Unusual Settlement in Charity Debacle
A path-breaking settlement has been reached in the collapse of the Foundation for New Era Philanthropy, the Pennsylvania charity whose grant programs have been described as an investment scam.
A $39-million settlement approved last week will allow agencies that lost money through New Era to receive as much as 65 cents on every dollar invested--much of that money coming from organizations that profited from New Era dealings.
Hundreds of groups across the country--ranging from evangelical ministries to the University of Pennsylvania and the Philadelphia Museum of Art--were affected when New Era filed for bankruptcy in May 1995.
Those groups had been in danger of losing millions of dollars invested through New Era’s “matching grant” program, which promised to double the charities’ money. Federal investigators say the program was actually a Ponzi scheme, which created the illusion of financial success by using contributions from new investors to pay previous ones.
New Era’s founder, John G. Bennett Jr., is being investigated, but no criminal charges have been filed against him.
Rollin A. Van Broekhoven, a federal-agency judge who represented some Christian groups involved in the scheme, described the agreement as nothing short of miraculous.
“We think it was marvelous. . . . It’s economically sound,” said Van Broekhoven, chairman of United Response to New Era, a consortium of about 195 evangelical churches and charities involved in the case. “It is a magnificent legal document, but it also is driven by moral and religious motivation.”
The settlement allows for groups that lost money through their association with New Era to get more funds returned to them than would usually be the case, in part because of some basic principles about fairness and stewardship that were drafted by evangelical ministry leaders and lawyers early in the case.
In short, charities and churches that profited from the New Era investment scheme agreed to return some of the money they made to help repay those groups that lost money.
Negotiations toward that settlement “started out with a principle that all of the resources and wealth in the world are God’s and God’s alone,” said Van Broekhoven, who is chairman of the board of the Evangelical Council of Financial Accountability, the group that formed United Response to New Era. “We are simply his stewards.”
Out of that notion, United Response developed two guiding principles: Those who benefited from their association with New Era should return money to those who lost funds. And Christian charities should not be pitted against one another in a long, litigious battle.
One of their ultimate goals, Van Broekhoven said, was to allow the settlement process to serve as “a Christian witness” of cooperation, both within the evangelical nonprofit community and the entire nonprofit world.
The settlement went through more than 25 drafts before it was completed, he said. Creditors representing about 80% of the dollars lost have agreed to the settlement. Those who gained money through New Era will benefit by saving the legal fees they would have incurred through a longer process.
“We believe that the lawyers that were involved in this case, even though they were of various faith and ethnic backgrounds . . . put away their own selfish, self-gaining interests and worked together to come up with a settlement that, under bankruptcy terms, gives far more to losers than you would ever expect under normal bankruptcy law and was resolved in a very small period of time,” said Van Broekhoven.
Bankruptcy cases often go on for four or five years when settlements are not reached, Van Broekhoven said, and creditors involved in such cases generally receive 10 or 15 cents on every dollar lost. “The comments I’ve heard from people who’ve worked in bankruptcy before is that this case is really unprecedented,” said Mark Howard, in-house counsel for the evangelical relief organization World Vision, which lost more than $1.8 million from its association with New Era.
He said negotiations in the case centered on finding a fair balance “between law and grace.” While some groups felt that charities should return profits they received from New Era dealings, others wanted to ensure that returning those funds would not force the charities out of business, he said.
William McConnell, assistant to the president of InterVarsity Christian Fellowship, a campus ministry based in Madison, Wis., said his organization will be pleased to see any of the $300,000 it lost.
“We had expected nothing at the time of the bankruptcy,” McConnell said. “To receive something back now is an act of grace.”
The entire process could be delayed if Prudential Securities, the investment company that handled New Era’s accounts, appeals the bankruptcy judge’s decision. But Van Broekhoven said United Response will do “whatever we can legally and morally to press the case forward.”
Barring such a delay, the affected groups could see some of the money they lost by the end of the year.