Using God’s Money for Man’s Kingdom: A Short History of a Financial Scandal

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by the Rev. Doug Douma

Perhaps the greatest financial scandal in Presbyterian history—the failure of Cornerstone Ministries Investments (CMI)—saw the loss of over 100 million dollars. Yet the story of this scandal seems to be largely unknown to members—and even to ministers—of the denomination which it most affected, the Presbyterian Church in America (PCA). Years before the scandal broke, it was the long-running but not particularly well-known paper, The Christian Observer, which nearly alone sounded the alarm of concern regarding related developments.¹ In the wake of the 2008 Great Recession and subsequent financial crash of CMI—complete with evidence of mismanagement and “self dealing” at the corporation—a few newspapers ran short pieces on the events. But to date no summary of the whole story has been written. This article, therefore, seeks to provide a summary account of this episode’s history; overlooked by most, but never to be forgotten by those who lost much of their life savings in the scandal.

The major events of this story fall generally into two periods fifteen years apart. First, in the early 1990’s the PCA opted not to make available to members of its General Assembly a report of a legal audit of the PCA’s corporate structure. Included in this legal audit was an entity belonging to the PCA called the Investor’s Fund for Building and Development (IFBD)², which later changed its name to the Presbyterian Investor’s Fund (PIF) and finally became Cornerstone Ministries Investments (CMI). Though the PCA itself divested from IFBD in 1994, many PCA churches continued to use its loan services and many individual members of the denomination continued to invest there. Following a decade and a half period of relative quiet, the second act of our story resumes when the 2008 recession proved the failure of CMI’s investments and the corporation filed for bankruptcy. An examiner for the bankruptcy court then discovered that the leaders of the corporation had benefitted considerably through deals they made between CMI and other companies they had personally founded and had ownership in.

In the interest of justice it is natural to ask what the results have been of the legal prosecution of the individuals involved. But for the church and its members the question that raises to the forefront is this: “If the PCA’s legal audit had been made public, could the bankruptcy of CMI have been avoided?” But let us start with the history.

Part I: The PCA’s Legal Audit

In 1993, at the 21^st General Assembly of the Presbyterian Church in America, the Committee of Commissioners on Administration voted thirteen to five not to make available a report on a legal audit of the corporate structure of the PCA.³ They gave as their reasons (1) a warning that the report could be used to sue to the denomination if it fell into the wrong hands, and (2) that the report was property of the firm that produced it. The five member minority⁴ wrote a report noting that with respect to the audit they “believe there are serious matters that may need to be dealt with by this General Assembly.” Among the concerns was that numerous for-profit and non-profit organizations were all using the same address at the PCA’s headquarters and that the same few men made up the boards of most of these organizations. The minority, however, withdrew their report after meeting with the director of the Investor’s Fund, Cecil Brooks. According to one source, “Brooks met with the minority and broke down in tears during an emotional speech to the Assembly.”⁵ Rev. Dr. Carl W. Bogue wrote of the situation:

“During the past two years a situation has emerged that just seems too incredible to believe. … The 20th General Assembly required all committees and agencies to participate in a Legal Audit. … The legal audit was completed in the Spring of 1993 and sent to the heads of the various committees and agencies. Upon request, a few men were allowed to see parts of the audit, after which further access was denied. Some who saw portions of the legal audit believed there were some serious matters that deserved the attention of the General Assembly. The Committee of Commissioners on Administration sought all during the 21st General Assembly to have access to the audit. No credible reason was given for denying the General Assembly access through this Committee of Commissioners. A Minority Report was prepared to instruct those in possession of the audit to make full disclosure to the Committee and thus to the Assembly itself. At the last minute, that report was withdrawn, partly due to the fact that the Assembly was nearing completion and partly due to some expectation that full disclosure would be forthcoming, albeit late and unwilling.”⁶

Before the 22^nd General Assembly of the PCA in 1994, at least thirty-four PCA elders sent requests to the then stated clerk Paul Gilchrist to see the legal audit. Joining in this request, three presbyteries submitted overtures to the General Assembly requesting to make the legal audit public. Despite these requests the audit was never seen but by the Committee of Commissioners on Investor’s Fund. This, according to one lawyer, was against the bylaws of the corporation (the PCA) which makes all teaching and ruling elders to be members legally entitled to “request and require” from the stated clerk copies of such documents as the legal audit for their review.

The Committee of Commissioners on Investor’s Fund at the 1994 General Assembly did review the legal audit and adopted by unanimous vote (21-0) a statement which read:

“We are not allowed to discuss the details of the Legal Audit. We questioned the IFBD staff, trustees, and members of the permanent committee about the different items referred to in the legal audit. We also read the response to the Legal Audit by the legal counsel of the IFBD. We found nothing in the IFBD portion of the Legal Audit, in the response of legal counsel, in the response of IFBD staff, or in the IFBD trustees to cause concern of anything amiss. In summary, from the information given and received, we found no substance to rumors that have circulated that there is impropriety in the IFBD.”⁷

Though this statement might not have satisfied those elders and presbyteries who believed they had the right to see the legal audit, The Christian Observer noted that, “provisions to make the audit available to neutral observers and the decision to distance the denomination from the IFBD calmed the situation.”⁸

Despite the pronouncement that there was nothing of concern in the legal audit, the 1994 General Assembly voted to divest the PCA from IFBD. The adopted recommendation noted that the IFBD had been “incubated” by the GA, but “now has reached the time when, because of its size (more than $10,000,000) it must stand on its own.” It further noted, “The potential legal, regulatory and moral liability IFBD represents to the GA is enormous.”⁹ Shortly thereafter (July 1, 1994) the independent corporation changed its name to the Presbyterian Investor’s Fund Inc. (PIF). In 2000 PIF merged with Cornerstone Ministries Investments (CMI), a corporation founded in 1996 by the same men leading PIF. The merged fund took the latter name.

Without the oversight of the church, investors in PIF/CMI would now have to rely on standard market and legal forces to safeguard their investments. At the time of the fund becoming independent of the PCA, Roger Schultz then asked in an article in the journal Contra Mundum, “Will money—contributed by PCA members for the purpose of funding Reformed works—be used for its intended purpose?”¹⁰

The Christian Observer and Edwin Elliott Jr.

There is a side-story also in this first act. When the Committee of Commissioners struck down one of the overtures at the 1994 General Assembly to “Make the Legal Audit Public” they declared “that the characterization by the Christian Observer of the Stated Clerk’s actions in this matter as ‘hiding’ the audit is erroneous;” and they requested that the editors of The Christian Observer “publish this declaration at its earliest convenience.”¹¹ Against this point, four commissioners (Robert Peterson, Carl W. Bogue, Charles L. Wilson, and Bob Burridge) requested that their negative votes be recorded.

Though a month later Edwin Elliott Jr., the editor of The Christian Observer, covered the events of the General Assembly in an article titled “Presbyterian Church in America Assembly Meets in Atlanta,” nowhere in it nor in any subsequent article did he fulfill the request of the Committee of Commissioners to make a retraction of the early statement about Gilchrist.¹² Elliott did, however, run an article by Kennedy Smartt who came to the defense of Stated Clerk Paul Gilchrist’s actions.¹³

For being a whistleblower, Elliott found himself opposed by some in the PCA. He had left the PCA himself in 1986 and joined the Reformed Presbyterian Church in the United States. As an outsider perhaps he had less to risk than PCA ministers in calling out the stated clerk. But, the current editor of The Christian Observer, the Rev. Bob Williams notes, the PCA led “a campaign to urge PCA subscribers to the Christian Observer to cancel or otherwise not renew their subscriptions.”¹⁴ These events led to the loss of about half of their subscribers.¹⁵

Part II. The Bankruptcy of the Cornerstone Ministries Investments and Its Fallout

On February 10, 2008 Cornerstone Ministries Investments declared Chapter 11 bankruptcy. This got the attention of Presbyterians Week and even Christianity Today each of whom published articles on the story.¹⁶

Following the filing for bankruptcy protection, CMI was examined by Pat Huddleston who was appointed by the United States Bankruptcy Court, Northern District of Georgia Gainesville Division. In a forty-five page examiner’s report filed on March 16, 2009 Huddleston reported that,

“Through a tangled web of non-profit and for-profit corporations and limited liability companies, [Cecil A.] Brooks and fellow Cornerstone board member, John Ottinger, Jr., profited from real estate development. Beginning with churches, they expanded – in the late 1990’s – to senior housing facilities, single family housing, and multi-family housing. Through disclosed and undisclosed ownership interests in related companies, Brooks and Ottinger reaped substantial income over and above the salaries disclosed in the Cornerstone Ministries Investments, Inc.’s filings with the U.S. Securities and Exchange Commission.”¹⁷

Further, he noted,

“The Examiner’s investigation has given him a sound basis to describe the sequence of events that led to [Cornerstone’s] shift from making loans to churches and non-profit organizations to making loans to for-profit developers. … The evidence gathered by the Examiner demonstrates that the “shift” took place as early as 1999. … It is difficult to conclude that Cornerstone had any interest in financing churches between 1999 and 2006.”

And finally, he noted,

“the Examiner has found evidence that Cornerstone’s shift to making loans to for-profits was ‘characterized by self-dealing,’ at the very least.”

The two major points of concern then from Huddleston’s report are the shift in investment strategy and the “self-dealing” of Brooks and Ottinger.

The shift from making loans to churches and non-profit organizations to making loans to for-profit developers almost certainly would have increased the risk of their investments. The same year (1999) that this shift occurred, CMI (then still called Presbyterian Investor’s Fund) ran an advertisement in Multiply, a magazine associated with the PCA’s Mission to North America. This advertisement included an offering to participate in a “Church Development Fund.” But, as Huddleston noted, in the following years “it is difficult to conclude that Cornerstone had any interest in financing churches.” Further potentially contributing to a false sense of security of the investors is that the magazine’s editor referenced the Presbyterian Investor’s Fund as the “PCA’s Investor’s Fund” despite the denomination having divested from it five years prior.¹⁸ The business of CMI following the shift then led the law firm who later handled the claims associated with the collapse of CMI to refer to it as a “[US]$140 million Ponzi scheme.”¹⁹ And, as Huddleston noted from the witnesses he interviewed, Cornerstone’s move to loans to for-profit borrowers was not motivated by a dearth of churches looking for financing. The shift occurred and, by it, opportunities for self-dealing were made more possible. Though CMI’s letterhead proclaimed “Using God’s money for God’s Kingdom,” following the shift it appears more accurate to say that the leaders of CMI were using God’s money to build their own earthly kingdoms.

The self-dealing (the taking advantage of one’s corporate position to seek personal gain rather than acting in the best interest of the shareholders)—is an illegal (and certainly unethical) form of conflict of interest. And this self-dealing was done all the while both Cecil Brooks, who was the “Chairman, President, and Chief Executive Officer” of CMI and John T. Ottinger Jr., the “CFO and Secretary” of CMI, were PCA-ordained ministers.

All of this was made possible because Brooks controlled the Cornerstone board of directors. (Huddleston, p. 7) In the early years of the IFBD, Brooks recruited Ottinger with whom he had pastored a church (Trinity Presbyterian Church in Miami, FL) in the early 1980s. According to the witnesses Huddleston interviewed, “many of the directors are elderly, had longstanding friendship with Brooks, were not inclined to challenge him, and never did challenge him.” (p. 7)

How much did Brooks and Ottinger benefit through the years? According to the examiner’s report, the self-dealing benefited Brooks and Ottinger considerably. At one point they used CMI funds to pay themselves $250,000 in consulting fees through a separate company they started. From one deal between CMI and another company they had ownership interest in they each received $6,200,000. In another instance they, with two other men, each received distributions of $170,894. And, in 2006, all employees, including Brooks and Ottinger, received bonuses of $57,000. All the while they were “spending lavishly” with CMI’s money. With all that Huddleston uncovered, he believed that “bondholders have valid causes of action against broker-dealers, Cornerstone directors, and others.”

The Fallout

Through the United States Bankruptcy Court a committee of creditors appointed the law firm of Glass Ratner to liquidate CMI’s assets and distribute the proceeds. Each Ottinger and the estate of Brooks (Cecil Brooks having had passed away in 2009) reached settlements with Glass Ratner to pay $1,350,000. A payout from an insurance policy added $2,000,000 to the total recovered. From these funds, plus the liquidation of CMI’s assets, some creditors received distributions of six percent of their claims. From a private actions trust some creditors received an additional four percent distribution.

While Cecil Brooks’s death prevented any church discipline case to be brought against him, The Christian Observer noted that in mid-2010 several CMI investors appealed to the PCA Metro Atlanta Presbytery to institute church discipline against John T. Ottinger Jr. who was a member of their presbytery.²⁰ The presbytery, however, chose not to pursue church discipline in this case, their commission on the matter finding “insufficient grounds” “to discipline TE Ottinger for the sins of which he is accused by the complainants.”²¹ One of the investors that signed the complaint to Metro Atlanta Presbytery writes that “I was told by a PCA Elder formerly of that presbytery that it was nothing but a union for teaching elders. I am now an independent Presbyterian. I consider ‘PCA’ to stand for the ‘Presbyterian Corruption Association.’”²²

If the PCA’s legal audit had been made public, could the bankruptcy of CMI have been avoided?

Though CMI’s shift from making loans to churches and non-profit organizations to making loans to for-profit developers did not occur until 1999, the findings of bankruptcy examiner Pat Huddleston as to the self-dealing activities of the executives (primarily Brooks and Ottinger) from that time forward bring suspicion to their honesty in general. One wonders then if a wider viewing of PCA’s legal audit years before might have saved many in the church from investing in the fraud. Twenty-five years have now passed since the legal audit was conducted and it has been more than five years since the statute of limitations expired on any legal cases related to the CMI scandal. What is there to lose in releasing the audit?