🧑⚖️ SEC¶
Estimated time to read: 12 minutes
The Church complies with all applicable law governing our donations, investments, taxes, and reserves.
— First Presidency Statement on Church Finances, 17 December 2019 - Salt Lake City Official Statement
Funny they felt the need to make this official statement in late 2019. Probably just a coincidence. Anyway, here's a completely unrelated timeline of temples announced by President Nelson from 2018 - 2024 April:
| Year | Announcements |
|---|---|
| 2018 | 19 |
| 2019 | 16 |
| 2020 | 14 |
| 2021 | 34 |
| 2022 | 35 |
| 2023 | 35 |
| 2024 | 15 (as of April) |
| Sources: 1, 2 |
Call me a grouch if you think I deserve it, but I think that doubling announcements of temple construction so close to the time of an SEC fine and a whistleblower accusation of hoarding wealth doesn't look like a coincidence.
Let’s first examine two possibilities. Tell me if other outcomes are feasible.
- The evil US government is influenced by Satan and is picking on God’s one, true church by giving them fines and bad public image
- The church is dishonest and has been caught misusing tithing money
Which of these options is more likely? Are there middle ground scenarios to consider?
(To be clear, I can get behind the idea of the US Govt as a whole being villainous. Please don't think I'd defend them, particularly within proximity to tax season.)
I'll introduce the debacle with the church's take on things. They employ lots of "weasel words" to obfuscate what happened, minimize its impact, and present it in an innocuous way. When reading it, keep count of how many "non-specific" things they say.
LDS Church PR Statement¶
I'll first reiterate that I have no legal authority or training, I'm a dork with an internet connection.
The Church of Jesus Christ of Latter-day Saints and its affiliated investment manager, Ensign Peak Advisors, Inc., have settled a matter with the Securities and Exchange Commission (SEC).
I'd like to emphasize some highlights here: "affiliated" as a past tense verb means "to become part of or form a close relationship with a group or organization", or as a noun is "an organization that is officially connected with or controlled by another, usually larger, organization."
"Affiliated" shouldn't be interpreted to mean "preferred," or "my nephew owns this and I'll support family business." This is a transactional relationship. Ensign Peak Advisors (EPA) may not be a subsidiary of the church, but EPA certainly doesn't exist independent of it.
If the church is innocent, truthful, not trying to hide anything, why did they pay the fine?
Outside a legal context, "settling" sounds like an innocuous way to reach resolution where both parties are satisfied. Within a legal context, settling sure sounds like demands have been met, and the accused has done something to satisfy the accuser outside the scope (and scrutiny) of a courthouse.
Investment managers who oversee a portfolio of public equities above a certain threshold are required to file Forms 13F with the SEC quarterly. These forms publicly disclose the names of the securities and their values.
Above a certain threshold, you say?
The SEC's page describing the form outlines who needs to submit it:
Institutional investment managers [who,] in the course of their business and that exercise investment discretion over $100 million or more in Section 13(f) securities must file Form 13F. See Section 13(f)(1) of the Securities Exchange Act.
Sweet Jesus.
Investment discretion of over $100 million. Not in net value, real estate, revenue, or shareholder dividends. If a corporation has sole discretion of investments over 100 million, they're legally required to send these forms quarterly. That right there should be enough to give anyone pause. What is the church doing with your tithing?
Since 2000, Ensign Peak received and relied upon legal counsel regarding how to comply with its reporting obligations while attempting to maintain the privacy of the portfolio. As a result, Ensign Peak established separate companies (LLCs) that each filed Forms 13F instead of a single aggregated filing. Ensign Peak and the Church believe that all securities required to be reported were included in the filings by the separate companies.
Ensign Peak relied on external legal counsel? You mean EPA doesn't have its own internal legal team? The church itself isn't comprised entirely of lawyers up at the top? And not one of you thought to read the requirements on how to file a tax form?
If they relied on legal counsel from an external source, wouldn't they also be culpable in this violation? If that's the case, then either I misunderstand how punitive charges work, or the legal counsel was not external. From an outside perspective, I'm very interested to find out more about the legal counsel that EPA received and relied on.
In June 2019, the SEC first expressed concern about Ensign Peak’s reporting approach. Ensign Peak adjusted its approach and began filing a single aggregated report. Since that time, 13 quarterly reports have been filed in full accordance with SEC requirements.
13 quarterly reports? Filing form 13f, concerning 13 shell companies? Get your tinfoil hats!
Really, though, to have "expressed concern" sounds a bit light for a government agency capable of levying fines. "Reporting approach" is a very soft way of saying "committing fraud via shell companies". Why would you call it a single aggregated report? It was meant to be one report in the first place! What are you aggregating? Does the SEC accept aggregated reports? If so, is it clear that the report an aggregation from shell companies?
This settlement relates to how the forms were filed previously. Ensign Peak and the Church have cooperated with the government over a period of time as we sought resolution.
Over a period of time? Did they stop cooperating?
We affirm our commitment to comply with the law, regret mistakes made, and now consider this matter closed.
Slow down. You could call this a regrettable mistake, but don't forget whose money is being used fraudulently. I paid into this fund. Ostensibly, readers of these notes have likely also paid into it as well. I don't think the church should be the ones to "consider this matter closed" because it was our fucking money that we donated with the expectation that it's feeding impoverished humans, not feeding a stock portfolio.
This is why I'm so upset about the opacity of the church's finances. The first time I hear solid information about where it's actually going, it's going to fraud.
I surmise (and I cannot emphasize the word "surmise" enough here) that the church agreed to settle to avoid a high-profile court appearance. $5 million total for greater control of the story. They can say they "consider the matter closed", and then refuse to answer any further questions. It's settled, after all. $5 million in fees is a lot, yes, but it's astronomically small compared to the sum of money that spurred the whole ordeal. Seems like a no-brainer from their perspective. Take the L, pay $5 million, and move on.
SEC PR statement¶
The Securities and Exchange Commission today announced charges against Ensign Peak Advisers Inc., a non-profit entity operated by The Church of Jesus Christ of Latter-day Saints to manage the Church’s investments, for failing to file forms that would have disclosed the Church’s equity investments, 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 announced charges against the Church for causing these violations. To settle the charges, Ensign Peak agreed to pay a $4 million penalty and the Church agreed to pay a $1 million penalty.
Wow, this is a lot less rosy than what the church had to say about itself.
According to the SEC, the US governmental authority on... securities exchanges, Ensign Peak is owned and operated by the LDS Church. The church caused those violations, because it owns and operates EPA. The church caused EPA, which it owns and operates, to obscure the church's portfolio.
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.
Over 22 years. Each quarter over the span of 22 years. The church had up to 88 quarterly opportunities to correct what they're calling a regrettable mistake. Legal scrutiny found that this regrettable mistake was to avoid negative consequences, "with the Church's knowledge and approval[.]" You don't accidentally make thirteen shell LLC's to obscure your profile. They knew what they were doing, and did it deliberately. Did they weigh what the negative consequences were versus the public relations damage for committing fraud? I can only assume so.
Refer again to the opening statement in this page of notes: is the SEC just a bunch of miserable paper-pushers looking to bully the church? Or did the church commit fraud and now has to face consequences?
Also compare to the LDS' PR statement that the relevant time range began in 2000, and the SEC is stating 1997. I should hope that both parties can agree on when fraudulent actions began. The LDS statement specified that "[s]ince 2000, Ensign Peak received and relied upon legal counsel regarding how to comply with its reporting obligations..." Would it be unreasonable to conclude that between '97 and 2000, EPA did not rely on legal counsel?
“We allege that 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 investing public of accurate market information,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “The requirement to file timely and accurate information on Forms 13F applies to all institutional investment managers, including non-profit and charitable organizations.”
... They didn't categorize the LDS church a religious organization? Probably just a coincidence. I am now curious to know if other religious institutions have investment discretion of $100+ million within one category of securities.
Ensign Peak agreed to settle the SEC’s allegation that it violated Section 13(f) of the Securities Exchange Act of 1934 and Rule 13f-1 thereunder by failing to file Forms 13F and for misstating information in these forms. The Church agreed to settle the SEC’s allegation that it caused Ensign Peak’s violations through its knowledge and approval of Ensign Peak’s use of the shell LLCs.
I am not a lawyer, but my loose understanding of having "agreed to settle" can imply a variety of things: "we don't want you to investigate us further, so let's cooperate to satisfy what you've found so far" or, "we agree that you caught us red-handed, and will pay the penalties." I can't confidently say which one, but that choice of words doesn't look good.
At the bottom of the SEC's PR statement is a link to the cease-and-desist order. I'll examine that in another page, this one is meant to just be an overview and comparison of the two PR statements.
The Form Itself¶
I do not have investment discretion on $100+ million. I don't expect I'll reach that level of wealth in the future. I could dismiss this as some kind of rich-people problem that I won't ever be confronted with, so why bother? Well, I do have an interest in this institution that shaped so much of my upbringing. While I don't anticipate ever needing to fill out a 13F form myself, I'm interested to see just how draconian and complex it is, that Ensign Peak managed to bungle the submission up to 88 times. This violation falls neatly into the category of "things we can look up".
SEC.gov has an index of forms and filings. 13F is in there. Any one of us can just go read it. The index shows it was last updated in July of 2023, at the time of writing this page (summer 2024).
Looks to me like the first 10 pages of the document are instructions. Pages 11 - 13 are a cover sheet & summary, and page 14 appears to be the form itself that is to be copied and repeated as necessary. Think on that for a good moment. 10 pages of instructions to make sure there's no misunderstanding. A two-page cover sheet, and a summary. An intern could do this. This is not complicated. The 14th page could be an Excel spreadsheet. I refuse to believe that Ensign Peak doesn't have the required fields tabulated in some variation or another. The form is to declare what positions your company holds. If an organization were to be given a cease-and-desist "for Disclosure Failures and Misstated Filings", it is because it was intentional.