• Key point 9-04. Federal and state laws regulate the offer and sale of securities for the protection of the investing public. In general, an organization that issues securities must register the securities, and the persons who will be selling the securities, with state and federal agencies. In addition, federal and state laws contain a broad prohibition on fraudulent activities in the sale of securities. Churches are exempt from some of these requirements in some states. However, they remain subject to the prohibition of securities fraud in all fifty states, and under federal law.
Federal and State Securities Laws
* A federal court found several "elders" of a religious ministry personally liable for securities fraud as a result of the sale of unregistered securities to several investors. A religious ministry engaged in the creation, offer and sale of investment contracts and programs constituting "securities" within the meaning of state and federal securities laws. The securities were offered in several states, but were never registered with any state securities commissions. Some of the securities were part of a "faith promise" program in which donors made "investments" and in return received "regifts" from other investors. The ministry was forced to declare bankruptcy because of claims in excess of $800 million associated with the program, and a state securities commission sued several of the ministry's "elders" who had personally participated in the offer and sale of the securities. A court found the elders guilty of securities fraud under both state and federal law, and awarded damages in excess of $50 million against each of twelve elders individually. The court also found the elders guilty of violating state laws requiring the registration of persons who offer or sell securities.
Application. This case illustrates four important points. First, securities sold by religious organizations are not exempt from all regulation under state and federal law. Second, church securities are subject to the anti-fraud provisions of every state securities law as well as federal securities law. Third, individuals who engage in fraud in the offer or sale of securities may be personally liable for their acts. Fourth, in most states persons who offer or sell securities must be registered with the state securities commission. Churches are not exempt from this requirement in most states. Alabama Securities Commission v. Greater Ministries International, Inc., 2003 WL 21802139 (M.D. Fla. 2003).
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