CEF/DIL – ASC Settles with Lutheran Church Respondents

This just in – the ASC has settled its case with the Lutheran Church respondents. Since the case has been settled, the ASC has issued a notice of withdrawal wherein the ASC is withdrawing their allegations against the respondents.

Excerpts of the settlement follow. I’ll write more about this later.

ANO

Introduction
1. Staff of the Alberta Securities Commission (Staff and Commission, respectively) conducted an investigation into

  • Lutheran Church–Canada, the Alberta-British Columbia District (the District),
  • Lutheran Church–Canada, the Alberta-British Columbia District Investments Ltd. (DIL),
  • Donald Robert Schiemann,
  • Kurtis Francis Robinson,
  • James Theodore Kentel,
  • Mark David Ruf, and
  • Harold Carl Schmidt
    (collectively, the Respondents) to determine if securities laws had been breached.

2. The investigation confirmed, and the Respondents admit that they breached those sections of the Securities Act, R.S.A. 2000, c. S-4, as amended, (Act), referred to in this Settlement Agreement and Undertaking (Agreement).

3. Solely for securities regulatory purposes in Alberta and elsewhere, and as the basis for the settlement and undertakings referred to at paragraphs 57 to 61 herein, each of the Respondents agree to the facts and consequences set out in this Agreement.

4. Terms used in this Agreement have the same meaning as provided in Alberta securities laws, a defined term in the Act or as specifically defined herein.


31 The Respondents authorized statements in promotional literature from 2008 to 2014 about the Funds that they knew or ought to have known were misleading in that the statements did not state all of the facts that were required to be stated or that were necessary to be stated to make the statements not misleading (Omitted Facts, as particularized in paragraph 35 below). These statements (Statements) would reasonably be expected to have a significant effect on the market price or value of the investments.


35. The Omitted Facts were that:
(a) ECHS’ mortgages represented 82.2% of the District’s loan portfolio in 2008, and by 2012, comprised 96.8% of the District’s loans;

(b) ECHS defaulted on its principal payments, pursuant to its loan agreement with the District of $2 million per year in 2007, 2008, and 2009. ECHS never made any payments towards the principal outstanding. ECHS paid off its accrued interest in 2011 by selling a parcel of land;

(c) ECHS never produced any financial statements to the District in contravention of its loan agreement with the District;

(d) ECHS had inadequate financial controls in place to ensure accurate financial reporting;

(e) ECHS had insufficient assets to secure its loan with the District;

(f) there was no guarantee by the District of the Funds. It was a simple promise to pay; and

(g) there was a conflict of interest between the District and ECHS as four members of the Board were also members of the board of ECHS. As a result of the Board’s close relationship with ECHS, including oversight and certain shared management, the Board was acting as both a borrower and lender vis-à-vis funds loaned to ECHS.


Admissions

48. Subsequent to January 1, 2008, the District and DIL each violated section 92(4.1) of the Act by making statements which they knew or ought to have known did not state all of the facts required to be stated to make the statements not misleading, and which would reasonably be expected to have a significant effect on the market price or value of the securities distributed by the District and DIL.

49. Schiemann, Robinson, Kentel, Ruf, and Schmidt each, as a consequence of his position on the Board, with the District, and with DIL, authorized, permitted, or acquiesced in the above-noted breaches of Alberta securities laws by the District and DIL.


Settlement and Undertakings

57. Based on the agreed facts and admissions, the individual Respondents agree to pay a total of $500,000 (the Settlement Funds), attributed as follows:

(a) Schiemann: $175,000
(b) Robinson: $100,000
(c) Kentel: $ 75,000
(d) Ruf: $ 75,000
(e) Schmidt: $ 75,000

58. In lieu of a payment to the Commission, the individual Respondents undertake to pay the Settlement Funds to the Monitor for distribution to the Funds’ investors in accordance with the directions of the Court of Queen’s Bench in the CCAA Proceedings.

59. The individual Respondents agree to pay to the Commission the amount of $100,000 for costs.

 


Update 2019-09-12: Added note about the ASC issuing a notice of withdrawal to indicate that they are withdrawing their allegations against the respondents.

Document Backup:

9 thoughts on “CEF/DIL – ASC Settles with Lutheran Church Respondents

Add yours

  1. Does this mean that the possibility of jail time has been removed for the Respondents? What about subsequent civil lawsuits? Will their admissions make the LCC-member Respondents in the ASC Settlement Agreement subject to any LCC Commission on Adjudication actions?

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    1. Carl V – A few corrections to your LQ article: CEF was the large church extension fund for building churches and schools, not retirement communities. DIL was an separate investment fund distinct from CEF with different investment objectives. Both CEF and DIL were run as part of the corporate ABC District operation. The maximum value of the CEF fund was around $130M and the estimated CEF loss is around $20M /if/ Sage sells for $50M. If it sells for less then the CEF loss will be larger.

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