25 Years Ago: John Bennett and the Foundation for New Era Philanthropy
Editor’s Note: 25 years ago, in May of 1995, The Wall Street Journal published a series of stories that led to the downfall of the Foundation for New Era Philanthropy. New Era was a financial scandal that involved scores of some of the largest evangelical ministries in the country and was – at the time – thought to be the largest financial fraud in history.
What follows is a chapter from Warren Smith’s upcoming book Faith-Based Fraud, which highlights some off the biggest financial frauds to hit the evangelical church.
It’s hard to imagine a person more different from Jim and Tammy Faye Bakker, Charles Ponzi, Todd Bentley, or many of the others we have mentioned in this book so far than John G. Bennett, Jr.
Men like Bakker and Bentley are flamboyant and seem to come alive in the spotlight. That, indeed, was also Charles Ponzi’s modus operandi, as well.
Bennett, on the other hand, was the quintessential behind-the-scenes player. He was friendly and outgoing, but serious, a successful businessman. He lived an affluent lifestyle, but not a flamboyant one. He was active in his local church and counted evangelical leaders such as Tony Campolo and Dr. Jack Templeton, son of legendary investor Sir John Templeton, among his friends.
But the Foundation for New Era Philanthropy, Bennett’s brainchild, was a Ponzi scheme that operated for six years, from 1989 until 1995. It victimized some of the most respected institutions in evangelical Christianity. And the New Era scandal survived for so long in part because it was the opposite of the PTL scandal. In fact, even its very name—New Era—seemed to signal that what it was doing was not going to be business as usual.
In essence, the New Era scheme worked like this: John G. Bennett, Jr., a prominent Christian businessman, told his friends, Christian donors, they should give money to the Foundation for New Era Philanthropy rather than to their favorite charities. Why should they do so? Because the money would be matched after three months and New Era would then make the contribution to the charity, only the contribution would be doubled.
How could Bennett and New Era do this? No legal investment vehicle doubled one’s investment in only three months. Bennett claimed to have anonymous benefactors who were matching the money. This process allowed these anonymous benefactors to give away large sums of money and maintain their anonymity. And it allowed the smaller donors to double the gifts they wanted to make to ministries they loved.
Bennett started New Era in 1989 by asking his friends to give him relatively small amounts of money that they had already planned to give to charity. He basically said, “Why give your favorite charity $5,000 today when you can give them $10,000 in three months?” Bennett was affable and forthcoming when confronted with questions. The most obvious question: How could he double the money in three months? His answer: The anonymous donor.
But other questions remained. Why didn’t the anonymous donor just give away his money anonymously, perhaps using Bennett as an intermediary to ensure his anonymity? The answer to that question, Bennett said, is that the matching funds scenario was more strategic, more leveraged, for the anonymous investor. Charities too often come to depend on big “sugar daddies.” This strategy insures that the anonymous donor never gives more than half of a large gift. That’s good for the organization. It forces the organization to continue to work to develop its base of donors.
Another question: Why does Bennett and New Era need to hold the money for three months before distributing it to the charity? The answer to that question, too, was straightforward and sensible. When you give away large chunks of money, you need to do due diligence. Is the charity legitimate? Do they have all their paperwork in place? Are their government filings up to date? The recipient organization must, in essence, be approved to receive the money. The requirements were not onerous, but they were necessary, Bennett said. Holding on to the donor money for three months allows that process to be completed. It is sort of like earnest money in a real estate transaction.
Another matter vital to donors was what happens when the anonymous donor’s money runs out. This question was the one on which Bennett was the most vague. He said that there was more than one anonymous donor. How many? That answer changed over time. The story that seemed to last the longest was that there were nine donors. Bennett explained the changing story by saying that other anonymous investors heard about the original few and wanted to be a part of this process.
And, of course, there was this obvious implication: It was possible the money would run out. Get it while the getting was good.
In 1989 Bennett convinced a number of donors to give him relatively small amounts of $5000, in most cases. In January of 1990 Bennett made the promised payouts. Both the donors and the recipient organizations were delighted.
What Bennett didn’t tell anyone is that Bennett himself was the anonymous donor. Up until then Bennett had made his living as a consultant, and he had been a successful businessman and a generous giver himself. On this occasion, he simply channeled his personal giving through New Era. This gift, in January 1990, appears to be the last legitimate transaction the Foundation for New Era Philanthropy made.
This is a key point. In fact, it is one of the aspects of the New Era scheme that is most interesting from a psychological point of view. Bennett himself knew there was no anonymous donor, so this was fraud from the very beginning. But, interestingly, anonymous donors did, in fact, come forward, even in the early stages of the scheme. In other words, Bennett’s idea of allowing anonymous donors to match the gifts of others actually had some merit. It might have worked. William Simon, the former Secretary of the Treasury, asked to be one of the anonymous donors, but Bennett never responded.
Why? The most obvious explanation is that Bennett intended to commit fraud from the very beginning. He had no intention of turning New Era into a legitimate business or philanthropic operation. Bennett may have feared the anonymous investors would want more control or disclosure than Bennett was willing to offer.
Whatever the reason, these initial transactions in 1990 were the beginning of a fraudulent scheme that went on for five years, longer than most schemes of this type. When these first few donors saw that the plan actually worked, or at least from their perspective appeared to work, they were anxious to tell their friends. Some of them were quick to “double down” themselves, giving yet more money to New Era. Just as in Charles Ponzi’s original scheme, the money began to flow.
The Foundation for New Era Philanthropy nonetheless remained relatively small until 1993, when donors to the Philadelphia Academy of Natural Sciences gave $250,000 to New Era, which New Era then matched. Donations of this size do not go unnoticed, even in a large and moneyed city such as Philadelphia. Soon the Philadelphia Public Library, the Philadelphia Orchestra, and the University of Pennsylvania joined the program.
But it is important to remember that New Era was a classic affinity fraud. That is, the victims had either a direct affiliation with Bennett, or they were separated by no more than one or two degrees. In the early days, that meant that most of the organizations involved with New Era were from the Philadelphia area, Bennett’s home town.
And Bennett was also an evangelical Christian. As the word got out about what Bennett was doing, and as people saw its apparent success, others wanted in. The list of ministries involved with New Era began to read like a Who’s Who of evangelical organizations. Eventually, more than 180 evangelical groups became involved, including many Christian colleges. Among the organizations involved with The Foundation for New Era Philanthropy were: Wheaton College, The Biblical Theological Seminary, CB International, Covenant College, John Brown University, and International Missions, to name just a few.
From New Era’s beginning in 1989 until the quarter-million-dollar gift to the Philadelphia Academy of Natural Sciences in 1993, all seemed to be going pretty well with New Era. But the Philadelphia Academy, and the attention that gift attracted, dramatically increased New Era’s appetite for cash. For a while, Bennett was able to keep up by increasing the minimum donation qualifying for a match from $5,000 to $25,000. This change allowed him to match the earlier, smaller gifts with newer and larger gifts.
But eventually all the small matches cycled through New Era, and he faced the prospect of now having to match these newer, larger gifts. Bennett met this challenge in several ways. First, he lengthened the waiting period between donation to New Era and the time the gift was matched and distributed. The waiting period went from three month to six months to nine months to ten months. By the time he made these changes, so many donors had seen their gifts matched, and so many organizations had received money, that no one questioned the process. Everyone was benefiting, or so it seemed.
But it wasn’t enough. That’s when Bennett took another page from Charles Ponzi’s playbook. He created a sales force, offering representatives 10 percent of the money they raised. However, when he did this, Bennett stepped over a bright ethical line. The Association of Fundraising Professionals have long said that it is unethical to offer fundraisers commissions or bonuses. This development was a major turning point in the Foundation for New Era Philanthropy’s journey.
But it was easy to see why Bennett didn’t have trouble finding sales reps or raising a lot of money. The sales rep had a fairly easy pitch to a potential donor, give to New Era Philanthropy and they’ll double your gift to the ministry you love. The result of this pitch, and this sales commission scheme, is that the sales representatives sometimes came from the ranks of the very donors and organizations being who were unknowingly participating in the scam. But these sales reps – the former development officers of the ministries receiving the doubled gifts – brought their donor lists with them, and for a while they kept the money flowing into New Era.
A Surreal Twist
Bennett developed a third way to keep the scam going, and this development caused New Era to take a surreal turn. Remember, from 1989 until 1993 New Era had been matching (rather, claiming to match) donor gifts with the funds of the anonymous donor. And while that claim was completely fraudulent, it at least had the effect of motivating donors to give. As New Era grew, its appetite for cash grew. Delaying payments and recruiting sales people brought short-term relief, but only compounded the long-term problem. Bennett was looking at a growing mountain of liabilities. He needed much more new cash than his sales people could generate from individual donors, even very wealthy donors.
So, he started allowing the organizations to donate to themselves, often out of their endowment funds. This new twist should have caused at least some of the Christian organizations to ask questions. Christian organizations could see and appreciate the logic of the original scheme. The original scheme allowed relatively small donors to leverage their money with the resources of the anonymous megadonor. And the megadonor in effect used the smaller donors, in effect, to do due diligence on the ministries. It was an unusual scheme, even an unlikely scheme, but John Bennett knew that it would appeal to the evangelical mind. And he was right.
But allowing the organizations to donate to themselves dramatically undercut the benefits of the original scheme. Indeed, it undercut the very ethos of the original scheme. Why would the anonymous donor match funds that the charity already had? What was the good of that?
But by this time, 1993, the scheme had been going on for several years. Many wealthy Christian people, and others who were not so wealthy but who were in influential positions with Christian organizations, had seen what appeared to be an above-board organization work. Bennett had performed. And not just once but, in some cases, many times.
So no one asked questions. Whatever skepticism the leaders of Christian organizations may have had— indeed, should have had—was buried under the lure of easy money. Once again, as was the case with Ponzi and Bakker, it was not just the greed of the frauds that allowed the schemes to continue, but the greed of the Christian leaders themselves. Or perhaps it was fear – the fear of being left out of a scheme from which so many of their peers were benefiting.
Given these circumstances, it is not hard to see why some of the smartest folk in the Christian world got sucked into the New Era scandal. The plan seemed elegant, even leading edge. And at least up until 1993, Bennett had not sought publicity, had gotten both new donors and new recipients completely by word-of-mouth, and made some donors feel that they were on the inside of something new and important. That created a sense of urgency to act before others diluted the effectiveness of the idea.
But all of these qualities aroused the suspicion of one Albert Meyer. He was a part-time professor at Michigan’s Spring Arbor College, working in the financial office to make ends meet. Meyer took one look at the Foundation for New Era Philanthropy and recognized it as a classic Ponzi scheme.
But would anyone listen?
Albert Meyer Stands Alone
Neither Spring Arbor College nor John Bennett knew what they were getting into when they ran into Albert Meyer.
Albert Meyer was a young South African accountant. Meyer had earned his stripes in the accounting profession with the South African branch of the global firm Deloitte & Touche. But Meyer wanted to come to the United States, so he came to Spring Arbor College to help build the school’s accounting department. Because young professors at small Christian colleges are not at the top of the pay scale, Meyer earned extra money by working in the college’s business office.
When Meyer worked for clients of Deloitte & Touche, Deloitte billed those clients about $100 an hour for his time, but at Spring Arbor, “I was making about $9 an hour,” Meyer said. “And I was glad to have it. I needed the money.”
Meyer was doing fairly routine work, primarily bank reconciliation. In other words, he made sure that the accounting records of the college agreed with the statements coming from the bank. Reconciling a bank statement is tedious, exacting work, which requires checking off hundreds or even thousands of items.
Every business is different, but in most businesses you’ll see the same kinds of transactions over and over again, in more or less the same amounts. Accountants are trained to pay special attention to the anomalies.
That’s why one transaction stuck out to Albert Meyer. It was a wire transfer to the Heritage of Value Foundation for $296,000.
“Why are we sending a wire transfer to this foundation?” Meyer asked himself. “What was the urgency that required a transfer?”
Meyer said he asked himself these questions, but he was “reticent to ask others. I was a foreigner then. I didn’t know how my questions would be received. After all, I was just reconciling the bank statement.”
But the wire transfer and what his response should be gnawed at him. In these days before online search engines, Meyer had to go to the college’s library to satisfy his curiosity. In Spring Arbor’s library he found a directory of foundations. The listing with the closest match was the Heritage Foundation, a large Washington, D.C., think tank that is well-known and respected among conservatives. But he found no Heritage of Value Foundation.
“It occurred to me that someone might be trying to get us to confuse the two or to believe there might be a relationship between the two,” Meyer said.
So he dug further. It turns out that the Heritage of Value Foundation wasn’t even an organization. It was a DBA, short for “doing business as.” DBAs are common in business and can save time and money. If I own Smith’s Tire Repair Shop, I might also register the DBA “Smith’s Tire Repair” or Smith’s Repair Shop” so I can deposit checks from busy customers who might not get my name exactly right.
So who owned the DBA for Heritage of Value Foundation?
Meyer called the editor of the directory. It turned out that the Heritage of Value Foundation was a DBA for John Bennett’s Foundation for New Era Philanthropy.
The editor told Albert Meyer something else. The editor said he too was curious about the Foundation for New Era Philanthropy, so curious that he had recently had lunch with John Bennett. He told Meyer, “Bennett doesn’t want the publicity. He keeps his cards very close to the vest.”
Meyer, as an accounting professor, knew well the history of Ponzi schemes. When he learned about the secrecy of New Era and Bennett’s disdain for publicity, he said, “That was a massive red flag. Publicity is what killed Ponzi.” Indeed, as we have seen, publicity or, more precisely, scrutiny by journalists and subsequently by the public, has again and again proven its value in rooting out fraud.
Had John Bennett studied the frauds of the past? Was he taking steps to avoid being caught?
Perhaps, but this case was a bit different, perhaps. On the one hand, Meyer could appreciate any individual or organization that does good work without attempting to get a lot of glory. When it comes to charity, the Bible teaches, “Don’t let your right hand know what your left hand is doing.” (Matt. 6:3) On the other hand, bad guys also often avoid publicity and the scrutiny it brings.
All of this added up to a situation in which Meyer knew he had to act. “If you were a chemistry professor and you saw the maintenance department using a banned chemical to clean graffiti, you can’t say nothing. You can’t say, ‘That’s not my responsibility.’ You have to speak up.”
So he did. Meyer went to his boss at Spring Arbor College. He at first just asked basic questions about the organization. His boss showed Meyer marketing material from the Foundation for New Era Philanthropy, including the suggestion of an anonymous donor.
She added, “We think the anonymous donor is John Templeton.” Templeton, Meyer knew, was one of the richest men in the world. He was a legendary investor and philanthropist known for funding Christian causes and institutions. “Sir John” had religious views that might be called eclectic. But his son, Jack, was an evangelical Christian and a friend of John Bennett.
Meyer was told, “We apply for the grant. Bennett invests the money in safe government bonds, and the return pays his overhead.” Bennett then returns the money, matched by the money from the anonymous donor.
If the original situation smelled fishy to Meyer, these explanations smelled even fishier.
Doing The Math
“I asked why we had to send Bennett the money,” Meyer said. “Why not just put it in an escrow account?” An escrow account is an account over which an independent third party has responsibility. For example, when you purchase a home, you must often bring money with your offer to buy. That money is called “earnest money.” It tells the seller that your offer is serious, or in earnest. That earnest money goes into an escrow account – a special account until the sale of the house is complete. Escrow accounts are, in other words, common financial tools, and the money could as easily have been held, and invested in safe financial instruments, from an escrow account as from Bennett’s accounts.
Meyer was also puzzled by the explanation of the scheme itself: that the money was invested in “safe government bonds.” Government bonds are safe, but because they are safe, they pay low interest rates, and the short-term bonds that Bennett would have to be investing in would pay particularly low rates, probably less than five percent. Meyer calculated the interest at 5 percent on the $296,000 he had seen when he was doing the bank reconciliation. That’s less than $15,000 per year. And Bennett said he would hold the money for only ninety days. The interest generated would be less than $4,000. Meyer had been told that this interest income was what supported the operations of New Era.
But Meyer could easily see that this was not enough to support an organization. The only way to support an organization the size New Era had become would be to have hundreds of millions of dollars under management. But if New Era was doing what Bennett said it was doing, the money should be going out about as fast as it was coming in. At any given moment, there would be very little money actually earning interest. If Bennett was really paying back the original investment in just ninety days or even in six months, there would simply not be enough investment capital at New Era at any one time to throw off enough cash to pay for the overhead.
So Meyer went back to Spring Arbor’s controller with his suspicions. “I didn’t say, ‘This sounds like a Ponzi scheme,’” Meyer said. “But I did suggest that things did not make sense.”
The controller heard Meyer’s concerns and did not disagree with them, but she said the transaction had been approved by the board of directors of the college. So Meyer wrote to the board chairman. The board chairman wasn’t convinced by Meyer’s arguments, but he was sufficiently troubled that he said, “We’re going to see Mr. Bennett.”
A True New Era?
One reason it was not easy for Meyer to get anyone’s attention about his concerns over New Era was because, at least for a fairly long while, it truly looked as if the Foundation for New Era Philanthropy might really be ushering in, well, a new era in philanthropy.
After all, the early investors got their money back with the promised returns. And it was the 1990s, an era when the gross domestic product of the United States grew by 50 percent during the decade. Massive fortunes were being made in technology and other arenas. Bill Gates started the Gates Foundation in 1994 with $2-billion. (In 2020, the Bill and Melinda Gates Foundation had nearly $50-billion.) The notion that John Bennett had an anonymous billionaire behind him was plausible.
It is also important to note that the investors in the New Era scheme were careful, circumspect people. Many streams make up protestant Christianity in the United States. Mainline Christianity is often the term given for the established denominations, so named because in the 18th and 19th centuries, they were the churches on the “main line” of the trolleys or street cars of such cities as Boston and Philadelphia.
In the twentieth century came the rise of evangelicalism, which was in some ways a reaction to growing theological liberalism and to the institutional calcification of mainline churches. In the early days of the evangelical movement, especially in the post-World War II era, evangelical organizations were young, entrepreneurial, and—at least some of them—highly successful. Parachurch organizations such as Focus on the Family, Young Life, Campus Crusade for Christ, and others became $100-million organizations.
The 1970s and 80s saw the rise of the megachurch, churches with more than two thousand in regular weekly attendance. In fact, in 1970 there were only about a dozen protestant megachurches in the country. By 2010 there were more than fifteen hundred such churches.
The evangelical movement did not have the same degree of institutional infrastructure as the mainline church, but that infrastructure, at least informally, was growing. And many of the people in the movement knew each other. These were the people and the institutions John Bennett targeted.
That’s one reason Albert Meyer took his concerns to the Evangelical Council for Financial Accountability.
The ECFA has grown to about 2400 members, but in 1995 it had only about five hundred members. Nonetheless, Albert Meyer thought it could help, thought it should help. “They are supposed to be a watchdog,” Meyer said. Indeed, more than 15 years later, when I interviewed him for this book, Meyer remains particularly critical about the ECFA’s role in the scandal. “They were caught with their pants down,” he said. (The ECFA maintains that it is not a watchdog group, but an “accreditation agency” that promotes “financial integrity.”)
Meanwhile, the more Meyer looked into New Era, the more he became convinced it was a fraud, and exposing the fraud became almost an obsession. He wrote to the Securities and Exchange Commission, the American Institute of Certified Public Accountants, the Internal Revenue Service, and the Philadelphia Inquirer, which had started doing positive articles about Bennett and New Era. Meyer wanted the Inquirer to know there was more to the story.
“They all blew me off,” Meyer said.
Meanwhile, what Meyer had suspected was rapidly coming to pass. If “publicity killed Ponzi,” as Meyer had said, it was also killing John Bennett and New Era. Other organizations became interested in investing, but the scrutiny also increased. Some investors wanted to see evidence that Bennett was investing in government bonds. So Bennett showed them bonds. What he didn’t say was that he was showing the same bonds to everyone.
Meyer still didn’t understand why Spring Arbor College had sent the money to the Heritage of Value Foundation, so he asked to see evidence that the money was being held. Officials at New Era told him that Prudential Securities held all the money.
“I called Prudential Securities,” Meyer said. “They had never heard of the Heritage of Value Foundation.” Meyer learned that the Kenosha, Wisconsin, office of the firm was the home of all of New Era’s accounts. This was another red flag for Meyer. Why would a small local office be responsible for hundreds of millions of dollars? It just didn’t make sense.
One thing that did make sense, given the perverse logic of Ponzi schemes, was that during this time (1993 to 1995) Bennett was going on something of a spending binge. What was once a small, word-of-mouth operation had become a marketing machine. Bennett’s sales team required commissions and expensive, glossy marketing materials. With his sales staff flying around the country, Bennett bought a stake in a travel agency. All New Era travel flowed through the travel agency, and the profits from the travel agency went to Bennett himself.
New Era, meanwhile, was sinking more deeply into debt. A growing staff at his Radnor, Pennsylvania, office processed incoming money, but little money was being paid out. The activity there grew to a near frenzy—a late-twentieth-century version of Charles Ponzi’s Boston operations.
All this time Meyer kept making phone calls, asking questions, and often facing discouragement. After Spring Arbor College made its first investment and was repaid with a matching gift a few months later, a member of Spring Arbor’s staff literally waved the check in Meyer’s face, as if to say, “I told you so.”
Meyer eventually discovered that Wheaton College had a copy of New Era’s financial statements. The financial statements were obviously incorrect. All the people and organizations who gave money were listed, but according to Meyer “there should have been millions or even tens of millions of dollars in liabilities” on the financial statements.
Months turned into years, but Meyer’s persistence eventually paid off. One of the reporters Meyer had called when he started uncovering problems with New Era was Steve Stecklow of the Wall Street Journal. By 1995, New Era was beginning to unravel, and Meyer would feed Stickler each new development. Stecklow did a meticulous job of reporting the problems at New Era, in part by following the trail that Meyer had blazed.
As a final step in the reporting process, Stecklow visited the offices of The Foundation for New Era Philanthropy on May 10, 1995. “When Steve got to Bennett’s office,” Meyer said, “there was pandemonium.”
That was a Wednesday. The following Monday, May 15, 1995, the Wall Street Journal published the first of what would be a series of articles critical of the Foundation for New Era Philanthropy.
That same week, Albert Meyer received his vindication. In quick succession, the Foundation for New Era Philanthropy was sued for $44 million for a loan it had failed to repay, and then it filed for Chapter 11 bankruptcy protection. The filing documents said that New Era had assets worth about $80 million, but liabilities in excess of $550 million. The liabilities that Meyer had been saying all along should have been on the financial statements were finally disclosed.
The Evangelical Council for Financial Accountability quickly realized that the New Era scandal was particularly troubling for the evangelical community. Many of the organizations involved were either ECFA members or organizations that were a part of the mainstream evangelical movement. After the scandal came to light, the ECFA stepped in to help member organizations reclaim their money. The ECFA asserts that 90 percent of all moneys were returned to their original investors.
But Albert Meyer said, “That’s completely wrong. First of all, nowhere near 90 percent was recovered. Secondly, why should the ECFA take credit for that? That money was stolen property. It had to be returned with or without the ECFA. The ECFA was embarrassed that they did not take early warning signs more seriously and tried to deflect attention from that mistake.”
That said, it is true that the ECFA did attempt to facilitate the return of money to the original donors, and it is true that a significant portion of the money did get returned. But if anyone deserves credit for this, the credit should go to leaders such as Hans Finzel.
Finzel was the president of a Colorado-based ministry called WorldVenture, which does relief work in the poorest sections of the world. Finzel was newly appointed to that job when he first heard about New Era. “It looked like an exclusive club that I might be able to join,” Finzel said.
Finzel asked around and heard nothing but praise for New Era. Other evangelical leaders called Bennett a visionary who had created a new kind of philanthropy. According to the Wall Street Journal’s Stecklow, Bennett “claimed he was giving away more money than the Rockefellers, and for a time that was true.”
So Finzel and many other organizations were sucked in, from “tens of thousands to hundreds of thousands to millions,” Finzel said. “We had grown to depend on this money.”
Finzel learned about the Wall Street Journal story over the weekend before it broke on Monday morning. “At first I didn’t believe it,” he said. “But then I read the story. It was one of the most disappointing days of my life. My biggest emotion was embarrassment.”
Finzel realized immediately that the money WorldVenture had received “was dirty money.” Finzel also thought that he would probably lose his job. “I was new. I figured this would be enough to do me in,” he said. “So in a way it didn’t take any courage to do the right thing. I figured I had lost everything anyway.”
To Finzel, the right thing was for WorldVenture to pay back to the original donors the millions of dollars it had received from New Era. And though it took years, World Venture did just that. Finzel’s board stood by him.
Hans Finzel continued in his role as president for more 15 years, retiring as one of the elder statesmen of the evangelical movement. He how teaches leadership to others. When he left World Venture, it had an annual budget of more than $25-million, and was thriving.
The Psychology of Power
If you look only at the courageous behavior of men like Albert Meyer and Hans Finzel, it is easy to forget that tens of millions of dollars vaporized in wasteful spending and abuse. One factor in the loss of money was the increasingly opulent lifestyle of Bennett himself. In filings from the subsequent lawsuits, it became apparent that Bennett took at least $8 million for himself.
It is also important to remember that while Finzel and some other organizations stepped up and did the right thing, many of the organizations returned only that money that they hadn’t yet spent.
That’s why Albert Meyer and the ECFA have a very different view of how much money was returned. The ECFA has maintained through the years that they helped repatriate as much as 90 percent of the money to its original owners. Albert Meyer scoffs at this idea. He says that it might be possible that 90 percent of the money that had not been spent was repatriated. But many organizations had already spent the money and were simply unable, or refused, to follow the high road of Finzel and WorldVenture. Also, Meyer further derided the notion that the ECFA facilitated the repatriation of funds. Meyer said, “The law required the money to be returned.”
In the end, however, and for whatever reasons, of the $354 million that ended up being paid in to New Era, about $135 million was never returned to its original owners.
In some ways the biggest tragedy of the scandal surrounding the Foundation for New Era Philanthropy was that there really was the seed of a great idea in it.
F. Scott Fitzgerald said that rich people are not like the rest of us. And while generalizations about any group are dangerous, it’s fair to say that Fitzgerald mostly got this right. Rich people really are different, though not exactly in the way Fitzgerald meant. From a purely statistical point of view, rich people are generally well educated, hard-working, and risk averse.The American legend is seasoned with stories of the wildcatter, the go-for-broke, bet-the-farm, risk-taking entrepreneur. And there are a few of those, to be sure. But the overwhelming majority of millionaires in America made their money themselves over a fairly long period of time—ten to forty years. They accumulated their money as a result of hard work and thrift. They are not showy people.
And when it comes to their giving habits, they are especially not showy. In Chapter 1, I mentioned Arthur Brooks’ Who Really Cares? That book provides the statistical data for this conclusion: A direct relationship exists between a theologically conservative Christian faith and charitable giving, and most of the giving is done “below the radar.”
The Bible says that when we give we are not to let the left hand know what the right hand is doing (Matthew 6:3). So, when Bennett told potential donors to the Foundation for New Era Philanthropy that the funds were being matched by an anonymous donor, they found this story plausible. Indeed, many of them found the entire system not merely plausible, but virtuous. They admired the uberwealthy anonymous donor for avoiding the limelight, and they welcomed the opportunity to invest their own relatively small sums alongside him. So in an ironic but very real sense, Bennett used the theological sophistication of his victims against them.
Bennett’s behavior raises an interesting question: Did he start out to defraud his donors and the recipient organizations, or did he start out with good intentions and things simply got out of control?
When Bennett’s case eventually came to trial in 1997, Bennett’s lawyer, Gregory P. Miller, argued the latter. Bennett was on a “mission from God to change the world,” Miller told the court “He was not motivated by greed, but by an unchecked religious fervor.” Miller also said that a 1984 automobile accident had left Bennett brain damaged.
But Richard Goldberg, the U.S. Attorney who prosecuted the case, said this defense was nonsense. He called the defense “worthless in theory” and “untrue for Mr. Bennett” in particular, especially the part about brain damage. Tests Bennett took after the accident showed “no brain damage at all.” Miller ultimately withdrew this questionable line of defense, and a plea bargain was struck. Bennett went to jail later that year.
So did Bennett intend to commit fraud? Some people who have looked closely at the case say no. “I’m not sure Bennett set out to commit a fraud,” attorney Seth Perlman told The New York Times in 1997. “I think the situation got away from him. These things aren’t necessarily set up to defraud charities or the public, but the philanthropic community is about power and reputation . . . not so much about money. And that’s very enticing.”
Interestingly, the ECFA helped lead an effort to rehabilitate Bennett’s reputation.
“The community that he hurt on this thing has come back and petitioned President Clinton and President Bush to pardon him,” ECFA President Paul Nelson told the NonProfit Times in 2005, adding that he had personally sent a letter on behalf of Bennett. “Many caught in this thing have come back and said the man has paid his price. He’s no longer a threat.” Of course, the ECFA had egg on its face as a result of the scandal, so it makes some sense that it would promote a narrative that concluded, “All’s well that ends well.”
Albert Meyer, however, was not convinced. “This was a Ponzi scheme from the beginning,” Meyer said.
And, indeed, it’s hard to argue against Meyer. It’s now obvious that he never had an anonymous investor, so that was a lie from the very beginning. And when anonymous donors came forward, such as William Simon, wanted to participate as anonymous donors, Bennett never responded. Now we know a possible reason why. If Bennett had let Simon or anyone else into the inner circle of his dealings, his cover would have been blown almost instantly.
On the other hand, if Bennett had been aggressive at recruiting Simon and other anonymous donors, it’s possible that New Era might have succeeded legitimately. But that is a possibility now lost to history.
Bennett’s own lavish lifestyle suggests motive for the fraud. Jerri Williams, an FBI investigator who helped build the case against Bennett, suggested another motive: “What he got out of this was power. He got access to top people in a world [in which] he cared about being seen as a top person himself.”
Lessons from New Era
A key lesson here is not complicated, and one we have heard before and will hear again: If it is too good to be true, it probably is.
Another key lesson is also one that is a theme of this book: Donors and ministry leaders should insist on transparency.
A third lesson is related to the first two: Ask tough questions. A credible person or organization will welcome the tough questions because tough questions give credible people an opportunity to demonstrate that very credibility.
World Venture’s Fenzil says now that his failure to get answers to tough questions was the key to his organization getting sucked in. “We asked questions like ‘Who are the anonymous donors?’, but we were told the money would stop coming if we looked into who they were,” Finzel said. He now knows that this lack of transparency should have been a red flag.
At the risk of making an obviously self-interested statement, we should reiterate yet another lesson: Hard-nosed investigative journalism played a key role in exposing this fraud. Christian media should have had the inside track on this scandal and could have reported on New Era long before the Wall Street Journal and the Philadelphia Inquirer found this story. As it was, by the time this story spilled out of the Christian community and made its way into the mainstream media, the fraud was already massive and the damage was already great.
Another lesson worth mentioning here is that a lust for power, for being seen as one of those “on the inside” or “in the know,” can be just as seductive and destructive as the lust for money or sex. This lust for insider status appears to be the primary motivator both for Bennett and for many of those who ultimately became victims of his fraud.
Because so many of the early participants received large paydays, they were reluctant to ask too many questions. The role of Albert Meyer is particularly important. And that brings us to another lesson: One person can make a difference.
In fact, it would not be an overstatement to say that what was at the time considered the largest financial fraud in American history was brought to light by the persistence of a part-time accounting professor who relentlessly asked a few key questions. And those questions amount to little more than, “Where did the money come from?” and “Where did it go?”
Such questions reflect a clarity of purpose, the same kind of clarity of purpose we discussed earlier, when we noted NASA’s Gene Krantz and his instruction to “work the problem.”
And it was not just Meyer’s clarity of purpose that made the difference. Personal courage should not be overlooked. Meyer reasonably believed that he might lose his job when he started asking questions. Indeed, the president of his own college told him to keep his mouth shut.
But the accounting professor knew the math simply didn’t work, and he was right. In fact, the president of Spring Arbor College eventually called Albert Meyer and said: “You were right all along. We should have listened to you.”
So how do we prevent such frauds in the future? Some might think that it would be additional regulation. Meyer, for his part, doesn’t believe additional regulations are the right answer.
“Regulation creates a false sense of security,” he said. “People think the SEC, or the IRS, or someone, is making sure that things are OK. But it was just that false sense of security that created this problem. The SEC, the IRS, the ECFA—everybody failed. Regulation is counterproductive. Transparency is the only answer. Give people all the information they need to make informed decisions, and let people decide for themselves.”
Where Are They Now?
John G. Bennett, Jr. The man responsible for the Foundation for New Era Philanthropy, which was at the time the largest charity fraud in history, was sentenced to twelve years in federal prison on September 22, 1997. He spent ten years at Ft. Dix Federal Correctional Institute before being released to a halfway house on September 11, 2007. He remained there until March 2008, when he was released. Bennett refused repeated requests to be interviewed for this book, saying he was writing a book of his own about the experience.
Albert Meyer. Albert Meyer’s work uncovering fraud did not end with the Foundation for New Era Philanthropy. In 1996 he joined Martin Capital Management as a portfolio manager. During this time he questioned Coca-Cola’s accounting practices. That work subsequently led to a number of publications, including a front-page story in the New York Times. The case has also become a case study at Harvard Business School.
At the end of 1998, Behind the Numbers (an investment research company) hired him as a research analyst. Meyer’s report on Tyco International was the first published assault on the company’s accounting and governance practices, practices that in 2002 led to the resignation of Tyco’s president Dennis Kozlowski. Kozlowski was ultimately convicted of larceny and sentenced to prison. He was granted conditional release on January 17, 2014. In part because of his work uncovering the New Era fraud, Albert Meyer was awarded the Michiganian of the Year award. In 2005 the American Accounting Association honored Meyer with the Accounting Exemplar Award. He now runs Bastiat Capital, an investment firm based in Dallas.