New allegations surface of federal violations in LDS Church’s stock portfolio

Independent watchdog group says Ensign Peak Advisors failed to report large stakes in publicly traded stocks at least seven times.

(Bethany Baker | The Salt Lake Tribune) The Church Office Building for The Church of Jesus Christ of Latter-day Saints building near the Utah Capitol in Salt Lake City on Wednesday, April 17, 2024. An independent watchdog group alleges that church violated additional federal rules in its vast stock portfolio.

Investment managers for The Church of Jesus Christ of Latter-day Saints face fresh allegations they dodged federal reporting laws in connection with the Utah-based faith’s mammoth stock portfolio.

The new assertions involve Ensign Peak Advisors, the church’s investment arm, and a period between 2002 and 2019, when federal regulators have previously said the two sought to obscure the breadth and depth of the faith’s portfolio by spreading it among more than a dozen separately reporting shell companies.

That behavior — which regulators say effectively let Ensign Peak avoid attention by evading a $100 million reporting threshold on its holdings — led to a $5 million settlement last year with the U.S. Securities and Exchange Commission. Ensign Peak paid $4 million; the church $1 million.

Those same securities laws enforced by the SEC also require that institutional investors report — through filings under what is known as Schedule 13G — when they hold 5% or more of outstanding shares of a publicly traded company’s stock.

Analysts with The Widow’s Mite Report website say they have found at least seven instances in which the combined shares held by Ensign Peak in a handful of public stocks through those shell LLCs exceeded that 5% threshold — without the firm filing 13G forms.

The investment firm’s stock trading patterns at the time, according to the site, also reveal that Ensign Peak may have been aware its ownership had climbed above the 5% reporting trigger. It appears, Widow’s Mite added, that this failure to report to regulators “was not accidental.”

The site’s authors called Ensign Peak’s alleged violations of 13G rules “another indicator of decades of poor internal controls and a top-down policy of ‘selective compliance’ among church investment entities.”

These potential violations, it added, “exposed [Ensign Peak] to legal risk.”

When asked about the latest allegations, a church spokesperson did not provide a response, while an inquiry directed to Ensign Peak Advisors went unanswered.

In the previous SEC case, the worldwide faith of 17.2 million members stated that it relied on “legal counsel,” regretted its “mistakes” and considered the matter “closed.”

How the federal agency may be reacting to the new accusations, if at all, and whether it is again investigating remain an open question.

“The SEC,” a spokesperson told The Salt Lake Tribune, “does not comment on the existence or nonexistence of a possible investigation.”

Widow’s Mite and the 2023 SEC settlement

The Widow’s Mite Report, launched in 2021, is produced by a cadre of unnamed current and former church members with professional backgrounds in business, finance, law, real estate, education, data science and related fields. The experts regularly publish studies on the church’s finances, landholdings, charity work, temple construction and other aspects of the faith’s estimated $265 billion in wealth, based on public documents and market data.

(Christopher Cherrington | The Salt Lake Tribune)

Its latest findings, detailed recently online, emerge more than a year after the SEC announced the $5 million settlement, stating that top church officials had authorized the creation of 13 shell companies, partly to evade public reporting laws and obscure the size of the faith’s investment portfolio.

That settlement involved so-called 13F violations under the Securities Exchange Act, which is designed to ensure market transparency when large investors accumulate shares in publicly traded firms.

Large stakes noted

According to Widow’s Mite, in late 2002, when Ensign Peak first began reporting to the SEC using the series of shell companies, one of its shells — Whitney Asset Management — held a combined stake in a Massachusetts energy firm called TC Pipelines, now owned by TC Energy, of 6.5% of all its outstanding shares.

Analysis indicates Ensign Peak officials appeared to have noticed Whitney had exceeded the 5% trigger and gradually winnowed its stake in TC Pipelines over the next six months, bringing it by the end of September 2003 to 4.999%, where it remained for at least another two quarters.

Yet none of those events, Widow’s Mite noted, prompted Ensign Peak or Whitney to file a 13G report.

Ensign Peak violated a similar reporting requirement in February 2003, the site said, after Whitney’s stake in an Atlanta-based real estate investment trust, JDN Realty, had climbed to 6.1% of that firm’s shares the previous quarter.

Even though JDN was acquired by another company less than a month before Ensign Peak’s 13G filing deadline, Widow’s Mite stated, it was still obligated to report Whitney’s stake had risen above 5%.

Claims of ‘parking’

The website said it detected similar violations in connection with a stock buyback in 2008 and 2009 by Utah Medical Products, a Midvale medical equipment supplier, while Ensign Peak held shares in the firm through another of its shell companies, Argyll Research.

Utah Medical Products’ stock purchases had the effect of pushing Ensign Peak’s stake in the company’s outstanding shares to 5.01% by late 2009, the site said, which Ensign Peak then trimmed the following quarter to 4.99%.

“It did so,” Widow’s Mite stated, “without filing the required 13G.”

However, the website added, the triggering of the 5% rule was probably accidental in this case, given it stemmed from Utah Medical Products’ buyback and not added stock purchases by Ensign Peak.

The site pointed to another stock, Rio Vista Energy, for which Ensign Peak did file Schedule 13Gs under its own name in 2009. The Rio Vista filings, it said, “demonstrate that Ensign Peak knew how to comply with SEC disclosure obligations.”

In 2014, Widow’s Mite said, Ensign Peak used three of its shell companies — Tiverton, Green Valley and Riverhead — to acquire a 6.7% total stake in Dorman Products, a Pennsylvania manufacturer of automotive products. It then sold those shares before the year ended, clearing it of 13G filing obligations, but Ensign Peak still deprived other investors of “key large-trader information.”

Widow’s Mite called the practice a form of “parking” — investor parlance for “an illegal method of hiding the true ownership of large and rapidly accumulated stakes from the market and regulators.”

Is the SEC aware? That’s unclear.

Since the SEC’s settlement with Ensign Peak and the church last year, Widow’s Mite researchers have highlighted a host of additional alleged violations of securities laws that were not mentioned in that highly publicized document nor an accompanying news release.

These include reportedly inaccurate claims to the IRS on its portfolio size, and alleged reporting lapses by the church’s primary pension fund, Deseret Mutual Benefit Administrators, and a church-owned insurance company, Beneficial Life.

The site questions whether the SEC inquired after 13G violations at the time and if Ensign Peak reported them to federal investigators. It also speculates on whether top church leaders were informed of Ensign Peak’s reporting obligations and its “failures to comply.”

“Was there a shared concern that 13G filings would draw unwanted attention to the shell LLCs, potentially leading to an investigation of related entities, including Ensign Peak?” Widow’s Mite asked. It also noted that “competent legal counsel would never advise against complying with 13G filing obligations.”

Editor’s note • This story is available to Salt Lake Tribune subscribers only. Thank you for supporting local journalism.