Recent Developments

Issues that affect ministers and churches
Church Funds

Did the stock market debacle of October 19, 1987, adversely affect your church's investments? If so, you may be interested in a recent decision of a federal district court in Washington, D.C. In 1984, church property that had been used by a Christian Methodist Episcopal (CME) Church in Alaska was sold for $1,400,000. The funds were invested with a major securities brokerage firm while the church located a new church facility. The funds were invested with the brokerage firm allegedly on the basis of its oral representations that the funds would earn a return of "not less than 15%" without any loss of principal. The brokerage firm initially invested the funds in stocks, bonds, and treasury bills. After the church official who invested the funds expressed dissatisfaction with the account's performance, an options account was established. The account was closed several months later when it became clear that it was losing money. As a result of the funds' poor performance (it allegedly lost nearly $200,000), the church official responsible for the investment was "demoted" by the church. This official thereafter filed suit against the brokerage firm, alleging that the firm had been guilty of securities fraud as a result of its false representations regarding investment performance and its failure to give adequate warning regarding the risks associated with options arrangements. The court acknowledged that the church could bring a securities fraud action against the brokerage firm, but concluded that the church official responsible for the investment of the funds had no authority to bring the action individually. And, since the church had decided not to pursue the case against the brokerage firm, the church officer's personal claim against the firm had to be dismissed. The church officer, concluded the court, "acted solely as an agent of the church, and it is well settled that an agent has no action in tort because another has tortiously harmed the principal." Linsey v. E.F. Hutton & Co., Inc., 675 F. Supp. 1 (D.D.C. 1987).

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