Money questions mount for LDS Church as SEC investigates its investment fund

The inquiry is in its “advanced stage,” The Wall Street Journal reports, and could result in an undisclosed fine.

(Trent Nelson | The Salt Lake Tribune) The Church Administration Building, with the Church Office Building towering behind it, is shown in Salt Lake City in November 2021. The Wall Street Journal reports that the investment arm of The Church of Jesus Christ of Latter-day Saints is under investigation.

First came a whistleblower’s call more than three years ago for the IRS to investigate the investment arm of The Church of Jesus Christ of Latter-day Saints.

Then, last month, lawyers for that whistleblower filed a memorandum urging the U.S. Senate Finance Committee to scrutinize the Utah-based faith’s Ensign Peak Advisors, accusing it of tax fraud.

Now comes word, via The Wall Street Journal, that the Securities and Exchange Commission is doing just that — investigating Ensign Peak, in this case for allegedly concealing its multibillion portfolio for years.

The Journal reports that the federal probe is actually in an “advanced stage” and, its sources say, is expected to spur a settlement within months.

At issue is whether the church’s investment firm heeded the disclosure rules for large money managers. Fines often result for such violations.

“The size of the fine being sought by the SEC’s enforcement staff couldn’t be learned,” the newspaper states, adding that “the agency sometimes closes investigations, even those that have reached an advanced stage, without taking formal enforcement action.”

To date, the IRS has taken no public action against the church since receiving that 2019 complaint. It is unclear if the Senate panel will take up the topic. The SEC news, however, represents the first public indication that the church’s investment firm is under federal investigation.

Declining to address any SEC inquiry, church spokesperson Doug Andersen told The Salt Lake Tribune early Saturday that the global faith “works with many government regulators to ensure we are in compliance with the law. We take those responsibilities very seriously.”

How the questions about church finances began

The enduring drama surrounding the nearly 17 million-member global faith’s wealth exploded 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 Salt Lake City-based firm had amassed a $100 billion reserve portfolio using church donations intended for — but never spent on — charity in violation of tax laws.

Instead, he asserted, Ensign Peak, founded in 1997, spent $2 billion on two church-owned commercial enterprises: the upscale City Creek Center shopping mall in downtown Salt Lake City and the Beneficial Life insurance company.

Top church leaders rejected those accusations, saying 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 commercial ventures came from “earnings on invested reserve funds,” rather than members’ actual tithing donations.

The head of Ensign Peak at the time said 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 these “rainy day” reserves are intended to help pay for operations in poorer parts of the world and to see the global faith through economic downturns.

As for City Creek Center, then-church President Gordon B. Hinckley declared in 2003 that the faith had “a compelling responsibility to protect the environment of the Salt Lake Temple” — now undergoing a massive makeover and seismic retrofit — and that it was “imperative to do something to revitalize this area.”

When Ensign Peak started reporting to the SEC

After the whistleblower revelations, Ensign Peak began submitting quarterly public reports with the SEC. Its initial filing in early 2020, The Tribune reported at the time, showed a value of $37.8 billion and more than 1,600 separate holdings.

Since then, the portfolio has seen its overall worth rise and fall with the swings of the stock market. It plunged to $29.9 billion in the grips of the COVID-19 pandemic in early 2020 and peaked at $52.3 billion in late 2021.

As markets turned bearish amid rocketing inflation and rising interest rates, Ensign Peak’s account has been declining. Its latest SEC filing, The Tribune reported, pegged its value at $40.3 billion as of the end of September 2022.

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

The church has said Ensign Peak’s managers avoid industries that faithful Latter-day Saints consider objectionable, including alcohol, tobacco, coffee and gambling. Notably, of 30 large stocks that make up the Dow Jones Industrial Average, The Tribune reported, Ensign Peak has never invested in Coca-Cola, for instance, even though consuming drinks such as Coke, Pepsi or Dr Pepper does not violate the faith’s Word of Wisdom health code.

Under SEC rules, The Journal points out, Ensign Peak must disclose some investments such as U.S.-listed stocks. Thus, these public reports do not reflect the portfolio’s total holdings.

In the memo sent recently to the powerful Senate Finance Committee, Nielsen, who set off the firestorm about church finances with his whistleblower complaint to the IRS, raises a number of new allegations. He accuses Ensign Peak of making false statements “and other nondisclosures” to the tax agency, for instance, to conceal its ownership and authority over a series of foreign accounts valued in the billions.

Nielsen, who has not responded to inquiries from The Tribune, 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 church also faces questions over its money and charitable giving in Canada and Australia.

The sheer size of the church’s investment account has troubled even some practicing Latter-day Saints. Others have called for more financial openness from church leaders.

“This issue would go away,” Sam Brunson, a Latter-day Saint who teaches tax law at Loyola University Chicago, wrote in a By Common Consent blog post last fall, “if the worldwide church were transparent about its finances, a thing entirely within its power.”