NEWS STORY: Lutheran Church-Missouri Synod Foundation Sued

c. 2000 Religion News Service ST. LOUIS _ The Lutheran Church-Missouri Synod Foundation faces a class action lawsuit as a result of a $40 million investment loss suffered by the foundation in 1998. Filed at the end of September in St. Louis County Circuit Court by 15 individuals, the suit charges the foundation knowingly made […]

c. 2000 Religion News Service

ST. LOUIS _ The Lutheran Church-Missouri Synod Foundation faces a class action lawsuit as a result of a $40 million investment loss suffered by the foundation in 1998.

Filed at the end of September in St. Louis County Circuit Court by 15 individuals, the suit charges the foundation knowingly made “unauthorized and reckless” investments that led to the loss.


The 15 were identified as “trust grantors, trust income or remainder beneficiaries, depositors and other persons” with interests in assets held in foundation fixed-income portfolios. Defendants in the case include the foundation and its former president, Dr. Norman Sell, Senior Vice President Wayne Price, former manager of the fixed-income portfolio Fred Sticht and Vining Sparks, an investment company based in Memphis, Tenn.

Established in 1958 as a stewardship ministry, the LCMS Foundation has grown to $700 million in assets. It is entrusted with the funds of and serves as an investment manager for individuals, congregations, colleges, seminaries, auxiliaries and other agencies of the LCMS.

The plaintiffs are seeking unspecified actual damages, punitive damages, legal fees and “a complete accounting of activity conducted by the foundation.” They are also asking the court to declare the suit a proper class action and the plaintiffs as representatives of the class.

The suit stems from a $40 million loss incurred from 1994 to 1998. The foundation has filed its own suit against the investment company, Vining Sparks, in an effort to recover some of the money.

“It’s our expectation we’ll do well in that lawsuit,” said attorney Marc Marmaro, who is representing the LCMS Foundation. Marmaro is based in Los Angeles.

In a June 30 letter to foundation partners and customers, current foundation President Mark Stuenkel said Vining Sparks “advised and induced” a former foundation employee to purchase “extremely speculative investments” that resulted in the losses.

Foundation Board Vice Chairman Paul Wiedenmann described the investments in a report to members as “exotic unhedged derivative investments” that were purchased in violation of foundation investment policies. Wiedenmann went on to explain that an example of such an investment may be “interest-only stripped mortgages” _ investments giving the foundation the right to collect interest on certain mortgages until they were refinanced. Once the interest rates changed and the mortgages were refinanced, the interest strips no longer had any value.


The foundation also alleges the employee in charge of the investments did not disclose to foundation management he was making the investments.

Marmaro stressed that foundation guidelines stipulate that its investments had to be conservative. “These investments were not at all conservative,” he said.

Vining Sparks has not yet filed a response to the foundation’s suit.

In the suit filed against the foundation, the plaintiffs allege the defendants “knowingly perpetuated an unauthorized and reckless investment scheme to direct plaintiffs’ assets into highly speculative and risky derivative securities that resulted in known direct losses to the invested assets and the class exceeding $40 million.”

“The assets held in trust on behalf of the many wonderful donors in the church are protected from this lawsuit,” Stuenkel said. He estimates it could take two to four years to resolve the suit.

“Obviously the foundation plans to defend itself very vigorously,” Marmaro said.

DEA END WICAI

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