A breach of financial faith

Investors and former employees sue New Thought Broadcasting, a startup that sold "spiritual educational products" online

The Oregonian/March 31, 2004
By Jeff Manning

New Thought Broadcasting, a failed affiliate of the financially embattled Living Enrichment Center, has left in its wake a string of unpaid former employees, disappointed investors and questions about its fund-raising methods.

The unprofitable company, which offered various "spiritual educational products" on the Internet, disbanded this month amid the mounting financial problems of the Wilsonville-based Living Enrichment Center. Before its fall, New Thought Broadcasting actively solicited money from an unknown number of lenders and investors in a way that at least one Portland lawyer says violated state security laws.

The fallout from the ill-fated Internet startup may eventually help explain how the popular church, with 4,100 members, got so deeply into debt and what happened to the money.

The church, co-founded and built by acclaimed spiritual leader Mary Manin Morrissey, acknowledged last week that its debt stands at approximately $20 million, about four times the $5 million a year in revenue brought in by the church.

Morrissey was unavailable for comment Tuesday. Her attorney, Steven Ungar , a Portland criminal defense specialist, said his client has met with officials at the U.S. Justice Department, the Oregon Attorney General's Office and the state Department of Finance and Corporate Securities to inform them of the church's financial problems.

"We found bookkeeping and financial irregularities which have not been fully analyzed," Ungar said. "However, because of Mary's position as a minister and because a large amount of money was loaned by congregants, we felt that notifying these authorities was the right thing to do."

The church owes about $8 million of that debt to church members, who lent money to the Living Enrichment Center and to Morrissey personally. Some of that money went to support New Thought Broadcasting, church officials acknowledged, although they were unable to say how much.

Possible securities violations

The broad solicitation of church members to invest in New Thought Broadcasting could violate state securities laws, says a lawyer who is representing a member who lost $245,000.

Last summer, Morrissey and her husband, Edward, persuaded a 55-year-old Portland-area woman and member of the church to invest in New Thought Broadcasting, according to the woman and her attorney, who showed The Oregonian investment documents and personal financial records outlining the transaction.

The woman, who spoke on condition of anonymity, says Mary Manin Morrissey called her nearly daily for a time last summer urging her to make the loan.

The woman agreed July 14 to lend the company $245,000. In return, she got 245,000 shares of convertible preferred New Thought Broadcasting stock. The company promised to pay her 7 percent quarterly interest on the debt and to repay the principle in three years, according to her and her lawyer.

"I told them I absolutely could not lose this money," the woman said. "This was my only retirement." The woman's financial records indicate that she had $4,470.63 left in her individual retirement account after withdrawing the $245,000.

But the company failed to make a single interest payment on her loan, the woman said. New Thought Broadcasting was shut down in March.

The woman hired Portland lawyer Greg Terranova to try to get repaid. Terranova sent a letter to the church Jan. 21, asking for immediate payment of the debt.

Afterward, the woman said, she received phone calls from Morrissey reassuring her that she would be repaid and urging her not to sue.

In the type of stock offering conducted by New Thought Broadcasting, state securities law requires companies to restrict solicitations to accredited investors. To qualify as accredited, an investor must have a net worth of at least $1 million or must have earned $200,000 in annual income in the previous two years and expect to make that much in the current year. Securities laws also oblige representatives of the company to determine whether prospective investors have the means to qualify.

The woman, who is disabled and is getting by on Social Security payments, did not qualify, and she says no one asked about her financial status. "In my opinion, this was a violation of securities laws, the way they took her money," Terranova said.

Edward Morrissey, former chief executive of New Thought Broadcasting, was not available for comment Tuesday. He checked into a Houston hospital March 22 to be treated for what Ungar called a serious medical disorder. His attorney, Michael Levine, declined to comment.

Ungar, Mary Manin Morrissey's attorney, did not respond to Terranova's claims. He offered a general statement in behalf of his client.

Ungar said Morrissey has been aware for some time that operating expenses at the church's sprawling campus exceeded projections and contributed to years of losses, but the problems accelerated recently.

"During the past few months, Mary became personally aware of more acute financial difficulties," Ungar said. "She became alarmed and immediately sought help from outside professionals to evaluate the financial problems and to provide the church with an action plan to address them.

"Mary will continue to devote her full time, energy and focus to the mission of LEC," Ungar said.

Restructuring plan

The church has launched a five-year restructuring plan and says it intends to repay all its debt. It also has said it will cease taking loans from congregants, although a central part of the restructuring calls for at least 25 percent of congregant lenders to forgive the debt they're owed.

Church officials say their restructuring plan is fragile and may not survive a wave of lawsuits from investors and lenders. Those complaints have begun to trickle in.

At least two former employees of New Thought Broadcasting or its precursor company, PersonPlanet Communications, have sued, seeking payment of back wages and loans.

Julie Bussanich, former controller of PersonPlanet, sued after she left in January 2003, seeking $30,000, most of which she had lent the company. She said she has since been repaid. On March 18, Steve Oster, a former consultant for New Thought Broadcasting, sued the Morrisseys in Washington County Circuit Court, seeking more than $40,000 he says he is owed.