SEC Charges Against Ensign Peak Advisers: The Veil Over LDS Church Investments

DisruptionBanking.com: Surprisingly, the IRS didn’t do anything at all, and the SEC levied a minuscule fine. And so, after 4 or 5 years, the SEC finally charged the fund with “disclosure failures and misstated filings,” asking for a measly $5 million slap on the wrist. EP agreed to pay $4 million and the Church agreed to pay $1 million.

To give an idea of how lenient that is, take, as a comparison, the fine Deutsche Bank, an inveterately criminal organization, had to pay for “slow progress” against money laundering: $186 million. The disparity is marked, due to the fact that the SEC feels entitled to the proceeds from private enterprises but not from religious organizations.

The SEC order stated, “The Church was concerned that disclosure of its portfolio, which by 2018 grew to approximately $32 billion, would lead to negative consequences. To obscure the amount of the Church’s portfolio, and with the Church’s knowledge and approval, Ensign Peak created thirteen shell LLCs, ostensibly with locations throughout the U.S., and filed Forms 13F in the names of these LLCs rather than in Ensign Peak’s name.”

“The Devil Made Me Do It” — The church blamed its attorneys for advising them to create shell companies (a.k.a. “The Devil made me do it!”), telling 60 Minutes “We don’t feel it’s being secret. We feel it’s being confidential.”

LDS news you may have missed last year involving major Church fraud.

How a Huge Hedge Fund Masqueraded as a Religious Charity for 20 Years & Nobody Cared

One of the largest hedge funds in the world was pretending to be a religious charity until recently. Estimates of its assets range between $50 billion and more than $150 billion. As a religious charity, the hedge fund was tax-exempt for two decades, while sucking up donations from unwitting church members.

That’s because the hedge fund is owned by the Church of Jesus Christ of Latter-day Saints, otherwise known as the Mormon Church. Church members unwittingly donated to Ensign Peak Advisors (EP), a clandestine hedge fund investing their money in stocks and bonds without their knowledge.

As ordered by The Holy Bible, the church’s 17 million faithful give 10% of their income, known as a tithe, and the church takes this money and does what it likes with it. Only, after paying for operational costs, roughly $1 billion a year was routed for the last twenty years to to shell companies controlled via a fake religious charity.

However, the charity never engaged in one single charitable act. Instead, according to a whistleblower, “once the money went in, it didn’t go out.” It’s actually difficult to imagine something more despicable to do to a congregation.

For 22 years, church leaders guarded the secret, until, David Nielson, a senior portfolio manager at EP, blew the whistle, filing a report with the Internal Revenue Service (IRS).

In February 2023, the U.S. Securities and Exchange Commission (SEC) took an unprecedented step by charging Ensign Peak Advisers, Inc., the investment manager for The Church of Jesus Christ of Latter-day Saints (LDS Church), with failing to disclose its equity investments. This case spotlighted the use of shell companies to obscure the church’s investment portfolio, which was estimated to exceed $100 billion. Despite settling the charges with a $5 million fine, the LDS Church controversially retained its tax-exempt status, sparking significant public and legal scrutiny.

The SEC’s Allegations

The SEC alleged that from 1997 to 2019, Ensign Peak Advisers failed to file the necessary Form 13F disclosures, which are mandatory for institutional investment managers managing over $100 million in equity assets, to reveal their holdings. Instead of transparent reporting, Ensign Peak created 13 shell companies across the U.S. to file these forms, effectively hiding the church’s extensive investment activities. This maneuver not only obscured the church’s financial status but also potentially evaded tax scrutiny on what could be considered taxable income.

Creation of Shell Companies: Ensign Peak’s strategy involved forming these shell companies to give the impression of diverse, independent investment entities, while in reality, the church retained full control over all investment decisions.

The Salt Lake Tribune: LDS Church to pay $5M for hiding stock holdings, needs to ‘rebuild trust’

The overarching drive of The Church of Jesus Christ of Latter-day Saints to keep the size and scope of its wealth hidden at all cost is now going to cost it.

In a settlement announced Tuesday with U.S. Securities and Exchange Commission, the Utah-based faith and its investment arm, Ensign Peak Advisors, have agreed to pay $5 million in penalties for failing to properly disclose past stock holdings and going to “great lengths” to deliberately “obscure” the church’s investment portfolio.

The development came within days of new stories revealing that the SEC was investigating the church and Ensign Peak. Under the deal, which appears to conclude the probe, Ensign Peak will pay $4 million and the church $1 million within 10 days to the U.S. Treasury.

The SEC charged the Salt Lake City investment firm with “failing to file forms that would have disclosed the church’s equity investments,” according to an agency news release, “and for instead filing forms for shell companies that obscured the church’s portfolio and misstated Ensign Peak’s control over the church’s investment decisions.” The SEC also charged the church with “causing these violations.”

In its own news release posted soon after the SEC announcement, the church expressed its “regret” for what it termed as errors and that “investment returns” — not members’ tithes — would be used to cover the settlement.

“We affirm our commitment to comply with the law,” it said, “regret mistakes made, and now consider this matter closed.”

Some Latter-day Saints were troubled by the disclosures.

SEC’s View: Gurbir S. Grewal, then director of the SEC’s Division of Enforcement, stated that Ensign Peak “went to great lengths to avoid disclosing the church’s investments, depriving the Commission and the investing public of accurate market information.”

Public and Legal Outrage

The revelation of these practices led to a significant backlash:

Tax-Exempt Status: The church, despite agreeing to pay a $5 million penalty – $4 million by Ensign Peak and $1 million by the church itself – continued to enjoy its tax-exempt status as a religious organization. This outcome was especially contentious because of the size of the investment fund and the perception of evading tax responsibilities ().
Public Reaction: Posts on X highlighted the disparity between the church’s wealth and its tax obligations, with sentiments like “The Church of Jesus Christ of Latter-day Saints and its investment arm have been fined $5 million for using shell companies to obscure the size of its $32 billion portfolio,” reflecting a broader public frustration ().
Legal and Ethical Questions: The case raised questions about the ethics of using tax-exempt status to manage such vast investments, particularly when these funds are not directly used for charitable activities as one might expect from a religious institution.

LDS Church’s Response

In response to the charges and the subsequent public outcry, the LDS Church emphasized:

Compliance and Regret: The church stated it had worked with the SEC for years to reach a settlement and expressed regret for “mistakes made,” emphasizing that it had relied on legal counsel concerning its reporting obligations ().
Use of Funds: Church leaders clarified that the investments were part of a “rainy-day fund” intended for future challenges or crises, rather than immediate charitable disbursement, although specifics on how these funds would be used were not detailed ().
Confidentiality vs. Secrecy: The church maintained that its approach was about maintaining confidentiality rather than secrecy, a nuance that did little to quell public skepticism ().

Broader Implications

Regulatory Oversight: This case has prompted discussions about the oversight of large religious organizations’ financial practices, especially when they operate significant investment arms.
Tax Policy: There’s been a renewed call for reviewing how tax exemptions are applied to religious organizations with large investment portfolios, questioning whether such exemptions align with the spirit of tax law meant to support charitable activities.
Transparency in Religion: The incident has fueled debates on the transparency of religious institutions, particularly those with extensive financial operations, in an era where public trust in institutions is waning.

The SEC’s charges against Ensign Peak Advisers not only brought to light the complexities of financial management by religious institutions but also ignited a debate over the ethics, legality, and public accountability of such practices. While the $5 million fine might seem like a small penalty compared to the assets involved, the case has undeniably left a lasting impact on how the public views the intersection of faith, finance, and fiscal responsibility. The LDS Church’s continuation of its tax-exempt status, despite these revelations, remains a point of contention and a call for perhaps more stringent regulations or at least greater transparency in the future.