A 12,000-member megachurch in Britain lost the equivalence of $4.8 million in charitable funds after trustees carelessly invested money in what later turned out to be a ponzi scheme headed by a former Premier League soccer player.
According to an inquiry report published last week by the Charity Commission for England and Wales, the Kent-based Kingsway International Christian Centre came away with a net loss of about $4.8 million (£3.9 million) after its trustees forked over a total of $6.1 million (£5 million) in four installments between June 2009 and June 2010 to a former trustee who guaranteed that the investments would earn a sizable return totaling about 55 percent in a year.
Although the commission's report does not name names, The Telegraph reports that the person who the church trustees handed the money to was Richard Rufus, a former defender for the Charlton Athletic Football Club who was also a former minister and trustee at the church.
Last year, a judge found that Rufus had conned about 100 investors out of a total of $10,731,159 (£8,682,343) in the £16-million investing scheme with Kingsway International Christian Centre being the single largest investor.
According to the commission's report, the church's trustees handed over an initial investment and entered into an agreement in which they were guaranteed that investment would earn a profit of about 5 percent per month, with the exception of August and December when they were guaranteed profits of about 2.5 percent.
"The inquiry established that in practice, however, the investments resulted in a net loss of £3.9 million to the charity," the report explains.
The report states that the church's trustees who handed over the funds were guilty of "mismanagement." The commission found that the church's trustees did not "exercise sufficient care when making the decisions to invest £5 million of the charity's funds through the ex-trustee's investment scheme."
"They did not follow all the principles expected of trustees to ensure they comply with their trustee duties under charity law when making those decisions," the report concludes.
The Charity Commission was first alerted to the church's investment when it found that the church made £3 million of investments with a "qualified independent trader" who was "in a position to provide the services of an investment manager by investing in financial markets."
After the commission contacted the Financial Services Authority to verify the trustee's status as a trader, it found that the trustee in question was not, nor had he ever been, licensed to "carry on regulated activities in a personal capacity."
The commission also found that the investments were paid to the trustee's personal bank accounts. Additionally, the commission found that the investments "appeared to be speculative and high risk in nature."
As a result of the commission's inquiry, an interim manager was appointed to review the trustees' decisions to invest the £5 million and to decide whether any of the trustees should be held personally liable.
The interim manager found that the trustees did not do enough to investigate whether or not the rate of return they were promised was realistic and put too much trust in the trustee's good standing with the church and community.
"The interim manager found that conflicts of interest were not managed properly by the decision-making trustees when making the decision to invest. There was too much reliance on the expertise of the ex‑trustee when he was personally interested and conflicted," the report states. "The interim manager found that insufficient consideration was given by the decision-making trustees as to whether the guaranteed rate of return was unrealistically high, or to the potential for fraud."
After the church entered into an Individual voluntary agreement with the ex-trustee in hopes he could pay back the money lost, the ex-trustee filed for bankruptcy and was declared bankrupt in 2013.
The interim manager also encouraged the church's current trustees to bring a legal claim against the trustees who decided to invest the money.
After the formulation of a committee in 2013 to consider matters pertaining to the investment, the church and the former decision-making trustees reached an agreement on an out-of-court settlement in September 2015. The restitution that the trustees agreed to pay must be paid by Sept. 3, 2017.
"The current trustees accept the report of the commission and acknowledge the seriousness of the mistake that was made. The trustees at that time believed they were acting in the best interests of the charity and have not benefitted personally," a statement from the church reads.
"We are speaking of events that happened seven and a half years ago. None of the current trustees were involved in the decision making regarding the investments with the now ex-trustee. Since then, we have worked with the commission and our professional advisors to put robust controls in place that would prevent any reoccurrence."
"With the benefit of hindsight it is clear that the former trustees' decision to invest was not a prudent one but was done in good faith," the statement added. "The charity has since continued to operate and successfully carry out its charitable objectives to the community and looks forward to continuing to do so."