How did The Church of Jesus Christ of Latter-day Saints and its Salt Lake City investment firm, Ensign Peak Advisors, hide billions of dollars in stock holdings?
Federal regulators said Tuesday the ruse relied partly on specially created companies referred to as “clones” that essentially faked ownership of investments that were actually held and directed by Ensign Peak under the authority of the Utah-based church.
In a settlement with the U.S. Securities and Exchange Commission, the worldwide church has agreed to pay $1 million and Ensign Peak $4 million in penalties for failing to properly disclose the holdings, accusing them of going to “great lengths” to deliberately “obscure” investments from the public and federal authorities.
The church said Tuesday that “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.”
Securities laws require investment managers with control over at least $100 million in publicly traded stocks to disclose the fair market value of the assets under their management. And throughout most of its 26-year history, the SEC said, Ensign Peak was aware of this requirement to file such disclosures, known as Form 13F, and brought the rule to the attention of senior church leaders — along with a plan to get around it.
“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,” the SEC said in Tuesday’s order.
“Ensign Peak,” U.S regulators wrote, “did not have the authority to implement this approach without the approval of the church’s [governing] First Presidency.”
First one, then two, then up to a dozen shell companies
It began in 2001, when, at Ensign Peak’s urging, the church created a trust with control over a limited liability corporation, or LLC, based in Glendale, Calif., though it did no business at the site, and set up the managing director of Ensign Peak as a trustee.
Then, with approval of senior church leaders, Ensign Peak filed its public disclosures from February 2003 through September 2006 under that company name.
In late December 2005, church officials became aware the public might be able to tie a signature on those filings to a public directory of church employees, SEC investigators said. That’s when senior church leaders approved creating a second LLC — this time based in Wilmington, Del. — with “better care being taken to ensure that neither the ‘Street’ nor the media [could] connect the new entity to Ensign Peak.”
By 2011, the church’s investment portfolio had grown so large that disclosures made under the second LLC risked garnering unwanted attention, the SEC said, and Ensign Peak sought and won the approval of senior church leaders to “clone” the second LLC. Five new entities were formed and given Delaware addresses, though none conducted business in that state.
Then, in 2015, someone reportedly began connecting the holdings of those LLCs back to Ensign Peak, and its managers again brought the matter to the church’s attention. Senior church leaders approved a plan to “gradually and carefully adapt Ensign Peak’s corporate structure to strengthen the portfolio’s confidentiality.” The SEC said Ensign Peak then formed six additional clone LLCs.
“Ensign Peak had authority over all of the LLCs throughout their existence,” the SEC said. “The church also had indirect authority over all of these LLCs since the church controlled Ensign Peak and approved the approach of using the LLCs to file Forms 13F.”
Each clone had an address outside of Utah — chosen, according to the SEC, to create the impression that the clone LLCs conducted business operations throughout the U.S., “making it more difficult to trace them back to Ensign Peak or the church.” The clone LLCs also each had a business manager, many of whom were church employees, but the companies “never exercised investment discretion over the church’s assets.”
Instead, Ensign Peak prepared and filed disclosures under the clone LLCs while it continued to manage the entire portfolio and “at all times” maintained investment and voting discretion over all the securities listed.
Business managers over the accounts were given insufficient information for them to be able to warrant what they were providing was “true, correct and complete” as certified on the forms, the SEC said. And when Ensign Peak obtained the signatures of business managers over the LLCs, it gave them only signature pages “and not the complete documents.”
Sometimes the forms were filed with U.S. regulators with electronic signatures before Ensign Peak actually obtained the managers’ handwritten signatures. The forms also misstated they were signed at the LLCs’ stated addresses across the country, when all the business managers were located in Salt Lake City.
Church auditors raised a warning
Use of the clone LLCs for federal disclosures continued until 2018, despite internal audits by the Church Audit Department that highlighted the risk that the SEC “might disagree with the approach.”
A public website, apparently the now-defunct Truth & Transparency Foundation, formerly known as MormonLeaks — reported in May 2018 on financial entities with apparent ties to the church that had reported investment holdings totaling about $32 billion — each with an online domain registered to a church subsidiary and a business manager whose name matched ones listed on church employment rosters.
After the website’s report on the LLCs, the SEC said, “two business managers resigned their roles, voicing concerns about what they had been asked to do.” Those managers were replaced and Ensign Peak continued to file under the clone LLCs until February 2020.
At that point, Ensign Peak changed course, as reported in The Salt Lake Tribune, and filed a single consolidated form that detailed all the securities listed under the clone LLCs under its own name, disclosing a public portfolio worth $37.8 billion held in stocks and mutual funds.
The church said Tuesday that the SEC first expressed concern about Ensign Peak’s “reporting approach” in June 2019. The investment arm “adjusted its approach and began filing a single aggregated report,” it said a news release. “Since that time, 13 quarterly reports have been filed in full accordance with SEC requirements.”
The SEC order issued Tuesday demands that Ensign Peak and the church “cease and desist” from any future violations of its rules and pay the settlement tab within 10 days.
At $5 million, those fines represent about 0.01% of the total reported value of the Ensign Peak portfolio managed on the church’s behalf, which, according to its latest filing, reached $44.4 billion in value at the end of 2022.
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