By Joanne Hammer
Four years ago, John F. Hay spent his retirement building a church near Florida’s central east coast. He never guessed he would start preaching in the same church to make ends meet.
Hay, 71, invested about $200,000 into Alanar church bonds. Because his assets are frozen through federal fraud allegations against Alanar, Hay works as pastor of the church he helped build in Oak Hill, Fla. If it were not for the housing allowance the church gives him and his wife, Janet, he doubts they would have a home, he said.
“I assumed church bonds were safe and secure,” said Hay, who had worked 19 years in Indianapolis as superintendent of the Indianapolis District Church of the Nazarene. “I was sadly mistaken.”
The Hays are one of thousands of investors suffering because they are not receiving monthly interest payments.
Alanar, a company that sold church bonds, closed in April. The company’s assets were frozen in July after the U.S. Securities and Exchange Commission filed fraud allegations. The company was directed by Vaughn A. Reeves of Sullivan and his three sons, Chip, Chris and Josh.
The SEC alleged that from at least 2001 until last year, the family misused bond funds meant to repay investors by investing funds into other churches, an online brokerage account and other companies the family owned.
Before investors will receive payments, a court-appointed accounting firm must complete a forensic audit of Alanar’s bond funds and church bond issues, said Bradley Skolnik, court-appointed receiver of Alanar and related entities.
So far, accounting has revealed that the Alanar companies have more than 15,000 investors or bondholders, 41 bond funds, 450 separate bank accounts and 300 open bond issues, according to the Indianapolis accounting firm BGBC Partners.
The information was included in a letter sent to investors last month, which updated them on investment status.
Skolnik must submit the first inventory report to federal court by Feb. 20, but there is no time frame for when the audit will be finished because of the magnitude of the allegations concerning the co-mingling and misapplication of funds, he said.
After the initial inventory, reports will be filed with the court every three months.
Alanar allegedly raised at least $120 million by issuing church bonds and $54 million by selling bond funds. The company diverted $8 million worth of church funds meant to pay bondholders into an online brokerage account, according to the SEC. The SEC also stated the Reeveses lent about $600,000 of the repayment funds to a slow-paying bond issuer and made loans to themselves and six other companies they controlled.
When the SEC took civil action in July, it appointed Skolnik, an Indianapolis attorney and securities specialist, to monitor the operations of Alanar and all related entities. In December, Skolnik was appointed as receiver and was given control over all the funds and assets controlled by Alanar, in part because of allegations that Vaughn Reeves was not cooperating under Skolnik’s oversight as a monitor, according to court documents.
Among the allegations, Vaughn Reeves had withheld important documents, interfered with an Alanar employee working on court-ordered accountings and had listed for sale properties subject to an asset freeze, according to court documents. In addition, the Reeveses had not replenished an escrow account, as ordered to do by the court, that paid for the work of Skolnik and other financial advisers.
Skolnik would not comment on the allegations listed in the court documents. Vaughn Reeves and his attorney could not be reached for comment Wednesday.
Once the accounting of financial records has been completed, a plan will be developed for the restructuring, liquidation or redemption of the bond funds. In the meantime, investors can receive updates on Skolnik’s Web site at www.silegal.com.
“The human toll this has taken is extensive,” Skolnik said. “We’re very aware of the effect this has had. We are moving as quickly as possible but it is a time-consuming process.”
Joanne Hammer can be reached at (812) 231-4214 or joanne.hammer@tribstar.com.
Timeline of events
What took place in 2005
--April 26: Alanar, a church bond company with headquarters in Sullivan, closes.
--July 26: The U.S. Securities and Exchange Commission freezes the assets of Alanar and six other companies operated by Vaughn A. Reeves of Sullivan and his three sons. Bradley Skolnik, an Indianapolis attorney and securities specialist, was appointed as monitor of the company.
--Dec. 20: After allegations of interference by Reeves and other challenges, the SEC appointed Skolnik as receiver, giving him full power over the company and related entities.
What will take place in 2006
--Court-appointed accountants must analyze all the entities, determine the status of tax filings and prepare reports for the court and for future tax filings.
--The receiver, Bradley Skolnik, is scheduled to give an interim report and inventory to the court this month.
--Once the accounting determines specific losses to investors, bond fund members and bondholders might have certain tax options, including theft loss, capital loss or 401(k) and IRA.
