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Of Prophets and Ponzi Schemes
David McQueen made a lot of money from his business ventures and decided to share some of that wealth with his local church. Over a few years, his companies — Accelerated Income Group and Multiple Return Transactions — had earned him more than $45 million. During that time he gave about $300,000 to Resurrection Life Church in Grandville, Mich. which was spent on various ministries over a six-year period.
This inspiring story of hard work and Christian charity fell apart last year when McQueen was convicted of running a Ponzi scheme. He had promised investors a 10 percent return and paid interest to the early marks out of investments from the new marks. McQueen is now in a medium-security federal prison and has been ordered to pay millions of dollars in restitution — money that he spent a long time ago.
To help make the conned investors whole again, the government is going after any McQueen money it can track down. That’s why Assistant U.S. Attorney Matthew Borgula asked Resurrection Life Church to turn over that $300,000 in donations. The church said no.
“Resurrection Life Church had no knowledge of the source of the funds, nor was it in any way complicit with this donor,” The Rev. Bernard Blauwkamp, secretary of the church’s Board of Elders, wrote in a letter obtained by MLive and The Grand Rapids Press.
The letter, addressed to Borgula, said elders “have read and considered the detailed information contained in your email of November 26, 2014, regarding the tithe monies and gifts given to the church by Mr. David McQueen. We were saddened to hear the news of his wrongdoing, and pray that God will work in his heart and life and bring repentance.
“We have prayerfully considered your request that the Church return all or part of this donor’s gifts and tithe monies, and must respectfully decline to do so.”
The suburban megachurch is now upset that the government, in a letter to McQueen’s victims, has ID-ed the church and noted that the non-profit refused to return the money. Victims are now calling the church to ask for restitution.
Blauwkamp said inclusion of the church’s letter in the notice was “grossly inappropriate” and unfairly singled out the church in an attempt to make it look bad.
“It’s unprofessional to include that letter, like we’re to blame,” he said. “The guy to blame is in jail.”
“That was six years ago. You don’t have money laying around that long. We feel for the victims. It’s not like we have a pile (of money) to be distributed,” he said.
What say you, Ricochetti? Is is right for this church to hold on to the money or should they return it at once? Should they base their decisions on the law, scripture, or their own sense of morality? Does the fact that Resurrection Life is a huge megachurch change your thinking, and if so, why?
Published in General
“The money is already spent” is no defense. A church has income – and a megachurch by definition has a lot of income, and probably endowments.
Jon, aside from being click bait in your title, what do prophets have to do with this post?
-E
defense against what?
As a moral matter, I think it depends on timing. It sounds as if the church involved received the money many years ago, and presumably both (1) spent it and (2) budgeted its activities based on having the money. In legal terms, the church probably has “detrimentally relied” on receipt of the money. If so, I find it inequitable to require it to be returned.
My evaluation is also influenced by the fact that the investors who were harmed have some responsibility, while the church apparently has none. A guaranteed 10 percent return? That has to be a warning sign. I’m not saying that the perpetrator of the fraud shouldn’t be punished and forced to make restitution, but the investors took their chances with something that they probably should have known was a fishy “investment.”
Cato makes good points about fraudulent transfer law, which generally allows recovery of funds (or other property) from a third party, where such funds were transferred from a debtor to the third party without the debtor’s having received “reasonably equivalent value.” The general idea is to prevent a debtor from hiding funds and property by, essentially, hiding them in someone else’s name.
I haven’t researched the issue of whether a church (or other charity) that receives a bona-fide donation has an obligation to return funds under the law of fraudulent transfer. I would guess not, but I don’t know.
As a practical matter, the church should (and probably already has) get a good lawyer involved in negotiating a settlement that will put the issue to rest, probably at a very substantial “haircut” from the potential liability of $300,000.
This is my area AP. I’ve been a bankruptcy lawyer for 20 years. The “lack of reasonably equivalent value” standard you mentioned is part of determining constructive fraud. The other avenue for recovery is actual fraud and all that is required is that the debtor made the transfer with the actual intent to hinder, delay or defraud creditors. That standard is always met in a Ponzi scheme because the whole thing exists for that purpose else it wouldn’t be called a Ponzi scheme. Good faith coupled with value given can be a defense, but that wouldn’t be relevant here as the church presumably didn’t give the debtor anything for a charitable donation.
As far as a charity having a defense, under the bankruptcy code, it does for a constructive fraudulent transfer, but not for an actual one like this. Most state fraudulent transfer laws follow that rule as well. You might find exceptions, I haven’t looked at all 50. But they ordinarily follow the Code.
Alliteration with “Ponzi.”
Thanks for all the professional insight on the issue, Cato. Much appreciated!
Going through all the comments, I think the best option for Resurrection Life is to create a special charity for those bilked by Lightning McQueen. Raise money in a special fund to return the $300K, but only as a start. Also offer care, comfort and counseling to the victims, including financial counseling.
“And if anyone would sue you and take your tunic, let him have your cloak as well.”
Poop is alliterative too.
-E
Sure, now you’re trying to make me violate the CoC! :)
I dare you to change the title to: “Prophets Pooping Ponzi Profits”.
Alliterations aside, what I was trying to get at with my original question was whether or not you have a dim view of prophets and so didn’t think anything of it to use it in the title. I don’t see any connection between the fraud you wrote about and a biblical prophet – false or otherwise. Perhaps, we have become acculturated to simply think of prophets as religious shysters. If so, that would be a shame; prophets wrote most of the Bible and were highly regarded in both the Old and New testaments.
-E
No, I have no animus towards prophets and hadn’t really heard them slighted in that way. I’m a Christian and was drawn to this story because it posed an interesting moral quandary to which I didn’t have an easy answer.