Seven religious charities will be forced to return nearly $500,000 in donations from a convicted stock swindler - virtually all of it already spent - after losing a Supreme Court appeal Monday.
The justices, acting without comment, turned away an appeal in which the charities’ lawyers predicted a “devastating impact” on charities nationwide.
Monday’s action, while not a ruling on the merits of the charities’ appeal, nevertheless was a significant defeat for the seven charities. They had argued they should be shielded from having to return money they received from Michael Douglas, described in court documents as mastermind of a Ponzi investment scheme.
Douglas, a former Chicago salesman, was sentenced to 12 years in federal prison for creating corporations that sold limited partnerships and promised huge profits to investors.
Although some trading of commodities was done, most of the $30 million Douglas raised from 1987 to 1989 came from the sales of the limited-partner interests he used to pay the promised return for earlier investors.
Douglas pleaded guilty to fraud, and then was sued by the federal Securities and Exchange Commission.
A receiver appointed by a federal trial judge has recovered some $12 million of the money Douglas took from investors. As a result, those who lost money on his scheme have recovered about 40 percent of what they lost.
The appeal acted on Monday stemmed from the receiver’s efforts to get money back from the charities to which Douglas had made donations before his legal problems began in 1989.
African Enterprise received $166,000, and spent most of it on missionary work in Africa.
Bethany Evangelical Free Church received donations totaling $26,880.
Heart Cry International got $12,485 from Douglas, and spent it all on religious endeavors.
Hindustan Bible Institute received $74,989.25, and spent it on developing Bible institutes and ministries in India and other countries.
International Students Inc. was given just over $120,000, and spent most of on supporting missionaries.
Proclamation International received over $46,000; and World Vision received $57,500.
A federal judge in Chicago ruled that the charities must repay the money, and the 7th U.S. Circuit Court of Appeals upheld that ruling last May.