June 24--INDIANAPOLIS -- A federal judge has agreed to close a case involving almost $85 million in investment fraud and the Church of God.
On Monday, U.S. District Court Southern District of Indiana Judge David Hamilton approved the final terms of the case and granted permission for properties causing a financial drain on Church of God assets to be abandoned.
Pending any objections and upon completion of the final terms, the case will be closed sometime in September or October.
Unsecured creditors will receive almost 60 cents on every dollar of their investment after repayment, said Terence Banich, an attorney representing the officials overseeing the repayment to investors.
That means someone who invested $100,000 could receive about $60,000 back from their original investment.
According to court documents, Church Extension of the Church of God repaid unsecured noteholders more than $57 million from 2003 to 2009.
Barry Bentley, asset restoration receiver for Church Extension of the Church of God, said the money was paid in 23 different installments to about 3,000 creditors.
A final installment to noteholders of approximately $750,000 has been approved by the court before the case is closed. Any unclaimed funds owed to investors will be turned over to the Indiana Attorney General's Office as unclaimed property.
In the end, records show more than $73 million was recovered after the liquidation of church assets and other funding including $2 million in private contributions. Expenditures, however, including $10 million for professional fees associated with the case reduced the overall repayment of funds to creditors.
Hamilton said, in reviewing his case notes, he felt those involved in the selling of investment notes made several bad and even foolish decisions that were followed by a cover-up. He said the poor judgments resulted in a gap between the assets and liabilities.
"It's more of the same old cliche, if you find yourself in a hole, stop digging," he said.
Hamilton called the recovery of funds for the investors "extraordinary." He said the people involved in the case had pooled their talents and gifts to make the best of a bad situation and quoted Scripture from the Bible before making his final rulings on the case.
No creditors were present at the final hearing.
Frank Johnson, president of the Reconstituted Board of Church Extension, said they were determined to recover as much money as possible for the church members who had made investments.
"People still lost money and many will be disappointed, but we did our best," Johnson said.
Bruce Hamilton, vice chair of the Reconstituted Board of Church Extension, said he has learned many things in the last 12 years including how to be a better steward of resources.
"When good people work together, even bad things can turn out all right," he said.
The Church of God, headquartered in Anderson, has more than 2,000 affiliated congregations and more than 230,000 members nationwide. In 1921, the Church of God established the Church Extension to operate fundraising activities along with its subsidiary, United Management Services Inc., which is a nonprofit Indiana corporation.
According to court documents, the Church Extension funds construction or renovations of churches for the Church of God and from 1996 to 2002 it sold investment notes totaling more than $85 million to its church members.
In 2002, the United States Securities and Exchange Commission (SEC) filed a suit against Church Extension, United Management Services Inc., James Perry Grubbs and Shearon Louis Jackson alleging Grubbs and Jackson misled investors.
Instead of using the funds from the sale of the investment notes for construction or renovations, court records state the money raised was used to make interest and principal payments to prior investors and the safety and the risk associated with the investment notes was misstated.
In 2003, the court ordered Church Extension and United Management Services to create a restructuring plan to repay almost $82 million of the $85 million sold to noteholders from 1996 to 2002.
A court order was also granted prohibiting all collection efforts for five years while court officials, the SEC, Church Extension and a committee of creditors could formulate, negotiate and draft a restructuring plan.
In 2003, a plan to make restitution to noteholders and establishing the Church Extension of the Church of God to sell or liquidate assets was approved by the courts.
The SEC negotiated a settlement with Grubbs imposing civil penalties of $120,000 and $90,000 on Shearon in 2005. Additional court negotiations, however, resulted in a modified judgment against the men that was paid to noteholders in 2007.
Monday's final hearing by the federal court allows the Church Extension of the Church of God to be dissolved and fundraising activities to continue under the Church Extension, said Banich.
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In summary The following is a summary of the primary sources and uses of cash under a plan to repay unsecured creditors who bought investment notes from Church Extension, which was established by the Church of God for fundraising: Sources of Cash --Beginning cash on hand -- $6,974,341 --Receipts from church loans, contracts and notes receivable -- $24,683,612 --Net operating cash from investment properties -- $781,681 --Net operating loss from retirement community assets -- ($118,528) --Net proceeds from asset sales -- $28,680,154 --Contributions -- $2,032,013 --Other income (primarily proceeds from litigation) -- $10,399,176 Total Net cash sources = $73,432,449 Uses of Cash --Distributions -- $57,116,253 --Professional fees -- $10,060,419 --Operating expenses -- $4,288,748 --Other cash uses -- $1,192,008 Total Net cash uses = $72,657,428 Cash balance on April 30, 2014 -- $775,021 Source: U.S. District Court Southern District of Indiana
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