Collapse of Investment Scheme a Painful Lesson for Religious Groups : Finances: New Era’s offer of doubling money in six months sounded too good to be true. Now the founder concedes that supposedly wealthy anonymous donors did not exist.

How could savvy, experienced do-gooders believe that their money could be doubled in six months by a bunch of anonymous rich people?

That seems to be the question that no one at some very distinguished nonprofit organizations took the time to ask about the public charity with the hopeful name New Era.

The Foundation for New Era Philanthropy solicited millions of dollars from nonprofit institutions--including evangelical ministries and the relief agency World Vision--by promising to double the investments with matching grants from anonymous donors.

Instead, New Era filed for bankruptcy this week owing $500 million after its founder and CEO, John G. Bennett Jr., admitted that the group of “anonymous donors”--wealthy people looking for worthy charities--did not exist.

At least 100 religious organizations bought into the offer from the Pennsylvania-based foundation. Another 200 groups and individuals also invested, many with the understanding that their money would be doubled and given to charity.

The story is still unfolding, with a complete list of disillusioned creditors still to come. And it is unclear how much of the money will ultimately be returned to investors.

In the meantime, Pennsylvania officials are investigating whether New Era was involved in a Ponzi, or pyramid, scheme, which creates the illusion of financial success by paying off early investors with funds provided by later investors. The scheme eventually collapses when no more investors can be found.

Is there a lesson here for nonprofit organizations? And will New Era turn out to be another name to file with the PTL-Jim Bakker and other scandals--a dramatic story that makes the public worry about how wisely their money is being used by those who say they’re doing good.

“I think it can have an effect on donations in general because it’s going to come off as a financial scam--which apparently it is--and nonprofit organizations were duped into it,” said Paul Nelson, president of the Evangelical Council for Financial Accountability.

Officials from the evangelical relief organization World Vision and the InterVarsity Christian Fellowship, a campus ministry, said their organizations initially made substantial investments in New Era and received the promised return. Encouraged by their success, World Vision and InterVarsity each invested $1 million or more. Now the outcome is uncertain.

“We had done our own review of New Era and concluded that while it wasn’t a risk-free venture, it was nevertheless a reasonable risk, given the track record of the organization and the reputations . . . of those involved,” said Ken Casey, senior vice president of World Vision, based in Monrovia.

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Biola University in La Mirada and Fuller Theological Seminary in Pasadena are among other local institutions that placed money with New Era.

Fuller stands to lose a $1-million deposit it made last month, although seminary officials said Friday that an anonymous benefactor has advanced the seminary $1 million it can use to cover the loss if its contribution cannot be recovered from New Era.

New Era doubled Biola’s money, taking $500,000 the university deposited last October and returning $1 million to Biola this month, Biola spokesman Chi-Chung Keung said Friday.

But the university plans to return its gain, Keung said, citing Biola’s “moral obiligation to other organizations that may have lost funds.”

He said university finance officers insisted before depositing the money that New Era keep Biola’s $500,000 in a separate account. “As a result no Biola donations were at risk and not a penny was lost,” Keung said.

Although both Biola and Fuller appear to have escaped any financial damage from their association with New Era, officials at Fuller said the episode has damaged nonprofit organizations.

“Many worthy organizations, including many evangelical ministries, have been severely harmed by this turn of events,” Fuller president Richard J. Mouw said Friday.

Other Southern California ministries involved with New Era include Hospital Chaplains’ Ministry of America, Huntington Beach; Life Ministries, San Dimas; Mission Aviation Fellowship, Redlands; Jesus Film Project, San Clemente; World Christian Inc., Ventura, and World Impact, Los Angeles.

John Craig, treasurer of the Commonwealth Fund, who recently ran a session at the conference of the Council on Foundations on wise investing, found it hard to believe that sophisticated people wouldn’t exercise diligence--that is, take a careful look at the financial records of the organization their money was going to.

The key to New Era’s appeal, he suspects, was that investors “thought these anonymous donors would step up, [people] who didn’t know how to give away their money and relied on Bennett for guidance.” And Bennett would channel that money to them.

The idea of wealthy anonymous donors is not strange in the financial world. Many members of wealthy families who shun publicity often make charitable donations anonymously through law firms or banks.

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Although the New Era scandal may cast a shadow on charitable organizations, David Salem, who heads the Investment Fund for Foundations, thinks it will have the positive effect of making such organizations think more carefully about where they put their money.

Until now, he said, the financial decisions of nonprofit groups haven’t been subject to the “rigorous scrutiny of boards and consumers” or the “disciplining forces of the market.” Charities should look carefully, then ask “What’s wrong with this picture?” he said.

Several religious groups avoided being drawn into the scandal--some because they were cautious, and others because they were lucky.

When New Era approached officials at Pat Robertson’s Christian Broadcasting Network, they were turned away. “I guess you could say we don’t make investments . . . that fall into the it-seems-too-good-to-be-true category,” said CBN spokesman Gene Kapp.

Prison Fellowship, run by the former Watergate felon Chuck Colson, turned down an offer from New Era to participate in its regular matching fund program because the money to be matched had to be placed in an escrow account under New Era’s control.

But at least, notes Bob Smucker of Independent Sector, the nation’s major association of charitable groups, the New Era scandal should not produce the same kind of fallout as the recent accounts of United Way executives misusing funds because the ministries cannot be accused of purposely taking people’s money.

“People generally give to charities they know,” Smucker said. “They are going to continue to give. It’s not like the charities--who may have made a mistake in putting their money in [New Era]--absconded with the funds.”