Lutheran Church accused of securities violations in failed Alberta housing investment
ASC said investment program operators failed to tell investors how money was being used or at what risk
The president of the Lutheran Church of Canada said Thursday it will move away from the use of locally administered church funds after Alberta's securities regulator accused it and its Alberta-B.C. district church of misleading investors.
The Alberta Securities Commission issued a notice of hearing Thursday into allegations against the national and district churches, a related company called Alberta-British Columbia District Investments Ltd. and five individuals.
They are accused of misleading investors who put more than $130 million into funds that backed a residential development east of Calgary that sought court insolvency protection in 2015.
"It's caused a lot of hurt and bitterness, anger," Rev. Tim Teuscher, president of the Lutheran Church of Canada, said in an interview from the Winnipeg head office.
"This precipitated a decision of restructuring at our synod last year, actually. Instead of having separate corporate groups within the church body that kind of do their own thing corporately, we decided we're going to get rid of that."
He said the church has never previously had problems with its extension funds, which have been used for decades to provide a return to investors while raising money for capital projects such as churches and schools.
The Ontario Lutheran district has such a fund that has operated without problems, but it is in the process of being retired, he said.
Investors not informed
In its notice, the Alberta Securities Commission alleges that operators of the investment program failed to tell investors — many of whom were church members — what their money was being used for and at what risk.
The ASC alleges that more than $95 million had been invested by more than 2,600 investors in the Church Extension Fund (CEF) and over $37 million was invested by over 900 investors in the separate District Investments Ltd. fund as of Nov. 30, 2014.
A series of loans resulted in about 75 per cent of the combined funds being placed in a development called Encharis that included a school, church and seniors' housing complex east of Calgary, the ASC said.
ASC staff allege that investors were never told about the high concentration of funding going into one project, nor did they find out about persistent loan defaults or cash flow problems.
The commission is set to meet with the parties on Aug. 13 to set a date for a hearing regarding the allegations of securities law violations. The charges have not been proven.
The list of respondents include the national and district churches, as well as company officers or directors Donald Robert Schiemann, Kurtis Francis Robinson, James Theodore Kentel, Mark David Ruf and Harold Carl Schmidt.
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