Two ordained ministers are among the five named individual Respondents who have settled with the Alberta Securities Commission (the Commission) in Re Lutheran Church-Canada, the Alberta-British Columbia District, 2019 ABASC 140. The individual Respondents were all involved in investment funds run by the Lutheran Church-Canada, Alberta-British Columbia District (the District), which became insolvent in 2015. The individual Respondents admitted that they authorized statements in promotional literature from 2008 to 2014 about the investment funds that they knew or ought to have known were misleading contrary to section 92(4.1) of the Alberta Securities Act (the Act).

The Funds

The District operated two funds, the Church Extension Fund and the District Investment Fund (collectively, the Funds), which were used to help build schools and churches. The Church Extension Fund was used by the District to invest in "faith-based developments". The District Investment Fund offered its investors registered investments, which provided tax efficiencies though RRSP, RRIF and TFSA accounts.

In the 1990s, the District began loaning substantial amounts of money to support the development of a large seniors' housing complex. In 2005, the District incorporated EnCharis Community Housing and Services (ECHS) to hold and manage this development. By 2009, approximately $49 million of the approximately $78.8 million raised in the Church Extension Fund was loaned in ECHS. However, the ECHS was experiencing substantial financial difficulties. In 2015, the financial difficulties faced by ECHS resulted in insolvency for itself and for the Funds.

Misleading Investors

The District continued to promote the Funds by emphasizing, among others, the "partnership between investors and congregations to share the Good News of Jesus Christ". The Respondents failed to inform investors that a substantial portion of the Funds was invested in mortgages with the ECHS and that the ECHS had defaulted on its principal payments in 2007, 2008 and 2009. The District also received an auditor's opinion in 2012, which stated that certain assets were overvalued and that an impairment write-down was necessary in respect of the District's financial statements. However, the District did not inform investors of the opinion until 2014. Despite knowing the financial difficulties that the Funds faced, the District only stopped soliciting new investments in March 2014, mere months before the Funds collapsed into insolvency.

The Settlement

The District and the District Investment Fund admitted to making statements which they knew or ought to have known did not state all of the facts required to be stated to make the statements not misleading in violation of section 92(4.1) of the Act. The individual Respondents each, as a consequence of his position on the Board, with the District, and with the District Investment Fund, authorized, permitted, or acquiesced in the above-noted breach of the Act.

On September 11, 2019, the individual Respondents agreed to pay a total of $500,000 to investors (the Settlement Funds) and $100,000 to the Commission for costs. The Settlement Funds will be distributed to investors through the same distribution scheme which was imposed on the District in a parallel Companies' Creditors Arrangement Act proceeding. The Settlement Funds will help make up for the anticipated shortfall from the District's CCAA proceeding of around $27 million.

Further, the individual Respondents and the District undertook to permanently refrain from trading in or purchasing securities; acting as a registrant, investment fund manager or promoter; advising in securities or exchange contracts; and acting in a management or consultative capacity in connection with activities in the securities market.

Some of the investors were unsophisticated congregants investing for retirement. Settlements such as this are necessary to remind those involved in securities that there is a high standard for timely and accurate disclosure, regardless of context.

The authors would like to thank Tom Sutherland, articling student, for his contribution to this article.

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