Church of Jesus Christ of Latter-day Saints, investment company to pay $5 million for misleading public

The markets watchdog said the LDS church, also known as the Mormon church, and its nonprofit investment company, Ensign Peak Advisers Inc., used shell companies to mask its growing investments in public companies, which reached $32 billion in 2018, due to concerns of negative publicity.

From 1997 through 2019, those shell companies filed the mandatory forms detailing the investments and improperly claimed to operate independently. In reality, the investments were still controlled by Ensign Peak, and the church was aware of the arrangement with church employees heading most of the companies, according to the SEC.

The use of shell companies came to light in 2019, when a former Ensign Peak employee filed a whistleblower complaint.

Outside experts said that while it is not uncommon for the SEC to pursue cases with a religious angle, it was unusual to see a fine assessed against a church as large as the Mormon church, which represents roughly 1% of Americans, according to the Public Religion Research Institute.

“The SEC routinely brings enforcement actions with a faith-based angle, but charges against a religious organization — particularly one this size — are extremely unusual,” said Adam Aderton, a partner at Willkie Farr & Gallagher LLP and former co-head of the SEC’s asset management unit.

Some attorneys cautioned that most asset managers are not encouraged to hide their investments, and the unusual arrangement could limit the potential impact of the settlement beyond this case. However, it could have implications for other religious groups or charitable organizations that might also want to play down their investment coffers for donors.

“It is doubtful that there are many other similar instances of concealed investments — especially given that managers are usually compensated based in part on the size of the portfolios they manage,” said Howard Fischer, a partner at law firm Moses & Singer and former SEC attorney.

“The only likely potential developments might be additional investigations into other nonprofit and charitable institutions, like universities.”

In a statement, the church said it had relied on legal counsel in creating an arrangement to report holdings while maintaining “the privacy of the portfolio.” It said it halted the practice after the SEC raised concerns with it in 2019, and cooperated with its investigation.

“We affirm our commitment to comply with the law, regret mistakes made, and now consider this matter closed,” the church said.

The church agreed to pay $1 million, while Ensign Peak will pay $4 million to settle charges.

Additional reporting by Chris Prentice.