The Hindu Business Line : It's naïve to think tainted money becomes clean when donated

There are times when Mammon encounters sobering morals. One such occasion happened last week, when The First Church of Christ, Scientist, in Boston disengaged itself from a $2.3-million contribution, and volunteered to give the amount to a fund set up by the US Securities and Exchange Commission (SEC).

The donation was made under Section 308(b) of the Sarbanes-Oxley (SOX) Act, 2002, which allows the SEC to accept gifts `for a disgorgement fund and eventual distribution to defrauded investors'.

Section 308 is titled `fair funds for investors'. Sub-section (a) is titled `civil penalties added to disgorgement funds for the relief of victims,' as you can check on www.law.uc.edu. (For starters, disgorgement, according to http://dictionary.reference.com, means vomit, and also "surrender stolen goods or money, for example, unwillingly.")

Section 308(b), the focus of this story, is on `acceptance of additional donations'. It authorises the SEC to accept, hold, administer, and utilise gifts, bequests and devises of property, both real and personal, for the disgorgement fund.

This sub-section has been an unused provision for the last three years, perhaps because nobody ever thought of donating to the fund. The church's offering is, therefore, "the first such donation made to a disgorgement fund under the SOX Act," as one learns from a `litigation release' (No. 19613) on www.sec.gov, dated March 17 announces.

Story of the church

"Christian Science, as discovered by Mary Baker Eddy, refers to the universal, practical system of spiritual, prayer-based healing, available and accessible to everyone," says the `about' section of the church's site www.tfccs.com. "Eddy discovered this method of healing when she was healed of an injury in 1866," informs Wikipedia.

The church that she founded has now `2,000 Branch Churches and Christian Science Societies in over 80 countries'. In 1908, Eddy founded The Christian Science Monitor (www.csmonitor.com). "The Church has no ordained clergy," informs www.tfccs.com. "The Church is governed by Mary Baker Eddy's Church Manual, which provides for its overall structure. The Christian Science Board of Directors is a five-person Board that transacts the business of the Church."

Evil comes a-knocking

Evil came in the form of fraudulent trading scheme that one Eric E. Resteiner floated. It raised, between 1997 and 2000, "approximately $22 million from at least 50 investors, many of whom were members of the Christian Science Church," as a `litigation release' dated April 16, 2001 on www.sec.gov informs. Scam schemes were named Swiss Asset Management, Wall Street South, and Resource F; investors were promised returns of "approximately 4-5 per cent every month (or 48-60 per cent annually)."

The Commission swung into action and filed `an emergency civil fraud action' against Resteiner and his collaborators, Miles M. Harbur, Voldemar A. VonStrasdas, and Charles G. Dyer. Dyer was alleged to have misappropriated at least $795,000 of investor funds, and used those funds to "buy a golf course in Georgia, finance the purchase of an airplane by one of his creditors, and purchase an interest in a restaurant in Boston."

It seems VonStrasdas regularly sent "lulling letters to investors making excuses for the cessation of payments". To add insult to injury, VonStrasdas and Dyer "solicited investors to contribute money to purported legal efforts to obtain the return of investors' funds."

While this is no different from how gullible investors get ripped off closer home, what is remarkable is the quickness of judicial relief. On September 5, 2002, the SEC informed about the judgment of the US District Court of Massachusetts "ordering Resteiner and VonStrasdas, jointly and severally, to pay disgorgement plus prejudgment interest of $25,930,895.26."

Also, Resteiner and VonStrasdas were each asked to pay civil penalties of $4.4 million. Harbur was made liable for disgorgement of $1.1 million. And in September 2003, the court ordered Dyer and his companies to pay a total of $577,667 in disgorgement and interest, and further ordered Dyer to pay a $110,000 civil penalty. "Unscrupulous promoters continue to victimise the public with Prime Bank schemes," alerted the SEC.

Litigation Release No. 18648 dated March 30, 2004, informed about the US Attorney for the District of Massachusetts obtaining an indictment against Resteiner "on 60 felony counts including wire fraud, mail fraud, and money laundering charges involving a fictitious investment scheme".

The indictment alleged that Resteiner maintained "homes in the Bahamas and in Switzerland, a yacht, an airplane, a helicopter, two Rolls Royce motor cars, two Hummer vehicles, a Porsche Carerra sports car, and other assorted vehicles."

Philanthropy punctured

The more important story is this — from the latest SEC release on the subject (No. 19613 dated March 17). It informs of how in late 2004, the church had approached the Commission to know more about a donation of $2.3 million that Resteiner had made towards a church building fund. The church's question was simple: Was Resteiner's donation out of funds he had taken from defrauded investors?

"The staff of the Commission, with the assistance of the US Attorney's Office for the District of Massachusetts, confirmed that Resteiner's contributions to the church were made using proceeds of his fraud."

In the face of such a finding, it was possible to argue that the donation had been made prior to the SEC's allegation of fraud against him, in 2001. That the church had spent the building fund donation.

And, more crucially, that there was no legal obligation for the church to repay the money. Yet, the church decided to make a donation from its general funds to the victims' fund, for an amount equal to Resteiner's fraudulent contributions. Wonder if we have parallels of such a gesture.

You may not find any mention of the donation on the home page of the church. Peter Osterlund, the church's spokesman, had said: "This church wants to do the right thing. It's really no more complicated than that."

However, the media had picked up the story. For instance, Washington Post (www.washingtonpost.com) reported, `US church first to use fraud victim donation law'; and New York Times (www.nytimes.com) said, `Boston Church Returns a Tainted Donation'.

What is evil?

"Even the worst criminal perpetrates his/her acts in the (false) belief that some good might thereby accrue to the perpetrator: e.g., security, fulfilment, happiness and so on," reasons http://en.wikipedia.org. According to the Christian Science philosophy, a person who chooses to do evil does it out of a false sense of good.

Kahlil Gibran says, "I love you when you bow in your mosque, kneel in your temple, pray in your church. For you and I are sons of one religion, and it is the spirit."

True, the spirit of enlightened thinking demands that all places of worship are looked upon with equal respect. Also important is that such places are kept free from the influence of contaminated contributions, as the exemplary gesture of the First Church of Christ has shown.

It would be naïve to think that tainted money becomes clean when donated.

Or that service-minded organisations should not worry about the colour of charity. Is it necessary, therefore, to take a re-look at the new Section 115BBC in the Income-tax Act that exempts `trust or institution created or established wholly for religious purposes' from tax liability on anonymous donations?

AccountSpeak@TheHindu.co.in

D. Murali

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