Article originally appeared in the Boston Herald on January 30, 1996. Reproduced with permission of the copyright owner.
Some high-profile Bay State charities and non-profits could lose big as a federal trustee wades through the $303 million bankruptcy of a phony Philadelphia philanthropy. Institutions from Harvard Business School to a Cape Cod religious community have been notified that they may have to repay easy-money profits from the now-defunct Foundation for New Era Philanthropy.
The worst-case scenario ranges from a modest $9,000 hit for Massachusetts General Hospital to a staggering $7.6 million tab for Gordon-Conwell Theological Seminary of South Hamilton.
The federal trustee is unraveling the bankrupt Foundation for New Era Philanthropy. New Era was allegedly little more than a giant Ponzi Scheme whose operators convinced professional fund-raisers and big-name contributors to ante up money. New Era allegedly told them that their contributions would be doubled in six months via rich, anonymous donors.
"It was the biggest example of group-think I've ever seen," said an accountant involved in the case who spoke on condition of anonymity. Donors nationwide put up $128 million, including $78 million from recipient groups. New Era pitched in $178 million it got from pushing the pyramid scheme forward.
Under bankruptcy law, the trustee administering the case can go after all the money involved in New Era deals - even the initial capital charities, third-party donors, and others put up. That money could then be used to pay off other claims against New Era. If the trustee plays hardball, Harvard Business School stands to lose $1 million - $502,000 from a third-party donor plus a matching amount kicked in by New Era. The prestigious Groton School stands to lose up to $42,000. These and other Bay State organizations could recoup part or all of the initial donations, once the bankruptcy court decides how to disburse what remains in New Era's accounts. Institutions affiliated with religous groups were hit especially hard.
Gordon College, a private, Christian college in Wenham, has an exposure of $5.3 million. On Cape Cod, the Community of Jesus could owe as much as $1.4 million. Boston College: $30,000. Lexington Christian Academy could owe as much as $80,000 - the total of a $37,500 gift the school received and New Era's match.
"We did not raise any funds through there. We did not make any investments," said Barry Koops, headmaster of the 220-student preparatory school. Koops and spokesmen for other non-profits involved said they've received no official claim yet from the bankruptcy trustee.
"We haven't heard anything from them," said Peter Brown, administrator at Park Street Church in Boston. Unlike other organizations that received money through New Era, Park Street set aside its $111,000. "We placed the money in escrow . . . we are perfectly prepared to pay back whatever," Brown said. He would not confirm the dollar figure.
While the bankruptcy proceedings move forward in Philadelphia, organizations are trying to figure out how professional fund-raisers were suckered out of millions.
"We participated only after careful deliberations by the executive committee of the board of trustees," said Gordon College spokesman Rick Sweeney. Before sending any money to New Era, the board reviewed documents, checked references and even contacted the Pennsylvania attorney general's office, Sweeney said. Then the college forked over $2 million.
Some participants are working to settle the matter out of court through the Washington, D.C.-based Evangelical Council for Financial Accountability. The organization, which grew in the wake of the PTL scandal created by televangelists Jim and Tammy Bakker, audits the books of religious organizations to find wrongdoing.
The group's president, Paul Nelson, said the goal is to arrive at settlements between non-profits that ultimately gained from New Era, and net losers. "People with extremely different positions are still at the table talking," he said.
But so far, Sweeney said, "Nothing has been determined that would work out for everyone."
It may be scant comfort, but the Massachusetts victims have prestigious company. Other big losers: the Philadelphia Orchestra, which put up $1.5 million; the University of Pennsylvania, which put in $2.4 million; Yale Law School, which could owe $100,000 and the Dartmouth College Alumni Fund, which could be out of pocket $1.5 million.
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