Church settles case with SEC over financial reporting

The Church of Jesus Christ of Latter-day Saints and the company that manages its stock investments have agreed to pay a combined $5 million offer of settlement for past financial reporting practices in an order released Tuesday by the U.S. Securities and Exchange Commission.

The church and its affiliate, Ensign Peak Advisors, Inc., adjusted their practices in 2019 after learning about SEC concerns and complied with rules that require them to disclose the church’s entire stock portfolio in a single set of quarterly filing forms, the SEC said. They are considered to be in complete compliance.

“This settlement relates to how the forms were filed previously,” the church statement said. “Ensign Peak and the church have cooperated with the government over a period of time as we sought resolution.

“We affirm our commitment to comply with the law, regret mistakes made and now consider this matter closed.”

The church fully cooperated with SEC officials in active discussions with the commission and offered the settlement. SEC commissioners announced Tuesday it had settled charges by accepting the church’s offer and ordered the church and Ensign Peak Advisors Inc. to “cease and desist” the previous reporting practices they already had abandoned. The church and Ensign Peak have followed the correct filing procedure for 13 quarters now.

Ensign Peak will pay a $4 million penalty to the U.S. Treasury within 10 days. The church will pay $1 million.

Violations of 13F disclosure requirements are a negligible portion of the SEC’s annual enforcement efforts. The SEC filed 760 enforcement actions in fiscal year 2022 and levied nearly $4.2 billion in civil penalties, according to an SEC press release.

Church settlement explained

The SEC order alleged that Ensign Peak violated section 13(f) of the Exchange Act by failing to file Forms 13F in Ensign Peak’s name. The church agreed to settle the SEC’s allegation that it caused Ensign Peak’s violations by approving its filing practice.

The SEC order said that in agreeing to a settlement, the church admitted no wrongdoing.

“We allege that the LDS Church’s investment manager, with the church’s knowledge, went to great lengths to avoid disclosing the church’s investments, depriving the Commission and the investing public of accurate market information,” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement, in a news release. “The requirement to file timely and accurate information on Forms 13F applies to all institutional investment managers, including non-profit and charitable organizations.”

The order contained allegations not addressed by the church, but the settlement brings the investigation to an end.

“From 1997 through 2019 (the church and Ensign Peak) failed to file with the Commission certain required forms that would have disclosed the size of Ensign Peak’s equity portfolio in U.S. publicly traded securities and its holdings in such securities,” the SEC order said.

The church said it wanted to maintain the privacy of its holdings. Some church officials said previously that they wanted to avoid church members following church investments as a roadmap for personal investing because they might not be appropriate to their circumstances.

A church statement and the SEC order said leaders had followed legal advice in its filings.

“Since 2000, Ensign Peak received and relied upon legal counsel regarding how to comply with its reporting obligations while attempting to maintain the privacy of the portfolio. As a result, Ensign Peak established separate companies (LLCs) that each filed Forms 13F instead of a single aggregated filing. Ensign Peak and the church believe that all securities required to be reported were included in the filings by the separate companies,” the church said in a statement released Tuesday.

Church in full accordance with SEC rules since 2019

Beginning with the fourth quarter report for 2019, the church now has filed 13 quarterly reports “in full accordance with SEC requirements,” the church statement said.

Ensign Peak filed its latest Forms 13F disclosure on Monday, reporting that the church held nearly $44.4 billion in U.S. securities at the end of the fourth quarter of 2022.

The church earmarks an annual portion of its budget each year for reserves that are invested through its affiliated securities investment manager, Ensign Peak, or through the church’s agriculture and real estate affiliates, the church’s Presiding Bishopric told the Deseret News in 2020.

“Following the principle of preparing for the future, both near- and long-term, the church maintains diversified reserves, including stocks, bonds, commercial and residential real estate and agricultural properties,” the church said in a Frequently Asked Questions statement released Tuesday. “All funds are invested solely to support the church’s mission.”

Ensign Peak’s quarterly filings since 2019 show the volatility of the U.S. stock market over that time. The church’s stock holdings with Ensign Peak have ranged in value over the past three years from a low of $29.8 billion at the end of the first quarter of 2020 to a high of $52.3 billion at the end of 2021, according to 13f.info.

The church created Ensign Peak in 1997 as an integrated auxiliary to manage the reserves it has invested in securities, or stocks. For example, the church holds 15.6 million shares of Apple stock through Ensign Peak.

The SEC order said it investigated Ensign Peak’s activity from 1997 through 2019. It alleged that Ensign Peak was required to file Forms 13F from at least 2011.

Church and Ensign Peak leaders received legal counsel, the SEC order and church statement said, that they could create a trust to own a separate limited liability company to file Forms 13F. That trust was formed in April 2001 and a single LLC filed its first disclosure, or Form 13F, in February 2003, the SEC said.

The SEC said that the LLC could do so only if Ensign Peak transferred operational investment discretion to the LLC, but the SEC alleged that it did not.

The church’s entire statement said:

The Church of Jesus Christ of Latter-day Saints and its affiliated investment manager, Ensign Peak Advisors, Inc., have settled a matter with the Securities and Exchange Commission (SEC).

Investment managers who oversee a portfolio of public equities above a certain threshold are required to file Forms 13F with the SEC quarterly, which publicly disclose the names of the securities and their values.

Since 2000, Ensign Peak received and relied upon legal counsel regarding how to comply with its reporting obligations while attempting to maintain the privacy of the portfolio. As a result, Ensign Peak established separate companies (LLCs) that each filed Forms 13F instead of a single aggregated filing. Ensign Peak and the church believe that all securities required to be reported were included in the filings by the separate companies.

In June 2019, the SEC first expressed concern about Ensign Peak’s reporting approach. Ensign Peak adjusted its approach and began filing a single aggregated report. Since that time, 13 quarterly reports have been filed in full accordance with SEC requirements.

This settlement relates to how the forms were filed previously. Ensign Peak and the church have cooperated with the government over a period of time as we sought resolution.

We affirm our commitment to comply with the law, regret mistakes made and now consider this matter closed.

The church also published this FAQ about the settlement:

Q: Who is Ensign Peak Advisors?

A: It is the affiliated investment manager for the church.

Q: Who is the SEC?

A: The Securities and Exchange Commission regulates the United States securities markets. It has broad jurisdiction.

Q: What are Forms 13F?

A: Investment managers who oversee a portfolio of public equities above a certain threshold are required to file Forms 13F with the SEC quarterly, which publicly disclose the names of the securities and their values.

Q: Did the church know about the practices at Ensign Peak described in the order?

A: The church’s senior leadership received and relied upon legal counsel when it approved of the use of the external companies to make the filings. Ensign Peak handled the mechanics of the filing process. The church’s senior leadership never prepared or filed the specific reports at issue.

Q: Has the reporting practice that prompted the SEC cease-and-desist order now stopped?

A: Yes. In June 2019, the SEC first expressed concern about Ensign Peak’s reporting approach. Ensign Peak adjusted its approach and began filing a single aggregated report. Since that time, 13 quarterly reports have been filed in full accordance with SEC requirements.

Q: Did Ensign Peak fail to comply with SEC regulations?

A: We reached resolution with the SEC. We affirm our commitment to comply with the law, regret mistakes made and now consider this matter closed.

Q: When will the penalties be paid?

A: The penalties will be paid shortly to the U.S. Treasury.

Q: Where does the $5 million come from to satisfy the settlement?

A: The investment returns of the church will be used to pay the settlement.

Q: How are the church’s reserves invested?

A: Following the principle of preparing for the future, both near- and long-term, the church maintains diversified reserves, including stocks, bonds, commercial and residential real estate, and agricultural properties. All funds are invested solely to support the church’s mission.

Q: Why did this settlement take place now?

A: We have worked with the SEC for years to come to this settlement. We reached resolution and chose not to prolong the matter.

Q: Will this settlement impact Ensign Peak’s ability to continue to make investments?

A: No. With the announcement of the order, the matter is closed.