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.

The church is “far from perfect, but this feels beyond the pale,” said Sam Brunson, a Latter-day Saint who teaches tax law at Loyola University Chicago. “It legitimately acted badly here by deliberately trying to evade a law that applied to it. I can’t see any light in this or any way to justify it.”

The church is “naive” to think the settlement is the end of it, the law professor said. “The apparent hypocrisy is potentially harmful in its relationship with its members. The church needs to explain what it plans to do to prevent this in the future and to rebuild trust.”

Latter-day Saint leaders put “a rhetorical premium on honesty,” Brunson said, even asking in “worthiness interviews,” including for temple recommends, whether members “strive to be honest” in all they do.

By looking for loopholes rather than complying with the law, he said, church officials have made it uncomfortable for members who see the faith as “providing a moral compass and example of the way to live.”

This is “not the kind of thing,” Brunson said Tuesday, “they can put behind them easily.”

What the SEC found

The SEC determined that Ensign Peak officials failed to file the required Forms 13F for more than 20 years — from 1997 through 2019 — disclosing the value of certain securities they manage.

“The church was concerned that disclosure of its portfolio, which by 2018 grew to approximately $32 billion, would lead to negative consequences,” the agency stated. “To obscure the amount of the church’s portfolio, and with the church’s knowledge and approval, Ensign Peak created 13 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.”

Despite the establishment of these limited liability corporations — which the SEC order says were formed for the “sole purpose” of “preventing public disclosure” by Ensign Peak of the “amount and nature” of the church’s assets — Ensign Peak still was calling the shots, investigators found, and “retained control over all investment and voting decisions.”

Gurbir S. Grewal, director of the SEC’s enforcement division, said the church’s investment manager, “with the church’s knowledge,” went to “great lengths” to avoid disclosing the faith’s investments.

This deprived the SEC and the investing public of “accurate market information,” Grewal added in the release. “The requirement to file timely and accurate information on Forms 13F applies to all institutional investment managers, including nonprofit and charitable organizations.”

What the church is saying

For its part, the church relied upon attorneys to advise it on how to meet SEC rules while acknowledging that it wanted to “maintain the privacy of the portfolio,” the faith’s release said. So, starting in 2000, its lawyers sought ways “to comply with its reporting obligations” without revealing the total amount the fund held.

“As a result, Ensign Peak established separate companies (LLCs) that each filed Forms 13F instead of a single aggregated filing,” the church explained. “Ensign Peak and the church believe that all securities required to be reported were included in the filings by the separate companies.”

Still, the SEC expressed concern about Ensign Peak’s “reporting approach” in June 2019, which prompted the investment managers to begin filing a “single aggregated report.”

The church noted that Ensign Peak took care of all the SEC filings and that the faith’s “senior leadership never prepared or filed the specific reports at issue.”

Founded in 1997, Ensign Peak initially managed approximately $7 billion of church assets, the SEC order stated. Since then, its public holdings have grown at least sevenfold. Despite the SEC action, the company will be able to continue making investments.

“This settlement relates to how the forms were filed previously,” the church pointed out. “Ensign Peak and the church have cooperated with the government over a period of time as we sought resolution.”

Under terms of its deal with the SEC, the church neither admitted nor denied the agency’s findings.

A ‘small’ but ‘substantive’ fine

Compared to fines for violations like securities fraud or for “intentional false statements,” the $5 million settlement “is pretty small,” said Christine Hurt, who teaches corporate, partnership, business and securities law at Southern Methodist University in Dallas.

It is, however, “substantive” for “a filing failure,” the SEC expert said Tuesday. “It probably reflects that it went on for a number of years and the seriousness of it.”

Hurt pointed out ways the church’s dealings with the SEC were similar yet distinct from other money managers.

The purpose of form 13F, she said, is “to alert the SEC and other market participants as to large positions in ‘covered securities’ over $100 million — which include such publicly traded securities like Meta, Disney, Coca-Cola, Apple and McDonald’s — controlled by a single entity.”

It’s more about “market transparency,” Hurt said, than “the individual trader.”

According to the church’s release, it gave its lawyers a tough task: Follow the SEC disclosure rules, while retaining maximum privacy.

“Professional money managers are very secretive for various reasons,” Hurt said. “They want to protect proprietary trading strategies. Most of them feel they have a valid reason for privacy.”

Thus, there is “always a tension between market participants who want privacy,” she said, “and the SEC that wants disclosure for public benefit.”

But the LDS Church is in an “almost unique position. It is both a church and a major market participant,” she said. “The church can say, ‘We are a church, and we have another reason for privacy.’”

It’s not like there is a law firm out there that has experience with a large church endowment filing these forms, Hurt said. “It can’t look to peers to see what they are doing — they don’t have any.”

How much Ensign Peak has

Emerging just weeks after a whistleblower filed a complaint with the IRS about Ensign Peak’s practices, that first combined quarterly report to the SEC in early 2020 valued its account at $37.8 billion with more than 1,600 separate stock and mutual fund holdings.

“Since that time,” the church’s Tuesday release stated, “13 quarterly reports have been filed in full accordance with SEC requirements.”

In recent years, Ensign Peak’s public portfolio has seen its overall worth rise and fall with the swings of the stock market. It plummeted to $29.9 billion in the grips of the COVID-19 pandemic in early 2020 and plateaued at $52.3 billion in late 2021.

The latest SEC filing valued Ensign Peak’s public fund at $44.4 billion at the end of 2022. (These reports show investments that must be disclosed to the SEC and thus do not reflect the portfolio’s total holdings.)

Topping Ensign Peak’s list of public holdings were stakes worth more than $1 billion each in Apple and Microsoft. The fund also carried more than $1 billion in two types of shares in Alphabet Inc., parent company of search engine giant Google.

Could more investigations follow?

The SEC deal may not be the final word from the federal government on the church’s wealth and how it reports it. Questions about the faith’s money and charitable giving also have arisen in Canada and Australia.

Church finances burst into the headlines in December 2019, when David A. Nielsen, a former money manager at Ensign Peak, filed a whistleblower complaint with the IRS, alleging that the firm had amassed a $100 billion reserve fund using church donations intended for — but never spent on — charity in violation of tax laws. Instead, he argued, Ensign Peak spent $2 billion on two church-owned commercial enterprises: the City Creek Center shopping center in downtown Salt Lake City and Beneficial Life insurance company.

Nielsen’s lawyers followed that up last month with a memorandum to the U.S. Senate Finance Committee calling on lawmakers to investigate Ensign Peak. In the memo, Nielsen, who did not respond to voice or text messages Tuesday, accuses Ensign Peak of making false statements “and other nondisclosures” to the IRS to conceal, for instance, its ownership and authority over a series of foreign accounts valued in the billions. He asserts that his ex-employer has dodged more than $20 billion in taxes as well as another $2 billion in fines for violating U.S. tax and securities laws.

The IRS has taken no public action to date against the church since receiving that 2019 complaint. It remains unclear if the Senate panel will dig into the church’s finances and if the SEC investigation and subsequent settlement could prompt either the tax agency or Congress to take action.

The Senate committee is led by Sen. Ron Wyden, D-Ore., and its ranking minority member is Sen. Mike Crapo, R-Idaho, who is a Latter-day Saint.

“I still don’t think the Senate Finance Committee will care,” Brunson, the Chicago tax law professor, said Tuesday. “This oversight is the jurisdiction of the SEC, and it looks like the SEC did its job.”

[Tax law professor Sam Brunson discussed the church’s finances on this week’s “Mormon Land” podcast.]

High-level church leaders rejected the whistleblower’s initial accusations, saying then in a news release that the faith “complies with all applicable law governing our donations, investments, taxes and reserves.” They also insisted that the money for the mall and the insurance firm came from “earnings on invested reserve funds,” rather than members’ actual tithing donations.

The head of Ensign Peak at the time said that Latter-day Saint officials kept a lid on the size of the church’s reserves for fear of discouraging members from paying tithing, which the faithful view as a commandment of God and a commitment to their religion.

Church authorities also have said the “rainy day” reserves were intended to help pay for operations in poorer parts of the world and to see the global faith through economic downturns.

Another lawsuit looms

James Huntsman, a prominent former Utahn and brother of former Gov. Jon Huntsman, is pursuing an unrelated federal lawsuit against the church, accusing it of fraud over $2 billion the church spent on City Creek Center and Beneficial Life.

After being rejected by a U.S. District Court judge, Huntsman’s case is now on appeal before the California-based 9th U.S. Circuit Court of Appeals.

In an interview Tuesday, Huntsman said that the church’s assertions it was upholding the law and simply correcting mistakes brought to its attention “are patent lies. They are not upholding the law, which is why the SEC fined them.” And while he said that at some point the $5 million fine would be “yesterday’s news,” Huntsman predicted church would see wider effects from the SEC’s action.

“The impact on the psyche of the church, its future growth and its reputation will be significantly more than $5 million,” Huntsman predicted. “The damage to the respectability that the Mormon church has around the world — that takes a real hit from something like this.”

He said the church may face further financial repercussions, “depending on what the IRS and other enforcement agencies do.”

“There are members of the church that like to hear their religious leaders could never be involved in a fraud of this level,” Huntsman added, “but to do that is just simply burying your head in the sand. Kudos to the SEC for not buying into that line.”

He also dismissed the church’s explanation that it acted on “bad legal advice.”

“That can work in the court of public opinion,” Huntsman said, “but say that in a criminal court and you’d be found guilty in about three seconds.”

Ryan McKnight, former executive director of the now-defunct Truth & Transparency Foundation, was pleased to hear that the “SEC took this situation seriously and has taken measures to hold the church accountable.”

In May 2018, McKnight, in Las Vegas, and his colleague, Ethan Gregory Dodge, in San Jose, broke the story that church officials were “using shell companies to hide their filings from the public,” the Nevada accountant said Tuesday.

The need for the church to increase its financial transparency was “one of the primary reasons we started our nonprofit newsroom [formerly called MormonLeaks],” McKnight said. “To see our reporting have this kind of effect on such a powerful organization is a reminder that our hard work did not go completely unnoticed.”

When an organization builds its budget around billions of dollars in annual, tax-free donations, it has “an ethical responsibility to be transparent about finances,” he said. “It is my hope that this is just the beginning and we see the church take additional steps going forward to increase their financial transparency.”

McKnight added: “The church and its members will be stronger for it.”

— Tribune reporter Tony Semerad contributed to this story.

Editor’s note • James Huntsman is a brother of Paul Huntsman, chair of the nonprofit Salt Lake Tribune’s board of directors.