(2KUTV) - The U.S. Securities and Exchange Commission (SEC) said Tuesday it intends to fine The Church of Jesus Christ of Latter-day Saints, after the agency determined church leadership directed the church-owned fiduciary Ensign Peak Advisors to hide from the public how much equity the church held.
The $5 million fine the SEC levied against the church and its fiduciary is less than 1 percent of the wealth the church hid from the government since 1997, according to an SEC document.
The ruse was built upon a series of diversionary filings designed to hide from the public the true value of the church's equity holdings, according to the SEC.
By 2020, the government agency said the misleading portfolio filings hid from the public that the church held securities valued at $37.8 billion.
According to the SEC’s website and the order filed against the church and Ensign Peak, the forms at issue are required by law every three months when investment managers oversee and trade on a national exchange, "at least $100 million in securities.”
In a press release responding to the fine and order, the church acknowledged it was contacted by the SEC in 2019, and adjusted its approach to the required filings.
“We affirm our commitment to comply with the law, regret mistakes made, and now consider this matter closed,” the public statement released by the church states.
The Church of Jesus Christ of Latter-day Saints' full statement is available here and at the bottom of this post. The church press office wrote a Q&A on the fine, which you can find here.
Given the 20-year span of the order filed and agreed upon by Ensign Peak Advisors and the LDS Church, and KUTV’s previous reporting on related financial leaks in May 2018, below is a timeline provided by the court order that explains why the SEC levied a fine against both entities.
1997 – Ensign Peak Advisors, Inc. is created
The Church of Jesus Christ of Latter-day Saints creates nonprofit corporation Ensign Peak Advisors, “as an integrated auxiliary” to manage its investment securities.
Ensign Peak has no shareholders or members, according to the SEC's filing.
Based in Salt Lake City, Utah, where church headquarters reside, Ensign Peak is “governed by a Board of Trustees, consisting of member of the church’s Presiding Bishopbric and the Managing Director,” who is appointed by and reports to the leadership, otherwise known as The First Presidency.
The First Presidency consists of three men: the prophet, who is known as the head of the church, and his two counselors. The Presiding Bishopric includes three other men who council and work under the direction of the First Presidency.
People manage the portfolio composed of what the church calls, “reserves” or “reserve funds.”
The monies “include U.S. equity and debt securities purchased with excess tithing, income and returns generated by Ensign Peak, and the assets of other Church integrated auxiliaries,” according to the SEC filing.
Ensign Peak did not charge the church any management fees, according to the court order.
The nonprofit is considered exempt from registering as an investment adviser with the SEC, due to a law passed in 1940.
According to the SEC's website, "Institutional investment managers that use the United States mail (or other means or instrumentality of interstate commerce) 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."
The forms disclose equity holdings available to the public and are required to be filed every three months, or quarter, as per the Securities Exchange Act of 1934.
When Ensign Peak was first created, it managed around $7 billion in church assets, according to the SEC filing.
The agency states in the court order that at that time, a significant percentage of the $7 billion consisted of 13(f) securities.
1998 – Church leadership approves 13F filing plan
Within a year of its creation, Ensign Peak Advisors’ senior management understands its funds require the 13F forms, and explains this to senior church leadership.
“To prevent disclosure of the securities portfolio managed by Ensign Peak, the Church approved Ensign Peak’s plan of using other entities to file Forms 13F,” according to the SEC filing.
The SEC stated in the filing, “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,” according to the SEC filing.
2001 – First trust and LLC created
A trust fund is created by the church, along with a separate LLC under the trust’s ownership after Ensign Peak recommends, and senior church leadership approves the action that the LLC would file the required 13F forms, according to the SEC filing.
This would be the original LLC of what the SEC describes in its filing as "clone" ones that are created over the next 18 years to avoid connections to Ensign Peak and the church.
The SEC said the Managing Director of Ensign Peak was named as the trustee.
This LLC had an address in Glendale, California – but it did not conduct any business at that site, according to the SEC. An Investment Management Agreement (IMA) was signed with the LLC, with employees of Ensign Peak assigned as investment managers for it, the SEC document states.
Despite having an IMA, Ensign Peak does not transfer investment discretion to this new LLC, according to the SEC.
IMAs grant managers of LLCs the discretion and authority to manage the money. In its order, the SEC states that even though the IMA paperwork stated clone LLC’s would have management authority, none of them ever exercised investment discretion over the church’s assets.
2003 – 13F filed using LLC name
Form 13F is filed under the name of the newly created LLC on February 26, 2003, accounting for the year 2002.
2005 – Avoiding detection
By March of 2005, the religious organization identifies that the public could link the first LLC to the church because the person signing the forms was listed in the public directory as a church employee.
Senior leadership of the church approves the creation of a new reporting entity with, “better care being taken to ensure that neither the ‘Street’ nor the media [could] connect the new entity to Ensign Peak,” the SEC said in its filing.
In December, a second LLC is created as a nonprofit in Wilmington, Delaware. The managing director of Ensign Peak is named the general manager and 13F forms are filed under the new LLC’s name.
2011 – Clone LLCs created
Concerned by the growth of its portfolio becoming so big that the use of the second name could bring, “unwanted attention”per the SEC, Ensign Peak advises and gets approval by the church to “clone” the second LLC and add new ones to file 13F forms.
With the blessing of church leadership, five new LLCs are created using Delaware addresses, though as with the California one, no business is conducted in that state.
2014 – Internal Audit
The first of two church Audit Department (CAD) reviews, “highlighted the risk that the SEC might disagree with the approach.”
According to the SEC, CAD didn’t recommend any changes to the church’s LLC structure.
2015 – Someone connects LLCs to Ensign Peak
The SEC order states that at some time, Ensign Peak is made aware that an unnamed third party was able to connect the holdings of some LLCs back to the nonprofit.
This issue was taken to senior church leadership, who approved Ensign Peak’s advice to, “gradually and carefully adapt Ensign Peak’s corporate structure to strengthen the portfolio’s confidentiality,” states the SEC filing.
By November, senior members of the church approved the idea Ensign Peak had to create six more Clone LLCs, the SEC said.
This brings the total Clone LLCs created by Ensign Peak as approved by leadership to 12, the SEC said.
Ensign Peak designated the business managers of the Clone LLCs. Many of those managers were church employees, though the order filed by the SEC does not specifically say how many.
People were selected, according to the SEC, “because they had common names and a limited presence on social media, and were therefore less likely to be publicly connected to Ensign Peak or the Church.”
Those business managers were not provided much information about the Clone LLCs, or why they were produced, the SEC said.
The Clone LLCs were given addresses outside of the church headquarters in Utah and none conducted businesses at any of their designated locations with the exception that they received mail, the SEC said.
Phone numbers listed for the LLCs went directly to voicemail. Any recordings left by regulatory agencies were to be sent to an Ensign Peak senior manager. Other voicemails left were ordered to be deleted, according to the SEC.
Business managers were only given the signature forms of 13F instead of the full documents that were filed, the SEC said.
Each year, the managing director of Ensign Peak would meet with church Leadership, also known as the First Presidency and Presiding Bishopbric. It took unanimous approval from the six men who compose the two groups before Ensign Peak could shift its strategy on the LLC structure and filing of 13F forms, said the SEC.
2017
CAD conducts a second internal audit of Ensign Peak.
2018 – Website reports on entities filing 13F forms
A website, Mormon Leaks, connects 13 companies that have domains hosted by church servers – which include its main websites LDS.org and Mormon.org.
A Facebook Live covering the Mormon Leaks website from 2018 by KUTV.
KUTV covers the leaks and the continued publication of documents on the website, along with recordings alleging the a missionary was raped at the Missionary Training Center (MTC) in the mid 80’s in Provo, Utah.
Mormon Leaks publishes that the 13F forms show church holdings valued at around $32 billion.
The website also connects business managers of the LLCs with names of church employees.
Two business managers who previously signed paperwork resign from their roles as a result. Both express concerns over what was requested of them, according to the SEC filing.
The church does not change its reporting structure, but instead designates two people to replace the other business manager positions, the SEC said.
2019
The church is first contacted by the SEC over the reporting structure.
2023 - SEC announces charges, $5M fine
The SEC publishes a press release February 21 announcing charges against The Church of Jesus Christ of Latter-day Saints and Ensign Peak Advisors, Inc. for their decision to file forms for shell companies, “that obscured the Church’s portfolio and misstated Ensign Peak’s control over the Church’s investment decisions.”
Ensign Peak agrees to pay a $4 million penalty, and the church agrees to a $1 million dollar penalty.
In response to the charges, the religious organization releases a statement:
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).
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.
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.
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.
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.
We affirm our commitment to comply with the law, regret mistakes made, and now consider this matter closed.
By Elizabeth McKernan, The National Desk
