The Church of Jesus Christ of Latter-day Saints and Ensign Peak Advisors Inc., the church's non-profit investment manager, have agreed to pay a $5 million fine to the SEC for failing to disclose the church’s $32 billion investment portfolio, the agency announced.
The church and its investment manager filed forms for shell companies “that obscured the church’s portfolio and misstated Ensign Peak’s control over the church’s investment decisions,” the SEC said.
To settle the charges, Ensign Peak agreed to pay a $4 million penalty and the church, commonly known as the Mormon church, agreed to pay a $1 million penalty. Both also agreed to cease and desist orders that prohibit them from committing or causing any future violations of securities laws.
From 1997 through 2019, Ensign Peak, which the church created in 1997 for the sole purpose of managing its assets and investments, did not file the required forms to disclose the value of the church’s securities they managed, according to the SEC.
The church was concerned that disclosure of its portfolio, which by 2018 grew to about $32 billion, would lead to negative consequences and voted to allow Ensign to create what it called clone LLCs, the SEC said.
“To obscure the amount of the church’s portfolio, and with the church’s knowledge and approval, Ensign Peak created thirteen shell LLCs, ostensibly with locations throughout the U.S., and filed [forms] in the names of these LLCs rather than in Ensign Peak’s name,” the regulator charged.
"The LDS Church’s investment manager, with the church’s knowledge, went to great lengths to avoid disclosing the church’s investments, depriving the commission and the investing public of accurate market information,” Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said in a statement.
The SEC further found that Ensign Peak maintained investment discretion over all relevant securities, that it controlled the shell companies and that it directed nominee “business managers,” most of whom were employed by the church, to sign all of the SEC filings.
“Through their institutionalized use of this approach for almost 20 years, Ensign Peak’s significant role in the securities markets as an institutional investment manager was not disclosed to the commission, the markets, and the investing public as required,” the SEC said in its complaint.
In a statement on its website, the Mormon church said its legal counsel advised that it use the LLCs to keep its equity holdings private.
"Since 2000, 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," the church said. "As a result, Ensign Peak established separate companies (LLCs) that each filed Forms 13F instead of a single aggregated filing. Ensign Peak and the Church believe that all securities required to be reported were included in the filings by the separate companies.
"In June 2019, the SEC first expressed concern about Ensign Peak’s reporting approach. Ensign Peak adjusted its approach and began filing a single aggregated report. Since that time, 13 quarterly reports have been filed in full accordance with SEC requirements. ... We affirm our commitment to comply with the law, regret mistakes made, and now consider this matter closed."
In May 2018, a public website reported that various corporations that appeared to have ties to the church had filed forms revealing securities holdings of about $32 billion.
The website also cited evidence finding that all the cloned LLCs’ domain names were registered to Ensign—an entity the website said oversees and protects the intellectual property of the church. The website also noted that each of the LLCs identified listed a business manager who was also a church employee.
After the website reported this news, two of the clone LLCs business managers resigned and “voiced concerns about the work Ensign had asked them to do,” the SEC said.
Rather than fixing the elaborate scheme to hide the church’s ownership, Ensign instead hired two new business managers to replace the two who resigned, the SEC said.
“Ensign Peak continued to file Forms 13F through the clone LLCs until February 14, 2020, when it finally filed a consolidated form detail the church’s holdings, the agency added.
When Ensign finally filed the consolidated disclosure, it showed that now Ensign was managing the exact same 1,659 securities the clone LLCs had been managing, valued at about $37.8 billion.