Foundation for New Era Philanthropy

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The Foundation for New Era Philanthropy was, at the time of its collapse, the biggest financial scandal in the history of American charities. By the time it collapsed in 1995, it had raised over $500 million from 1100 donors and stolen $135 million of this. Most of the money was stolen from Christian religious organizations. The thefts would have grown much larger if not for the diligence of a shunned accounting teacher at a little college in Michigan.

The Foundation for New Era Philanthropy was founded by a Philadelphia-area Christian businessman named John G. Bennett Jr. He had previously run a variety of different entities, including some Pennsylvania state drug education centers and a corporate training business. It would later be shown that he had kept this business afloat in part by check-kiting.

In 1989, Bennett invited several friends to become "beneficiary donors" in a new organization he was founding called Foundation for New Era Philanthropy. All they had to do was contribute at least $5000 with him for three months and he would double it. He explained that he had identified secret donors who would match charitable contributions raised by his friends. So rather than donating $5000 to charity, a sponsor gave the money to New Era Philanthropy for three months, then he or she could donate $10,000.

His friends ponied up cash, which Bennett used to pay his bills. He was able to pay them their doubled funds in January of 1990 by tapping a payment made to a consulting business he ran on the side. This was the last "real" income paid to investors. Everything from then on was pure Ponzi. In order to have funds ready to pay off the climbing number of deposits, he increased the minimum "contribution" to $25,000 and lengthened the minimum waiting period. Different donors were told different things, but the waiting period was typically six, nine, or ten months. The number of anonymous donors, anonymous benefactors, and anonymous philanthropists also varied, though Bennett eventually settled on claiming to have nine of them.

It seems obvious in hindsight that the program was a scam . However, Bennett had some very wealthy friends, including John M. Templeton, Jr., son of John Templeton, Sr., the famous investor and philanthropist, and people believed that Templeton was backing New Era. In 1994, Bennett expanded the program to allow "donations" by nonprofit organizations. These primarily included churches and other Christian organizations. These donors inclined to distrust the government and the banking system, and to trust their evangelical friend, John Bennett. Like most pyramid schemes or Ponzi schemes nowadays, his was an 'affinity' scheme, in which he ripped off people of common interest. In this case, Christian charities. Using the swelling funds from these churches, Bennett expanded further, establishing offices in Radnor, Pennsylvania. He had glossy brochures and a big staff to process all the money coming in.

He expanded his sales force by encouraging religious organizations to take a "finder's fee" or "thank offering" from any money they raised. In other words, if a priest could convince his parishioners to donate $10,000,000, he could keep $1,000,000 for himself, give the remaining $9,000,000 to New Era and get back $18,000,000 for the church in six months.

By and large his donors did not ask many questions. When they wanted proof that the money they donated was not being stolen, he provided evidence that the Foundation owned government bonds. Had the donors dug a little deeper, they would have found that (a) he was showing the same bonds to everybody, and (b) they had been pledged as collateral on loans anyway.

Bennett told prospects that his anonymous donors met several times a year, in person or by phone. Former U.S. Treasury Secretary William Simon, who ironically lost a lot of money to the scam asked to be admitted to the donor panel. Bennett never responded to the request and Simon gave him money anyway.

With the cash flowing though his hands, Bennett made all sorts of private investments. He bought a share of a travel agency and ran all of New Era's travel business through it. He also purchased a publishing house and other businesses.

In early 1995, The Foundation for New Era Philanthropy was receiving praise in the press for giving money to religious organizations and involving high school students in charitable events. However, the end came swiftly.

On May 15 of 1995, a skeptical article about the Foundation appeared on the front page of the Wall Street Journal. The same day, the Foundation capitulated in the face of a lawsuit demanding repayment of a $44,000,000 loan and filed for chapter 11 bankruptcy protection. In filing, the foundation stated that its assets were worth $80 million with liabilities of $551 million.

A close examination of the documents filed in the subsequent lawsuits reveals that more than $354 million passed through New Era's hands and that Bennett took $8 million of that for himself.

In the end, by liquidating all of Bennett's personal assets and reclaiming funds that had been paid to earlier participants, the court was able to bring the total loss down to $135,000,000, spread among all participants in the scheme. In other words, participants who got out early and suffered no losses were required to give the money back, to be shared with others who were less careful (or less lucky).

Bennett faced 82 federal counts of money laundering and wire, mail and bank fraud. He planned to claim in his defense that he had been possessed by "religious fervor", but the judge did not allow this. In the end Bennett pleaded no contest to all the charges in March of 1997. Though federal sentencing guidelines indicated a sentence of 22 to 27 years, the judge sent him away for only 12.

The scandal touched 1,100 individuals and charities, including more than 180 evangelical groups, colleges, and seminaries. Some people who should have known better, including leading figures in American finance, lost money. A detailed list appears below.

[edit] Reasons for collapse

All Ponzi schemes die sooner or later, as there is not enough money in the universe to keep them running. Bennett's particular scam collapsed because of an investigation headed by Mary Beth Osborn, head of the Charitable Trust Section of the Pennsylvania attorney general's office.

She had received a letter in 1993 from a suspicious whistleblower within New Era. Her inquiry eventually resulted in New Era's registry with the IRS.

As Bennett started to disclose greater financial details, New Era caught the wary eye of Albert Meyer, a Spring Arbor College accounting professor, whose institution in Michigan had been drawn into the matching scheme. Meyer's research indicated that the Foundation was a scam, but Spring Arbor College successfully collected on its early investment and the president of the college believed Meyer to be a defensive fool. College officials told Meyer that he was going to endanger their ability to get matching grants if he kept asking so many questions. They went so far as to wave a check from New Era in Meyer's face before investing more money. Meyer however was sure he was right and alerted federal investigators and The Wall Street Journal that New Era had all the features of a pyramid scam.

After New Era collapsed, the president of Spring Arbor College called Meyer to apologize. "You were right all along. We should have listened to you," he admitted.

[edit] Partial List of Investors

Harvard University, Princeton University, The Nature Conservancy, former Treasury Secretary William E. Simon, who was owed $6.5 million by New Era; Laurance S. Rockefeller, $11.4 million; John C. Whitehead, the former cohead of Goldman Sachs, $2 million; and Raymond G. Chambers, Simon's former business partner, $1.9 million.

Charities