BUSINESS STORY: `Unprecedented’ settlement reached in New Era case

c. 1996 Religion News Service (UNDATED) A path-breaking settlement has been reached in the scandal resulting from the collapse of the Foundation for New Era Philanthropy, the Pennsylvania charity whose grant programs have been described as an investment scam. U.S. Bankruptcy Judge Bruce I. Fox approved a $39 million settlement Thursday (Aug. 22) that will […]

c. 1996 Religion News Service

(UNDATED) A path-breaking settlement has been reached in the scandal resulting from the collapse of the Foundation for New Era Philanthropy, the Pennsylvania charity whose grant programs have been described as an investment scam.

U.S. Bankruptcy Judge Bruce I. Fox approved a $39 million settlement Thursday (Aug. 22) that will allow agencies that lost money through New Era to receive as much as 65 cents on every dollar invested _ much of that money coming from organizations that profited from New Era dealings. Hundreds of groups across the country, ranging from evangelical ministries to the University of Pennsylvania and the Philadelphia Museum of Art, were affected when New Era filed for bankruptcy in May 1995.


In the scheme, the Radnor, Pa.-based New Era offered many charities a”matching grant”program that promised to double their money. Federal investigators say the program was a Ponzi scheme, which created the illusion of financial success by using contributions from new investors to pay previous ones. New Era’s founder, John G. Bennett Jr., is being investigated, but no criminal charges have been filed against him.

Rollin A. Van Broekhoven, a federal-agency judge who represented some Christian groups involved in the scheme, described the agreement as nothing short of miraculous.”We think it was marvelous. … It’s economically sound,”said Van Broekhoven, chairman of United Response to New Era, a consortium of about 195 evangelical charities and churches involved in the case.”It is a magnificent legal document, but it also is driven by moral and religious motivation.” In what is viewed as an unprecedented decision, the settlement allows for groups that lost money through their association with New Era to get more funds returned to them than would usually be the case _ and sooner. Some basic principles about fairness and stewardship that were drafted by evangelical ministry leaders and lawyers early in the case may have expedited its resolution.

Van Broekhoven, a Virginia judge who hears cases between the federal government and its contractors, also is chairman of the board of the Evangelical Council of Financial Accountability, the Herndon, Va., organization that formed United Response to New Era.

He testified at the bankruptcy court hearings in the case earlier this month.”As I stated … during the hearing, first of all, we start out with a principle that all of the resources and wealth in the world are God’s and God’s alone,”said Van Broekhoven, a member of a Presbyterian Church in America congregation in McLean, Va.”We are simply his stewards.” Out of that notion came two overriding principles. United Response leaders believed that those who benefited from their association with New Era should return money to those who lost funds. And they thought it was inappropriate for Christian charities to be pitted against each other in a long, litigious battle. One of their ultimate goals, Van Broekhoven said, was to be”a Christian witness”of cooperation, both within the evangelical non-profit community and the entire non-profit world.”My sense is that the work we did in the summer of 1995 really began the atmosphere in which the entire legal bankruptcy community came together and the charitable community came together,”Van Broekhoven said.

The settlement went through more than 25 drafts before it was completed, he said. Creditors representing about 80 percent of the dollars lost have agreed to the settlement. Those who gained money through New Era will save legal fees they would have incurred through a longer process.”We believe that the lawyers that were involved in this case, even though they were of various faith and ethnic backgrounds, … put away their own selfish, self-gaining interests and worked together to come up with a settlement that, under bankruptcy terms, gives far more to losers than you would ever expect under normal bankruptcy law and was resolved in a very small period of time,”said Van Broekhoven.

He said that bankruptcy cases often last four or five years when settlements are not reached. Often, creditors involved in such cases receive 10 or 15 cents on every dollar lost, Van Broekhoven said.”The comments I’ve heard from people who’ve worked in bankruptcy before is that this case is really unprecedented,”said Mark Howard, in-house counsel for the evangelical relief organization World Vision.”You would expect that it would have dissolved into internecine warfare.” Prior to the settlement, World Vision, based in Federal Way, Wash., had a net loss of about $1.81 million from its association with New Era, Howard said.

He said negotiations in the case centered on finding a fair balance”between law and grace.”While some groups felt that charities should return profits they received from New Era dealings, others wanted to ensure that returning those funds would not force the charities out of business, he said.


William McConnell, assistant to the president of InterVarsity Christian Fellowship, said his organization is pleased to see any of the lost money again. He estimated that InterVarsity, a campus ministry based in Madison, Wis., suffered a net loss of about $300,000 before the settlement.”We had expected nothing at the time of the bankruptcy,”said McConnell.”To receive something back now is an act of grace.” Bob Andringa, president of the Coalition for Christian Colleges and Universities, said his group lost $350,000 and hopes to receive about $210,000 as a result of the settlement. Some of that money would be used for scholarships for a school in Moscow.”There were times when we doubted that we could get this many diverse organizations to agree,”Andringa said.”I think it’s a great example of working on the principle that collaboration is more powerful than competition.” The entire process could be delayed if Prudential Securities, the investment company that handled New Era’s accounts, appeals the bankruptcy judge’s decision. Van Broekhoven said United Response will do”whatever we can legally and morally to press the case forward.” Barring such a delay, affected groups could see some money by the end of the year.”My sense is there are quite a few small charities that simply will not be able to survive into 1997 unless they’re able to close their books with putting this behind them,”Van Broekhoven said.

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