious Governor's Council on Drug and Alcohol Abuse.
Showing a flair for independence and innovation, Bennett formed the non-profit Nova Institute International, which allowed him to work as a consultant to raise money for drug rehab programs. He later went to the Medical College of Pennsylvania to assume control of fundraising for a drug-counselor training program.
"Bennett was well connected with local foundations and some wealthy individuals," recalls Lawrence Snow, a psychiatrist at the school. "He was always talking about this person he knew or that foundation he might join, but after a couple of years, he quit. He raised little or no money." Shortly thereafter, the programs folded.
ONGOING SETBACKS: Despite his initial inability to raise donations, Bennett had succeeded in expanding his personal network of leaders with foundations and public-service institutions. He then reorganized Nova Institute International to offer consulting services to small but promising nonprofits on how to attract donors.
In 1982, he established the nonprofit Center for New Era Philanthropy, advising individual donors on how to grant funds equitably and productively. From a roster of people with whom he had registered his talents, he built up a clientele of corporate grant-making departments, family foundations, and wealthy individuals.
Nova's consulting business turned sour almost at once. Bennett ran up early debts, and before long, failure to meet his obligations almost buried the whole enterprise. Montgomery County records reveal an unfolding financial disaster marked by unpaid debts, outstanding business bills, and tax liens. From 1981 to 1983, six federal tax liens were filed against Nova Institute or Bennett. United Airlines and the Pennsylvania Department of Revenue filed liens and secured judgments. In 1984, the IRS placed a lien against Bennett and his wife, Joyce, his childhood sweetheart, for $29,250.
SPIRITUAL TURNING POINT: Badly in need of assistance, Bennett turned to the church for help. But more than that, Bennett turned to God, renewing his commitment to Christian faith and practice.
Bennett dates his spiritual renewal in part to the time in 1984 when he was injured in a severe auto accident and became convinced that God had spared his life. The Bennett family found its way to the doors of the prosperous Church of the Savior in Wayne, Pennsylvania.
At one point, church members brought in food so the Bennett family would not go hungry, and they ultimately helped satisfy the IRS lien. Bennett eventually joined the Church of the Savior, whose membership included a sprinkling of Philadelphia's moneyed elite.
By 1985, thanks in part to his reconnection to a church community, Bennett was able to revive the Center for New Era Philanthropy and to launch the for-profit Human Service Systems, which made mental-health service placements for employees of local businesses.
But as early as 1987, questions emerged about possible illegal check writing. Bennett would write checks from one account to another, inflating the balances, so that he could write checks to outside vendors, according to John Salvison, once an executive under Bennett. Such check kiting is a criminal offense.
Meanwhile, Bennett achieved a major breakthrough when he was hired to run Bell Telephone of Pennsylvania's program to train nonprofit personnel on how to manage their operations more economically. Offering seminars and training videotapes, Bennett established the Bell Institute for Nonprofit Excellence in 1988, with Bell picking up the entire tab.
On Bell's payroll, Bennett had the opportunity to join the boards of numerous organizations, and he helped start a local professional group that sponsored prayer breakfasts.
Bennett's activities increasingly raised his profile among East Coast philanthropists and the nonprofit community, including the wealthy Templeton family.
Bennett achieved significant progress when prominent Philadelphia pediatric surgeon John M. Templeton, Jr., son of John Templeton, Sr., the famous investor and philanthropist, granted seed money to Bennett to introduce the Bell Institute's program to religious nonprofits. This undertaking was eventually known as the Templeton Institute for Nonprofit Excellence. In 1990, the elder Templeton honored Bennett by naming him a director or trustee of several of Templeton's mutual investment funds.
According to federal attorneys, Bennett took advantage of the Templeton Institute's credibility to create "the false impression that New Era operated under the organizational principles taught at the institute." John Templeton, Sr., says he was unaware that Bennett was using the Templeton name for the institute programs and seminars.
BENNETT'S CALLING: The Templeton association marked the beginning of what Bennett unshakably believes he has been divinely called to accomplish: The contribution of his unique skills, insights, and gifts toward helping people help others, especially in money matters.
He intensively committed himself to four things: a "Kingdom focus," meeting people's needs, eliminating pain and suffering, and "making dreams come true."
In 1989, Bennett established the vehicle to make it all happen: the Foundation for New Era Philanthropy, the successor company to the Center for New Era Philanthropy. Originally designed as an endowment with invested funds from which gifts were made, the foundation also provided free technical assistance to nonprofits in the Bell Institute fashion. But financial difficulties surfaced soon after New Era got off the ground. Bennett was slow in passing money through his foundation and slow to pay his bills. Court documents show that Bennett accelerated a scheme to kite checks between his bank accounts, starting with his account at Philadelphia National Bank (PNB), all the while keeping track of negative balances in his own handwriting. By September 1989, Bennett had built up a fictitious $466,133 in PNB accounts and another $413,195 in Merrill Lynch accounts. Bennett manipulated the balances of at least six accounts.
Yet a PNB branch manager noticed a suspicious pattern of transfers between Bennett's PNB accounts and two Merrill Lynch accounts, and the bank froze Bennett's New Era Philanthropy account.
According to federal allegations, Bennett, increasingly in desperate straits, hatched the pyramid scheme, contacting several friends to participate at a minimum of $5,000 as "beneficiary donors" with the pledge that their money would be doubled by an anonymous donor after three months. The doubled money would be distributed by New Era to the charity chosen by the original individual contributor.
Eventually, the minimum contribution inflated to $25,000 as did the waiting period to six, nine, or ten months, depending on the fund, and the number of anonymous donors, anonymous benefactors, and anonymous philanthropists—of which he ultimately claimed there were nine.
THE PYRAMID GROWS: Bennett's plan was a huge success and drew in many willing participants. But Bennett needed to broaden the donor base quickly and delay payout so that he could keep the operations afloat.
He used four basic methods: expanding the base of participation, relaxing deposit restrictions, increasing the minimum contribution, and requiring a longer holding period in exchange for a greater payout. With the quick response of friends to the new scheme, Bennett hastily deposited $40,000 to his nonprofit New Era account at Merrill Lynch. He also deposited $20,000 into his PNB account to forestall PNB from blowing the whistle on his shaky operation. Bennett, complete with illustrated brochures, presented himself as sower and harvester for New Era.
In January 1990, Bennett's donors expected their first checks. At that time, Bell Atlantic sent a $250,000 check to Bennett's for-profit consulting firm. Bennett used this money to pay off the first of New Era's donors.
After this, Bennett would use no more real money for real services but would keep afloat on the waves of money from the pyramid scheme.
At first, Bennett limited participants to a handful of individual donors, but the list rapidly grew to more than 100 individuals. In 1994 he allowed nonprofits to participate in the matching program.
Bennett liked to dramatize his activities with references to death. He reassured donors that in the event of his death their money would be covered because he had three-year trust agreements with the anonymous donors.
He impressed upon his staff the difficulty of his carrying a host of burdens, along with his fear of death, many financial pressures, his endless travel schedule, and the love he felt for the needy.
Mary Sinclair, a New Era executive assistant, vividly remembers Bennett playing out a dramatic scene by calling her into his office. Sinclair says Bennett displayed his key to the New Era safe-deposit box, which purportedly contained the only list of anonymous donors. When he finished a stirring monologue, Bennett replaced the key in a desk drawer. "I was reassured," Sinclair says. "It was a poignant moment."
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