SEC Charges The Church of Jesus Christ of Latter-day Saints and Its Investment Management Company for Disclosure Failures and Misstated Filings
https://www.sec.gov/news/press-release/2023-35
Ensign Peak Advisers, Inc (EPA), a non-profit investment firm managed by The Church of Jesus Christ of Latter-day Saints (LDS), made headlines this week when the US Securities and Exchange Commission (SEC) charged the company with failing to disclose key financial information. The SEC alleges that EPA, which manages an enormous $124 billion investment fund, violated federal securities laws by not filing annual reports required of similarly-sized investment firms.
This is interesting as most people do not think of religious or non-profits, outside of school endowments, as being investment organizations. The size of EPA gives it an elite status.
EPA’s size puts it in the same league as some of the largest investment firms in the world, including Blackstone, Carlyle, TPG, Warburg, Advent, and others. Here is a table comparing the assets under management (AUM) of some of the largest private equity firms with EPA:
|
Firm |
AUM |
|---|---|
|
Blackstone |
$975 billion |
|
Carlyle |
$373 billion |
|
TPG |
$135 billion |
|
Ensign Peak Advisors |
$124 billion |
|
Warburg |
$82 billion |
|
Advent |
$89 billion |
- From public postings on the Internet. EPA figure from SWFI conference post (2023)
These firms have grown into behemoths, but EPA stands out as a non-profit actively using its funds to support general charity work though also work focused on LDS goals and beliefs.
It is alleged that EPA may have willfully withheld filings or moved them into an incorrect entity to avoid detection. Annual reports are a crucial part of the regulatory framework that governs investment firms. They provide important information to investors, the SEC, and other regulators. In failing to file these reports, or filing them incorrectly, EPA deprived stakeholders of crucial information about its financial health, investment strategy, and potential conflicts of interest.
While it is common for investment firms to have missed filings or other minor issues, willfully withholding a filing or moving a filing into an incorrect entity so it is not noticed is a crime. The SEC alleges that EPA failed to file annual reports for four years, beginning in 2012, despite being required to do so by law.
In addition to the SEC charges, EPA has faced scrutiny over its tax implications and audit information. EPA’s tax-exempt status as a non-profit means that it is not required to pay taxes on its investment returns. However, allegations have surfaced that EPA has used tax avoidance strategies to evade paying taxes on some of its income. In a whistleblower complaint filed in 2019, a former EPA portfolio manager alleged that the firm had evaded payments of more than $20 billion in taxes and concealed foreign accounts that should have incurred $2 billion in penalties.
Moreover, the same whistleblower alleged that during its 22-year period, the EPA firm was never audited by independent auditors and had no audit committee. The document said it also had no non-executive directors or a board to which EPA had to report. He wrote that it avoided having a compliance officer between 1997 and 2015.
These allegations, if true, could have serious consequences for EPA and its parent organization. The failure to file annual reports and the alleged tax avoidance strategies could result in significant fines and penalties. The lack of audit information and compliance measures could erode public trust in the organization.
EPA has many allegations and charges against it. The recent announcement showed them admitting to some wrongdoing and paying minimal fines compared to their huge investment funds. At a minimum, this notice reminds us of the importance of transparency and regulatory compliance in the investment industry. Investment firms of all sizes, including non-profit organizations like EPA, must abide by the same laws and regulations that govern the industry. Failure to do so could have serious consequences, both for the firms themselves and for the investors and stakeholders who rely on them.