Minnesota passed a 2012 law to limit the ability to reclaim money given more than two years prior but that law did not stop a judge from ordering the University of Northwestern St. Paul to give back $5M given by a partner to the creator of a $3.7 M Ponzi scheme there.
So what is the legal or moral duty of a church when it turns out a generous member was in reality a thief or a conman? I do not have a quick or easy answer. It would seem to me that in some cases the organization might be expected to know that the gifts were not entirely legit. Large cash gifts and sudden riches often raise real questions. But while those answers might be easier to arrive at (even if they were harder to swallow given the size of the gifts), what about our own members who claim bankruptcy or who fail to file their taxes or in some other way give money that they probably should not have given? Does a church have a duty to investigate the funds and financial condition of those who give before receiving the gifts?
Since I have never been on the receiving end of the size of donations that are prime targets for such recovery, the issue for me has to do with more ordinary circumstances. I once joked with a local funeral director who told me the deacons had told their pastor to call upon a local lottery millionaire. I told him that he could not do that and that Baptists had too much integrity to do this. First, it was ill gotten gain and they would want nothing to do with it. Second, the person was already Lutheran even she did not yet know it. Lutherans, on the other hand could receive the gift without the pangs of conscience since we believe in moderation in all things. That was the joke. But the truth is, often we find ourselves so dependent upon the next week's offering that we will take money without a second thought as to its source. Money does not hang around long in an average congregation's bank account.
So, for example, is it kosher for a Lutheran congregation to receive the tithes and offerings of a Colorado owner of a marijuana emporium engaged in the state legal practice of selling the stuff (though it is still illegal federally)? I would suspect this is not necessarily theory but has already arisen in actual practice. What are a congregation and pastor to do? How many denominations or congregations have policies in place about what is given?
All of this raises questions about both the legal and moral consequences of accepting money. I don't have all the answers but I have quite a few questions. What about you?
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The 1995 court ruling was the United States 7th Circuit Court of Appeals Judge Richard A. Posner's May 18, 1995, opinion in Steven S. SCHOLES, as Receiver for Michael S. Douglas, D & S Trading Group, Ltd., Analytic Trading Systems, Inc., and Analytic Trading Service, Inc., Plaintiff-Appellee, v. Charles LEHMANN and Lisa Lehmann, Joseph E. Phillips, African Enterprise, Inc., et al., Defendants-Appellants (Nos. 94-2039, 94-2136, 94-2718 and 94-2947)
Posner's notes one apparent failure by a religious corporation defendant (or their lawyers):
"One of the religious corporations argues that an affirmative answer [to giving back the donations] would violate the free-exercise clause of the First Amendment, made applicable to the states by the Fourteenth Amendment. The receiver responds that the constitutional issue, not having been raised in the district court, has been waived."
The judge also noted:
"At the oral argument of the appeals, concern was expressed, not wholly tongue in cheek, that if the district court's decision stands, charities will have to hold annual 'fraud balls' at which they try to raise money to pay judgments in suits brought by persons who claim that some of the money donated to the charity had been obtained from these persons by a fraud or theft by the donor.
"An alternative to 'fraud balls' would be for charities to screen their donors, but this hardly seems feasible. Another alternative, feasible but costly, would be for charities to hold cash reserves against the possibility of having to disgorge some of their donations in response to claims of fraudulent conveyance. Liability insurance is a possibility, too, but only that. Although one cannot buy insurance against liability for deliberate fraud, the innocent recipient of a fraudulent conveyance is not itself guilty of fraud and so in principle ought to be able to buy insurance. It appears that such insurance is offered, though with limitations that may greatly reduce its value, and perhaps only for conveyances of real estate.
"The religious corporations have a more direct route to their goal. For they argue that the statute does not authorize a money judgment, but only an order-with which they could not comply, having spent the money-directing the rescission of the transfer. The argument is not persuasive... If accepted it would cause recipients (not limited to charities) of gifts and other transfers potentially voidable under the fraudulent conveyance statute to spend the money immediately, in an effort (perhaps doomed anyway,... to prevent tracing."
Imagine this judgement enforced against politicians and other office-seekers; singling religious oprganizations out is nought but a policy of kicking midgets.
RE: "[I]s it kosher for a Lutheran congregation to receive the tithes and offerings of a Colorado owner of a marijuana emporium engaged in the state legal practice of selling the stuff (though it is still illegal federally)?"
One could generalized the question to include tithes and offerings from donors legally earning the donated funds through, in the Lutheran congregation's view, morally evil and unChristian means.
In addition to probably obvious means such as earnings, bonuses, or dividends associated with Planned Parenthood and other baby chopshops, whorehouses, strip clubs, casinos, manufacturers of abortion or "morning-after" drugs, etc., what about earnings, bonuses, or dividends associated with selling equipment and supplies to any of the above legal businesses, or from judges, legislators or administrators who legalize, regulate, license, or oversee such businesses? Or earnings and income from people employed by the Demonicrat Party or Demonicrat politicians? What about accepting tithes and offerings from employees of LIaRS (Lutheran Immigration and Refugee Service)?
BTW: Cute mixed metaphor: "kosher for a Lutheran congregation"
In addition to the religious organizations, the defendants included one of Douglas's investors who actually made money off his investment.
Judge Posner noted:
"Only a very foolish, very naive, very greedy, or very Machiavellian investor would jump at a chance to obtain a return on his passive investment of 10 to 20 percent a month (the Machiavellian being the one who plans to get out early, pocketing his winnings, before the Ponzi scheme collapses)."
Excerpted from an April 17, 2012, article, Should Charities Be Protected from the Claws of Fraudulent Transfer Laws?":
"Both federal and state law allow for clawbacks* of fraudulent transfers. For example, under federal bankruptcy law, a bankruptcy trustee may void and undo a transfer if (a) the transfer involved an actual intent of the debtor to hinder, delay, or defraud; or (b) the debtor received less than a reasonably equivalent value in exchange for such transfer or obligation (in addition to other factors that evidence fraud, such as debtor insolvency at the time of or immediately after the transfer)."
*A "clawback" is legal action taken by the trustee of a bankruptcy estate to recover funds made by the bankrupt debtor to some parties to repay other parties, such a creditors or victims. Funds involved in Ponzi schemes are an example.
11 U.S. Code § 548 - Fraudulent transfers and obligations has some exemptions for contributions to a qualified religious or charitable entity or organization:
"(2) A transfer of a charitable contribution to a qualified religious or charitable entity or organization shall not be considered to be a transfer covered under paragraph (1)(B) in any case in which—
"(A) the amount of that contribution does not exceed 15 percent of the gross annual income of the debtor for the year in which the transfer of the contribution is made; or
"(B) the contribution made by a debtor exceeded the percentage amount of gross annual income specified in subparagraph (A), if the transfer was consistent with the practices of the debtor in making charitable contributions."
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