Wichita The ill-fated Faith Metro Church bond default, in which 800 investors bought $10.8 million in bonds, was settled by state regulators for $150,000, Kansas Securities Commissioner David Brant announced Wednesday.
The settlement with MMR Investment Bankers, Inc. the Andover firm which sold the bonds closes the books on efforts by investors to get back $8.3 million in defaulted bonds. A bankruptcy proceeding recovered $4.2 million.
David Brant, Kansas Securities commissioner
"The tragedy in this case is the trust that was put in the minister and the church and those involved in the bond issue," Brant said in a telephone interview from his Topeka office.
Gerald Martin Jr., chief executive officer of MMR, said Wednesday that he was out of town and did not wish to discuss the case in depth until he had a chance to see what the securities office had released.
"We are pleased that the matter is concluded and we are continuing to pursue our normal course of business," Martin said.
Martin said he had voluntarily withdrawn from operating in Kansas, but was doing business in 26 other states.
His attorney, James Roth, did not immediately return a message left at his Wichita office.
The bonds were sold by MMR to finance the building of Faith Metro Church in Wichita and the purchase of a radio station for New Life Fellowship.
Both were under the direction of the Rev. David Brace, now serving time in prison for defrauding church investors and laundering money for undercover agents posing as members of a Colombian drug cartel.
"In theory, when Rev. Brace gets out of prison he will be ordered to pay $3.3 million in restitution," Brant said. "I would doubt that the bond holders will see little, if anything, paid by David Brace in restitution but that is a cynical comment on my part."
It is uncertain how much of that $150,000 settlement holders will actually get. State officials are still negotiating with lawyers on their share of the settlement, Brant said.
The money will be distributed much like the bankruptcy receipts, and the first checks will go out in the next couple of months, he said.
With the bankruptcy payouts and this latest settlement, a church investor who bought $10,000 worth of bonds will probably get about 40 percent of his investment back losing $6,000 of his money plus the interest.
"This whole case has been a travesty and an ordeal," Brant said. "The good news is that the bond holders got some money back, compared to many securities fraud that we see and deal with."
The commissioner had filed both a civil lawsuit and an administrative action against MMR. The settlement calls for Martin to pay the $150,000 and dismisses MMR and all other parties from the proceedings.
Martin was censured and his individual registration retroactively suspended for three weeks. It is now reinstated.
Under its settlement terms, neither MMR nor Martin admit to any securities law violation.
"I have been told in a reasonable settlement none of the parties are satisfied," Brant said. "Am I satisfied? No."
Brace was already serving a 14-year federal sentence for money laundering when he was sentenced in January 1999 on a state charge of defrauding church investors. He received 3 to 10 years to be served concurrently with the federal time.
In a separate bankruptcy proceeding in Oklahoma, trustee Jim Lee obtained $4.2 million for bondholders by liquidating assets held by the church and radio station.