SEC suing churches to recover funds

The Dallas Morning News
October 25, 2001

SEC suing churches to recover funds;
Swindlers donated victims' money as bait for scam, officials say

BILL LODGE

In a rare move, federal officials are suing churches from Richardson to Phoenix to recover some of the more than $ 46 million they say was stolen from investors in a fraudulent program.

Much of the investors' money was used to buy luxury cars, gold coins, expensive jewelry, large homes, and other real estate for the promoters, according to the U.S. Securities and Exchange Commission.

Some was funneled to associates of the Colombo crime family of New York, the FBI alleges in court records.

In the late 1990s, promoters also made large contributions to churches in an effort to impress potential investors in the congregations. Now, it is likely that the SEC will be able to recover those contributions, former U.S. Attorney Paul Coggins of Dallas said Wednesday.

"It is very rare for federal agencies to go after churches," Mr. Coggins said. "But if the funds were stolen from someone else, then they [the SEC] are entitled to reclaim them on behalf of the victims. The victims have the stronger claim.

"The churches could have been acting completely in good faith and still face loss of the money."

First Baptist Church of Richardson is fighting efforts by the SEC to recover $ 64,728 that the church received from Gerald Pate, a church member and promoter for Benjamin Cook, 53, of Arizona. Officials say Mr. Cook is the mastermind behind the investment scheme.

Mr. Pate, who is cooperating with SEC officials, has returned more than $ 600,000 of the $ 1.5 million he received for attracting $ 7 million in investments to Mr. Cook's program.

Ron Springate, administrator of First Baptist, said church officials do not quarrel with the SEC's efforts to collect Mr. Pate's church offerings.

"They have every right to investigate and turn over every stone," Mr. Springate said. "That doesn't mean that Mr. Pate was involved with anything improper at all. We don't think that. We think that he was a victim, too."

Church attorney Truman Spring has stated in court records that First Baptist accepted Mr. Pate's contributions in good faith and had no knowledge of any impropriety involving the money.

Two other church groups have agreed to return much larger contributions from Mr. Cook and another promoter, Ellsworth McLaws of Scottsdale, Ariz.

Lawrence Warfield, the court-appointed receiver in the SEC action, told U.S. District Judge Jerry Buchmeyer in Dallas on Wednesday that the Church of Scientology is returning $ 1.5 million that Mr. Cook gave to congregations in Arizona and California.

And a congregation of the Church of Jesus Christ of Latter-day Saints in Arizona has agreed to return $ 144,250 contributed by Mr. McLaws, Mr. Warfield said.

The money originally came from more than 300 investors in Texas, California, and Arizona. Mr. Cook and his promoters told them their money would be lent to large European banks, which guaranteed them annual returns of 24 percent to 48 percent, court records show. In fact, the SEC says, these so-called prime banks do not exist and none of the money was placed in a legitimate investment.

The SEC and Mr. Warfield have recovered $ 15.4 million from Mr. Cook and several of his associates - although $ 3 million of that was used to investigate the case and administer assets.

Other funds were given to some of the investors in the form of interest payments that SEC officials said were actually bait used to lure additional investors, many of them elderly.

Today, investors remain more than $ 11 million short of the funds they plowed into Mr. Cook's Dennel Finance Ltd.

Mr. Warfield and SEC attorney Jeffrey Norris asked Judge Buchmeyer on Wednesday to retain $ 2.2 million of those assets for future recovery operations and to approve the release of $ 10 million to investors this year. If the plan is approved, the money will be forwarded to investors whose claims have been filed in court.

The $ 10 million represents 42 percent of the $ 23 million in filed claims.

Mr. Cook has remained in custody since his arrest at a Las Vegas casino in October 1999. He is in a jail cell in Phoenix, where he faces trial on a fraud indictment obtained by the Arizona attorney general's office.

In Dallas, Mr. Cook has been ordered by Judge Buchmeyer to repay investors $ 36.7 million, plus $ 5.6 million in interest to victims. The judge also ordered Mr. McLaws to repay $ 10.3 million, plus $ 1.7 million in interest.

Also Wednesday, Mr. Warfield said that Mr. Cook gave Kaiser Akel a check for $ 270,000 in investor funds and that Mr. Akel cashed it at a convenience store in South Florida.

Mr. Akel pleaded guilty to one count of money laundering in a federal racketeering case in Boca Raton. He was indicted in that case with 17 other people accused of serving as a crime crew for the Colombo organized-crime family. He has agreed to testify against the other defendants.

Asked whether Mr. Cook knowingly worked with organized crime, Mr. Warfield said: "Mr. Cook knew where every dollar was from and where it was going. Obviously, he knew someone who knew someone who knew how to get a $ 270,000 check cashed at a convenience store in Boca Raton."