Victim of a bad economy or a house of cards?

"Victim of a bad economy or a house of cards?" Continued...

Issue: "New faces of New Orleans," Aug. 15, 2009

He also points out that many investors doubled and tripled their initial holdings over the years, and he maintains that Cornerstone did not hide its method of operations nor the projects in which it invested: "People are assuming we're all Bernie Madoffs and were manipulating things for our own benefit," he said. "It's not true. The staff's profit-sharing retirement accounts were invested in Cornerstone, as were many individual and family resources."

Ottinger's attorney, John Thomson Jr., did not respond to inquiries from WORLD. However, previously he told the Atlanta Journal-Constitution that Huddleston's report draws incorrect conclusions. Promising information will be released that will vindicate his client, Thomson pointed out that Ottinger also lost $1.4 million: "He personally regrets the losses that all of Cornerstone's investors, including he and his family, have suffered as a result of the collapse of the real estate markets and resulting collapse of Cornerstone's portfolio."

A suburban Atlanta attorney, Huddleston commented there may be information that Cornerstone didn't share with him in preparing his report. But he said he uncovered officers' self-dealing that had previously gone undetected. "Potentially, that will allow a greater recovery for the bondholders," Huddleston said. "It would support individual lawsuits against directors. Hopefully it will help folks recover more than they will from the bankruptcy [proceedings]."

Led by Brooks and Ottinger, CMI originated as the Investors Fund for Building and Development (IFBD) in late 1985. Later renamed the Presbyterian Investors Fund (PIF), it commenced operations the following spring by loaning money for church construction-under a Board of Directors elected by the PCA General Assembly in 1986, according to Roy Taylor, Stated Clerk of the PCA.

Headquartered at the denomination's offices in Atlanta, IFBD remained there until 1994, when members voted to divest the operation following an audit of the denomination. The results of that audit were never publicly released, but acting on the recommendation of its board of directors, IFBD "was ecclesiastically and legally disassociated" by the PCA, according to a statement by Taylor to WORLD.

The decision not to release the audit remains a sore point with Charles Wilson, a retired PCA minister and former chairman of Concerned Presbyterians: "When members of the general assembly tried to address these issues-particularly by asking for a copy of the [audit], they were constantly told, 'We can't release that material because someone might sue us.'"

In response to a question about the audit, Taylor provided WORLD minutes of the 1994 General Assembly deliberations. They indicate that despite overtures from at least two presbyteries to make the audit public, and complaints that about 20 companies operated under IFBD out of PCA headquarters, commissioners turned down the request on grounds that "the legal audit is protected by attorney-client privilege and its very contents may not be used against the PCA in a court of law." Taylor concurred that the terms of the audit precluded the PCA from distributing its contents beyond certain denomination officers.

At the time of disassociation, IFBD/CMI returned just over $1.3 million on investments to the PCA, according to PCA business executive assistant Tracy Lane-Hall. Those funds were part of a church-planting campaign that today has total assets of $2.1 million, she said.

Two years after going independent, Brooks and Ottinger formed Cornerstone to expand its reach beyond the denomination. That December CMI went public with a $3.7 million initial public offering and later merged with PIF.

Though the offering was minuscule in Wall Street terms, CMI's bonds-then paying 9 percent-attracted investors who liked the returns and appreciated its purpose of building churches and related facilities, such as Christian schools.

In a 2003 shareholder letter, Brooks said people regularly asked if the company was a "Ponzi scheme," named for an investment that pays illusory, above-market returns to first investors based on the infusion of cash from later investors. Emphasizing that the company had always been profitable, Brooks said, "Some do not invest because they fear the rate is a 'come on.' If it is, it is the best 'come on' I know and we have been doing it for 18 years."

However, the shift in CMI's emphasis a decade ago attracted criticism from Huddleston, who said Brooks and Ottinger unilaterally decided to start lending money to other businesses. The new deals included developments that went far beyond church construction, such as two upscale single-family home developments near Dallas. To show their risky nature, Huddleston's report cited a June 2006 email from Ottinger, which said, "This deal we are closing today is going to put us in a very precarious position financially."


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