After a $40 million loss in investments from 1994 to 1998, the Lutheran Church-Missouri Synod Foundation faces a class-action lawsuit filed in September by 15 individuals identified as trust grantors, trust income beneficiaries and others.
With more than $700 million in assets, the LCMS Foundation serves as an investment and fund manager for individuals, congregations, colleges and other LCMS institutions. But plaintiffs say the foundation, several of its executives and Vining Sparks, the company that made the investments on the foundation's behalf, knowingly made "unauthorized and reckless" investments that led to the loss.
To recover its losses, the foundation is also suing Vining Sparks and former foundation employee Fred Sticht. Current foundation president Mark Stuenkel said in a June 30 letter that Vining Sparks had "advised and induced" Sticht to buy "extremely speculative investments" that led to the $40 million loss. The foundation also claims Sticht did not adequately inform management about related risks. He denies the charge.
Saying that purchasing the investments violated foundation policies, board vice chair Paul Wiedenmann listed as an example "interest-only stripped mortgages" that collected interest on mortgages until they were refinanced, after which the interest portion had no value.
According to a Nov. 21 Wall Street Journal article, such investments were risky but profitable until interest rates fell in spring 1998 and many homeowners prepaid and refinanced their loans at lower rates, erasing the interest payments on which 40 percent of the foundation's bond investments were based.
The repercussions were far and wide: a $24 million investment loss by the Lutheran Church Extension Fund that helps LCMS congregations build churches, a $1.7 million loss by Concordia Publishing House, an $800,000 loss by the synod's Texas district, and a $600,000 loss by Concordia University, St. Paul, Minn.
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