Church fined by SEC

[Teancum]

48 minutes ago, webbles said:

This something that I'm confused about. From the order, it says it is a settlement and that they don't admit wrong doing:

In anticipation of the institution of these proceedings, Respondents have submitted Offers of Settlement (the “Offers”) which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission’s jurisdiction over them and the subject matter of these proceedings, which are admitted, Respondents consent to the entry of this Order...

But then later in the order, it says they will pay a "civil money penalty".

Nobody pays the SEC a settlement.  It was likely a negotiated fine that was settled on.  I have some experience in advising a business on an SEC issue but I am not at liberty to talk about it. But essentially it was the SEC saying "you can fight this but this is what happens if you lose and it is really not nice for you.  But pay iis this fine/penalty and we will leave you alone.

[Teancum]

1 hour ago, bluebell said:

No, but it sounds like they were reasonably convinced that they (all that were involved) could do it and not get fined for doing it. That turned out to be wrong.

Well sure EPA relied on legal advice but usually the legal advisors spell it out.  And also the motive for the planning.  I find it hard to believe that the EPA management just simply nodded their heads to the idea of splitting fund into numerous LLCs just for fun.  They knew the reasons for it.

[ttribe]

12 minutes ago, SteveO said:

It wasn’t creating shells that got them into trouble, it was because they weren’t subsidiaries but still granting full voting rights to the church.  From what I understand.

 

9 minutes ago, bluebell said:

Do the legal actions go beyond just creating some entities to hold assets?  Because while I can understand why some might not like that the church was keeping assets from public knowledge (especially anyone who is already disposed to interpret any action by the church in the worst possible light), I don't find that to be a moral issue in and of itself.

I'm just interested in the legal issues.

The final legal violation is that Form 13-F wasn't being properly filed in the name of Ensign Peak. This violation flows directly from setting up shell companies which were still 100% controlled by Ensign Peak, rather than self-directed. Those are the technical elements.

The SEC documents key findings of its investigation in its Order (which I recommend reading in its entirety) that show the specific intent and knowledge of leadership. Those are the factors which I believe result in the SEC deciding to file charges against both Ensign Peak and the Church. They are, IMO, aggravating factors that led to the formal charges.

[Teancum]

4 hours ago, OGHoosier said:

They fixed it when the SEC decided it was a problem. 

That's their right as a regulatory agency, of course, but this seems to be a case of regulatory discretion going one way as opposed to another.

The SEC does not just decide something is a problem.  There are rules and regulations in this space.

[Analytics]

9 minutes ago, bluebell said:

Do the legal actions go beyond just creating some entities to hold assets?  Because while I can understand why some might not like that the church was keeping assets from public knowledge (especially anyone who is already disposed to interpret any action by the church in the worst possible light), I don't find that to be a moral issue in and of itself.

I'm just interested in the legal issues.

Going straight off of the SEC's press release, these are the legal issues:

1. From 1997 through 2019, the Church failed to file Forms 13F.
2. The Church created 13 shell companies with only one purpose: skirting its SEC reporting requirements.
3. The 13 shell companies lied in their SEC filings, claiming, among other things, that these shell companies had actual "business managers" that ran them, that they were domiciled across the United States, and that the LLC's each had sole investment and voting discretion over the securities. In reality, the "business managers" were all Church employees, and EPA had full control over all of them.
4. "The LDS Church's investment manager, with the Church's knowledge, went to great lengths to avoid disclosing the Church's investments, depriving the Commission and the investment public of accurate market information."
5. The Church itself caused EPA's violations "through its knowledge and approval of Ensign Peak's use of the shell LLC's."

From the SEC's perspective, investors as large as EPA are required to file these forms so that the SEC can monitor their transactions and patrol whether they are using their size to unfairly manipulate the market, thereby hurting other investors. That's why legitimate LLC's that are independently operated are fine, while shell LLC's that are all completely controlled in harmony by a parent organization are not.

[provoman]

5 hours ago, ttribe said:

I sincerely hope this prompts the Church to be more transparent with its finances.

What do believe the transparency would provide, that is not provided at this time?

As for "shell" LLCs, is it legal to establish them?  Aren't "shell" companies how big corporations avoid taxes in the United States; Ireland as a Tax Haven

I am genuinely curious about the questions above, due to your expertise.

[pogi]

30 minutes ago, SteveO said:

For such a sensational sentence from Clarke, that better damn well have a quote.  
 

Garbage journalism.

I am guessing that the Wall Street Journal article is the source:

Quote

Latter-day Saint officials kept the size of the church’s $100 billion investment reserves secret for fear that public knowledge of the fund’s wealth might discourage members from paying tithing, according to the top executive who oversees the account.

For members of The Church of Jesus Christ of Latter-day Saints, tithing — donating 10% of one’s income to the faith — “is more of a sense of commitment than it is the church needing the money,” Roger Clarke, head of Ensign Peak Advisors, which manages the denomination’s investing holdings, told The Wall Street Journal.

“So they never wanted to be in a position where people felt like, you know, they shouldn’t make a contribution,” Clarke said."

https://www.sltrib.com/news/2020/02/08/lds-church-kept-lid-its-b/

 

Edited February 21, 2023 by pogi

[Analytics]

43 minutes ago, bluebell said:

Speaking only for myself, I'm not suggesting that the act of keeping the portfolios (or whatever they are called) private and unknown was accidental or a mistake.  I'm saying that it sounds like they thought they could do it legally but were mistaken on that issue.

They didn't think they could do it legally. They thought they could get away with it. What they did was patently designed to mislead the SEC and hide their assets from the Church membership and the public. Nothing more.

For example, 

26. To prepare the filings, Ensign Peak maintained a list of all Section 13(f) Securities within its portfolio, and allocated these securities to the various Clone LLCs. Ensign Peak allocated newly-held Section 13(f) Securities to a Clone LLC at the end of a quarter, and also reallocated other Section 13(f) Securities to new LLCs as the number of LLCs increased. Ensign Peak’s senior management then drafted the Forms 13F and filed them, generally before obtaining the BusinessManagers’ signatures.

27. Each Form 13F filed in the name of a Clone LLC misstated that the LLC had sole investment discretion for the securities listed, that there were no other managers for these securities, and that the Clone LLC had sole voting discretion over these securities. Even though the IMAs stated that Ensign Peak had delegated investment discretion, Ensign Peak continued to manage the entire portfolio and at all times maintained investment and voting discretion over all the securities listed in the Forms 13F.

28. Each Form 13F was signed by the designated Business Manager. The signature page stated, “The institutional investment manager filing this report and the person by whom it is signed hereby represent . . . that all information contained herein is true, correct and complete[.]” However, Ensign Peak provided the Business Managers with insufficient information about the Clone LLCs or the securities assigned to them that would enable the Business Managers to make this representation. When Ensign Peak obtained the Business Managers’ signatures for the Forms 13F, Ensign Peak gave the Business Managers only the signature pages of the Forms 13F and not the complete documents. In addition, the Forms 13F were often filed with electronic signatures before Ensign Peak actually obtained the Business Managers’ handwritten signatures.

29. Each Form 13F also misstated that the Business Manager signed the Form 13F from the address listed on the signature page. In fact, all Business Managers were located in Salt Lake City, and the addresses on the forms were used to convey the impression that the Clone LLCs were located across the country.

30. The Church and Ensign Peak understood that Ensign Peak continued to make investment and voting decisions relating to the portfolio, and that the LLC Structure was created for the sole purpose of filing Forms 13F.

https://www.sec.gov/litigation/admin/2023/34-96951.pdf

You can't tell me they thought lying on SEC forms was legal.

 

 

[Analytics]

17 minutes ago, provoman said:

What do believe the transparency would provide, that is not provided at this time?

As for "shell" LLCs, is it legal to establish them?  Aren't "shell" companies how big corporations avoid taxes in the United States; Ireland as a Tax Haven

I am genuinely curious about the questions above, due to your expertise.

Read the following link to hear the SEC's case, straight out of their own mouth:

https://www.sec.gov/litigation/admin/2023/34-96951.pdf

[ttribe]

15 minutes ago, provoman said:

What do believe the transparency would provide, that is not provided at this time?

As for "shell" LLCs, is it legal to establish them?  Aren't "shell" companies how big corporations avoid taxes in the United States; Ireland as a Tax Haven

I am genuinely curious about the questions above, due to your expertise.

As to transparency - I hope I don't sound snarky (it's not my intent to be), but there should be no more specific efforts to hide any assets. Also, once upon a time (pre-1959), the Church issued financial statements showing how donor funds were used. I think they should return to that. As it stands, in many ways, the Church is a black hole into which donations flow with no disclosure to their donors (i.e. tithe-payers) on the money was used.

Yes, shell LLCs in and of themselves are legal to establish and there are legitimate uses. I commented earlier in the thread that they are frequently used for separating assets to limit liability and that real estate transactions often have layers of LLCs. But, in all cases, there has to be a legitimate business purpose. In this case, the principal reason was to hide assets from regulators. Each LLC lacked independence in fact and specific steps were taken to throw off inquiries as to their true nature.

[provoman]

22 minutes ago, Analytics said:

Going straight off of the SEC's press release, these are the legal issues:

1. From 1997 through 2019, the Church failed to file Forms 13F.
2. The Church created 13 shell companies with only one purpose: skirting its SEC reporting requirements.
3. The 13 shell companies lied in their SEC filings, claiming, among other things, that these shell companies had actual "business managers" that ran them, that they were domiciled across the United States, and that the LLC's each had sole investment and voting discretion over the securities. In reality, the "business managers" were all Church employees, and EPA had full control over all of them.
4. "The LDS Church's investment manager, with the Church's knowledge, went to great lengths to avoid disclosing the Church's investments, depriving the Commission and the investment public of accurate market information."
5. The Church itself caused EPA's violations "through its knowledge and approval of Ensign Peak's use of the shell LLC's."

From the SEC's perspective, investors as large as EPA are required to file these forms so that the SEC can monitor their transactions and patrol whether they are using their size to unfairly manipulate the market, thereby hurting other investors. That's why legitimate LLC's that are independently operated are fine, while shell LLC's that are all completely controlled in harmony by a parent organization are not.

Did the SEC use the term "lied" or is that your editorial?

[bluebell]

24 minutes ago, Analytics said:

Going straight off of the SEC's press release, these are the legal issues:

1. From 1997 through 2019, the Church failed to file Forms 13F.
2. The Church created 13 shell companies with only one purpose: skirting its SEC reporting requirements.
3. The 13 shell companies lied in their SEC filings, claiming, among other things, that these shell companies had actual "business managers" that ran them, that they were domiciled across the United States, and that the LLC's each had sole investment and voting discretion over the securities. In reality, the "business managers" were all Church employees, and EPA had full control over all of them.
4. "The LDS Church's investment manager, with the Church's knowledge, went to great lengths to avoid disclosing the Church's investments, depriving the Commission and the investment public of accurate market information."
5. The Church itself caused EPA's violations "through its knowledge and approval of Ensign Peak's use of the shell LLC's."

From the SEC's perspective, investors as large as EPA are required to file these forms so that the SEC can monitor their transactions and patrol whether they are using their size to unfairly manipulate the market, thereby hurting other investors. That's why legitimate LLC's that are independently operated are fine, while shell LLC's that are all completely controlled in harmony by a parent organization are not.

That makes sense, thanks for the explanation.

[bluebell]

38 minutes ago, Teancum said:

Well sure EPA relied on legal advice but usually the legal advisors spell it out.  And also the motive for the planning.  I find it hard to believe that the EPA management just simply nodded their heads to the idea of splitting fund into numerous LLCs just for fun.  They knew the reasons for it.

Agreed.  What matters to me is whether or not they knew what there were doing was illegal. It appears that they thought it was legal but were wrong.

[CV75]

@SteveOand @smac97, I appreciate your remarks. Given that the Church only settled an allegation with a fine, the whole affair seems to be a matter of ethicality over morality, having to do with enforcing rules and regulations since the SEC does not have criminal authority. I do not see this incident as an indicator of general apostasy or leadership abusing of the keys of the kingdom. Others may be more sensitive about this sort of thing; I think the variety of reactions and reasoning provides a good case study for moral foundations theory.

[ttribe]

2 minutes ago, provoman said:

Did the SEC use the term "lied" or is that your editorial?

The SEC highlights the ways in which the filings were incorrect. I think it's hard to argue that they were being honest on those filings.

"The SEC’s order finds that, from 1997 through 2019, Ensign Peak failed to file Forms 13F, the forms on which investment managers are required to disclose the value of certain securities they manage. According to the order, 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 order finds that Ensign Peak maintained investment discretion over all relevant securities, that it controlled the shell companies, and that it directed nominee “business managers,” most of whom were employed by the Church, to sign the Commission filings. The shell LLCs’ Forms 13F misstated, among other things, that the LLCs had sole investment and voting discretion over the securities. In reality, the SEC’s order finds, Ensign Peak retained control over all investment and voting decisions." (emphasis mine)

[bluebell]

37 minutes ago, ttribe said:

 

The final legal violation is that Form 13-F wasn't being properly filed in the name of Ensign Peak. This violation flows directly from setting up shell companies which were still 100% controlled by Ensign Peak, rather than self-directed. Those are the technical elements.

The SEC documents key findings of its investigation in its Order (which I recommend reading in its entirety) that show the specific intent and knowledge of leadership. Those are the factors which I believe result in the SEC deciding to file charges against both Ensign Peak and the Church. They are, IMO, aggravating factors that led to the formal charges.

Is there somewhere that we can look to find out if your opinion is correct on the existing of aggravating factors that led to the formal charge?

[CV75]

3 minutes ago, bluebell said:

Agreed.  What matters to me is whether or not they knew what there were doing was illegal. It appears that they thought it was legal but were wrong.

Or they thought it was not a matter of law but of technical rules and regulations leaving some room for ethical flexibility without offending a moral code or sensibilities.

Edited February 21, 2023 by CV75

[SteveO]

Just now, ttribe said:

As to transparency - I hope I don't sound snarky (it's not my intent to be), but there should be no more specific efforts to hide any assets. Also, once upon a time (pre-1959), the Church issued financial statements showing how donor funds were used. I think they should return to that. As it stands, in many ways, the Church is a black hole into which donations flow with no disclosure to their donors (i.e. tithe-payers) on the money was used.

Yes, shell LLCs in and of themselves are legal to establish and there are legitimate uses. I commented earlier in the thread that they are frequently used for separating assets to limit liability and that real estate transactions often have layers of LLCs. But, in all cases, there has to be a legitimate business purpose. In this case, the principal reason was to hide assets from regulators. Each LLC lacked independence in fact and specific steps were taken to throw off inquiries as to their true nature.

I think the buck stops with the presiding bishopric unless I’m shown otherwise.

I think for all intents and purposes, the church needs to realize that its corporate arm is a Wall Street hedge fund that should be regarded as a big time player. Wall Street is not clean, and as a player, the church is about to realize how hard it is to do what they do with regards to investing, without being cutthroat and a little dirty.

First Presidency is gonna have to get involved, clean house, shake things up, and institute some serious reforms going forward.

[ttribe]

1 minute ago, bluebell said:

Is there somewhere that we can look to find out if your opinion is correct on the existing of aggravating factors that led to the formal charge?

I really recommend reading the entire order. Nevertheless, after outlining the issues we've been discussing, the Order states -

"36. As a result of the conduct described above, Ensign Peak violated Section 13(f)(1) of
the Exchange Act and Rule 13f-1 thereunder by failing to file Forms 13F in Ensign Peak’s name.
Ensign Peak also violated Section 13(f)(1) of the Exchange Act and Rule 13f-1 thereunder by
filing misstated Forms 13F in the names of LLCs created for the sole purpose of filing Forms 13F." (emphasis mine)

[Analytics]

12 minutes ago, provoman said:

Did the SEC use the term "lied" or is that your editorial?

They use the term "misstated."

[bluebell]

1 minute ago, ttribe said:

I really recommend reading the entire order. Nevertheless, after outlining the issues we've been discussing, the Order states -

"36. As a result of the conduct described above, Ensign Peak violated Section 13(f)(1) of
the Exchange Act and Rule 13f-1 thereunder by failing to file Forms 13F in Ensign Peak’s name.
Ensign Peak also violated Section 13(f)(1) of the Exchange Act and Rule 13f-1 thereunder by
filing misstated Forms 13F in the names of LLCs created for the sole purpose of filing Forms 13F." (emphasis mine)

So does the SEC not fine (or whatever the proper term would be) for lying on forms?  Is lying not illegal or something the SEC can get a company in trouble for?

That probably sounds like a dumb question but I'm trying to figure out how EP was found in violation of not filing a form but not held accountable for lying on the forms (per Analytics analysis)?  Isn't that perjury?  Does the SEC not deal with issues of perjury?

[ttribe]

3 minutes ago, SteveO said:

I think the buck stops with the presiding bishopric unless I’m shown otherwise.

I think for all intents and purposes, the church needs to realize that its corporate arm is a Wall Street hedge fund that should be regarded as a big time player. Wall Street is not clean, and as a player, the church is about to realize how hard it is to do what they do with regards to investing, without being cutthroat and a little dirty.

First Presidency is gonna have to get involved, clean house, shake things up, and institute some serious reforms going forward.

From the Order -

"As referenced in this Order, “senior leadership of the Church” consists of the Church’s First Presidency and Presiding
Bishopric." (emphasis mine)

"8. To prevent disclosure of the securities portfolio managed by Ensign Peak, the
Church approved Ensign Peak’s plan of using other entities, instead of Ensign Peak, to file Forms
13F. The Church was concerned that disclosure of the assets in the name of Ensign Peak, a known
Church affiliate, would lead to negative consequences in light of the size of the Church’s portfolio.
Ensign Peak did not have the authority to implement this approach without the approval of the
Church’s First Presidency." (emphasis mine)

 

[bluebell]

Just now, ttribe said:

From the Order -

"As referenced in this Order, “senior leadership of the Church” consists of the Church’s First Presidency and Presiding
Bishopric." (emphasis mine)

"8. To prevent disclosure of the securities portfolio managed by Ensign Peak, the
Church approved Ensign Peak’s plan of using other entities, instead of Ensign Peak, to file Forms
13F. The Church was concerned that disclosure of the assets in the name of Ensign Peak, a known
Church affiliate, would lead to negative consequences in light of the size of the Church’s portfolio.
Ensign Peak did not have the authority to implement this approach without the approval of the
Church’s First Presidency." (emphasis mine)

 

I would hope not.  That's a lot of money and the First Presidency should be involved.

[ttribe]

1 minute ago, bluebell said:

So does the SEC not fine (or whatever the proper term would be) for lying on forms?  Is lying not illegal or something the SEC can get a company in trouble for?

That probably sounds like a dumb question but I'm trying to figure out how EP was found in violation of not filing a form but not held accountable for lying on the forms (per Analytics analysis)?  Isn't that perjury?  Does the SEC not deal with issues of perjury?

To be clear, they were charged with not filing the forms in Ensign Peak's name. That's the lie.

Edited February 21, 2023 by ttribe

[Analytics]

5 minutes ago, SteveO said:

I think the buck stops with the presiding bishopric unless I’m shown otherwise.

I think for all intents and purposes, the church needs to realize that its corporate arm is a Wall Street hedge fund that should be regarded as a big time player. Wall Street is not clean, and as a player, the church is about to realize how hard it is to do what they do with regards to investing, without being cutthroat and a little dirty.

First Presidency is gonna have to get involved, clean house, shake things up, and institute some serious reforms going forward.

According to the SEC report, the First Presidency approved of this scheme and neither Ensign Peaks nor the Presiding Bishopric had the authority to change it without the First Presidency's approval.