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Robert P. Swierenga, "'Unholy Mess:' The IRM California Real Estate Investment Debacle of the 1990s and the Christian Reformed Church in North America"

      "Sacred scams" are commonplace in Christian communities because of the strength of religious loyalties and blind trust among "brothers in the Lord." Between 1984 and 1989, 15,000 people in the United States were swindled out of $450 million due to religious-affinity fraud, according to an official report. The problem worsened in the "go-go" 1990s. In the four years 1998-2001, 80,000 investors, mostly retirees, lost $2 billion in religious scams. Greater Ministries International Church of Tampa, Florida stole $500 million, the Foundation for a New Era Philanthropy bilked donors of $135 million, and the Baptist Foundation of Arizona snookered $590 million from co-religionists.[1]

In the Grand Rapids area alone, two frauds cost thousands of locals hundreds of millions of dollars. Access Financial Group, a "Christian investment plan" run by Dutch Americans, swindled $20 million primarily from some 500 employees of the Steelcase office furniture company. Many of those who put their life savings at risk worshipped in Discovery Church congregations in suburban Wyoming and Cutlerville. Less than half the monies were recovered.[2] This scandal was small potatoes, compared to that of Dan Broucek, a member of the 1,000-soul Brookside Christian Reformed Church, who took in hundreds of millions from church members and their friends. Broucek did not even have to advertise. News of the supposed lucrative investments in distressed merchandise, which offered returns of 60 percent, spread by word of mouth and people came to him with checkbooks in hand. When the ruse was uncovered, Broucek had less than $9 million in the bank, and some individual investors had claims exceeding $1 million.[3] Both scams were classic Ponzi schemes, in which con artists recruited new investors to pay off previous ones at above-market interest rates. All share a common theme, the nexus of money and religion.

The IRM scandal is of a similar sort, yet it is different. IRM was an investment in "real" assets--residential apartment complexes. If this ever was a Ponzi scheme, it became so only in the final stages. In the first years IRM was a legitimate investment that paid legitimate, though exceedingly generous, returns. Some $228 million dollars were at stake, given by 1500 individuals and agencies of the Christian Reformed Church in North America (CRCNA). The Christian Reformed Church, a small (275,000-member), close-knit denomination founded by orthodox Dutch immigrants in the nineteenth century, stretches from coast to coast and shares a strong sense of ethnic identity.

This ethnic bond had its cost--the financial well being of many congregants and church agencies, and a nasty legal fight that heightened a spirit of disunity plaguing the denomination in the 1990s. Church officials, in an attempt to control the flow of information at first, even placed a temporary gag order on the editor of the church weekly, The Banner. This seeming "power play," which halted further investigative reporting, raised suspicions and led to a wave of protests and overtures from Classes (regional bodies) to Synod, the church's highest assembly.

California Dreams

The locus of the financial disaster, fittingly, was California. According to distinguished American historian Elliott West, "places are defined in part when people infuse them with imagination." California is such a place in the American consciousness. It is the golden state, a land of great natural beauty and resources. Gold built the state overnight and water made its deserts bloom. "California calls you," declared a Union Pacific Railroad promotional brochure in 1913. The front cover featured a picture of a young woman dressed in a white dress, sitting under her parasol, overlooking a fertile, tree-lined valley and snow-clad mountains. The scene, perhaps the Yosemite Valley, is a romantic picture of perfect contentment.[4]

So successful was the attraction of California that cities sprang up overnight. Barely a year after the gold rush began in 1849, California had the requisite fifty thousand inhabitants to apply for statehood. In time, deserts were turned into irrigated Edens and cities sprouted upscale suburbs like topsy. Megacities and megafarms are the hallmark of the modern landscape.

IRM Launched

In the booming 1960s and 1970s, financiers made fortunes in real estate investments. One of these ventures was a Dutch-American corporation, IRM of Concord, California (the initials IRM stand for "Investment Research Management"). IRM was formed in 1969 by prominent members of the Christian Reformed congregations at Napa and Walnut Creek, California. The principals were John (Jack) O. Van Hofwegen and Dirk Mellema, and they added Fred Le Febre after he retired as a military officer.

[images of John O. Van Hofwegen and Fred Le Febre, with Wall Street Journal front-page article of 21 October 1998] 

IRM, as general partners, over the next fifteen years created 59 real estate trusts, each holding title to an individual apartment complex containing up to 250 apartment units. The properties were located in California's booming capital of Sacramento, and in the nearby cities of Modesto, Manteca, Stockton, Tracy, and Walnut Creek, among others. The monies to buy into these so-called equity partnerships, which totaled $228 million, came from individual investors known as "limited partners." The latter were promised a cut of the profits plus a fixed percentage per annum on their capital. The fixed rate mirrored market interest rates and ranged from 8 to 10 percent in the 1970s. All partners were clearly warned in the prospectuses that this type of investment "involves a high degree of risk and is suitable only for persons having substantial financial resources."[5]

[photo of Driftwood Apartments]

      The individual investors gained lucrative tax advantages, because they could deduct operating losses (mostly "paper losses" due to depreciation) and thereby shelter other income from taxes. Total tax losses in the five to seven years that each partnership was designed to run before liquidation equaled and often exceeded total capital contributions. Thus, investors benefited in three ways--a generous annual tax write-off, a fixed rate of interest on that capital and, in the end, a share of the profits.

      The general partners took responsibility for running the operation, while the limited partners gave up decision-making in exchange for legal immunity. The general partners earned commissions and management fees, and were entitled to 10 percent of the annual net operating profits and losses. They also gained a like share of the profits, but subordinate to the limited partners. Technically, the limited partners held ownership stakes in particular properties, although all properties were linked through the general partner who managed them.

      Over the years IRM created more than 130 separate internal entities--including 59 limited partnerships with direct interest in properties; 59 loan funds, one for each of the properties; and several general loan funds. The loan funds, known as Alpha and Beta, and after 1987 as Gamma funds, were created in the 1980s for new investors who wanted only to clip interest coupons, rather than wait for possible profits at the end. The notes were sold in increments of $10,000, running for one to five years, and carried above-market rates of 9 to 11 percent. These notes lacked mortgage backing; they were thus unsecured. Hence, the high yields.

[Diagram of IRM Corp. and Affiliated Entities]

IRM at high tide

Most investors did not fully understand the risk, thinking that their monies were secured by real estate. IRM encouraged this perception by stating in its 1994 prospectus for Gamma Secured Investments that Gamma "takes back a deed of trust" on any property purchased with the monies. Thus, the document promised: "This security provides for an exceptionally high degree of safety" (italics added). Only the most astute investors would grasp the fact that IRM, and not the note holders, had any security in real estate. IRM also noted that it might use the monies "for other purposes ... as IRM deems appropriate.[6] Note holders also should have been skeptical of the promise of "a high return from invested funds with maximum security." These two goals--high returns and maximum security--are incompatible.

      Several of the largest agencies of the Christian Reformed Church took the lead in placing their reserve funds and endowments with IRM, enticed by the attractive yields. The Home Missions Board, Calvin College, and the Back to God Hour radio ministry, together put in $11.4 million.[7] This paled by comparison to the $17.5 million invested by the Barnabas Foundation, a Chicago-based independent but related church agency for estate planning and charitable gift annuities. Barnabas in the 1990s managed more than $100 million in donor funds on behalf of some 168 ministries and institutions. The Christian Reformed Church was the common factor linking these organizations, although some extended beyond denominational bounds.

      The church involvement emboldened some 1,500 congregants to do the same; most lived in western Michigan and the Chicago area. Some wealthy investors put in six-figure sums, but most were of middling status--small businessmen, clerics, teachers, and other professionals, who invested from $5,000 to $20,000 each. Some retirees put up most of their life savings. Altogether, 89 percent of the total monies came from the individual investors.

      All entrusted their monies in the belief that they would ride the California real estate boom in a bus driven by experienced chauffeurs--fellow church members in California who were seemingly "in the know." The investment seemed as good as gold. The monies were in real estate in one of America's hottest markets and the IRM executives had well-deserved reputations. They were all of Dutch ancestry, graduates of Calvin College-the denominational college, and with high visibility in the church. President John O. Van Hofwegen served on the College's prestigious Board of Trustees in the early 1990s. He was known as a generous contributor to church programs, and two of his sons were pastors in the denomination.[8]

      Jay Morren, IRM's star salesman in Grand Rapids since 1972 and a leader in the Christian Reformed Church, was the key to the firm's success. Morren solicited the bulk of the private and denominational monies, forming trusteeships in his name to pool the monies of smaller investors in order to meet the $20,000 minimum initially set for limited partners. Before venturing into real estate, Morren had taught at a local Christian high school. His credentials were impeccable and his ties to the denominational hierarchy were tight. While a vice president of IRM, he served for many years on the board executive committees of both Christian Reformed Home Missions and Calvin College and Seminary, and was president of the Barnabas Foundation in the mid-1990s. Indeed, Morren was strategically placed as treasurer of the Home Missions board and a member of its investment committee. To avoid an outright conflict of interest, he signed statements to that effect and recused himself from voting on all investment decisions. But his informal influence was great.[9]

[photo of Jay Morren]

In the inflationary 1970s and early 1980s, IRM bought and sold properties with great success and delivered on its generous promises to those buying a piece of the action. The termination of some forty partnership trusts in that period yielded average annual after-tax gains above 100 percent, and gains of 60-70 percent were not unusual.

This more than satisfied the frugal Hollanders, who valued hard work and saved religiously for a rainy day. The California partnerships seemed to work perfectly and IRM's popularity grew through word of mouth in the tight ethnoreligious community, where a person's word was his bond. More and more people came to Morren with their savings. He barely had to shake the tree for the money to fall. One man, Jay Mol, a Grand Rapids industrialist and Barnabas Foundation board member, invested more the $200,000; he was the largest individual creditor.

[photo of Jay Mol]

The tide ebbs

      Unfortunately, in 1986 the United States Congress changed the tax code to phase out the tax-shelter advantages of limited real estate partnerships. Thereafter, IRM investors could no longer shelter earned income from passive realty investment losses. This tax “reform” upset the real estate market nationwide and by 1990 the bottom fell out, especially in California where property values dropped more than 30 percent. For the next years, vacancies, slumping rents, and sharply falling prices signaled a "great depression" in commercial real estate. The slump was exacerbated by two unrelated developments in California, a sharp downturn in the massive defense industries set off by the end of the Cold War in 1989 and a severe drought that lowered agricultural productivity for much of the 1990s.

      IRM vice president Le Febre in 1987 alerted all investors by letter to the "somewhat adverse effect" on the company's bottom line from the 1986 Tax Reform Act. But his letter came a decade late and it downplayed the negative impact of the tax change. While real estate values have declined, he noted, the market has "stabilized and will soon resume upward movement.... We are confident," Le Febre concluded, that "apartment properties in this Northern California area will continue to be safe and highly profitable investments for the foreseeable future."[10] This hope proved to be pie in the sky, but Le Febre retired in 1989 before the full fallout was known. Mellema also left the firm at this time to make way for Jack Van Hofwegen's son John A. and two sons-in-law, Lawrence Van Duyn and David Buurma. The second generation, unfortunately, was not up to the task; they lacked the business experience and acumen of the founders.

      During the prolonged slump, IRM took on too much debt and underestimated how long the bad times would last. They assumed prices would firm up in a few years, but in fact real estate in and around Sacramento did not recover for nearly a decade, unlike the quick upturn in Silicon Valley closer to San Francisco. Beginning in 1991 IRM began operating in the red, but it masked the deficits by clever accounting and by taking in new monies to cover redemptions and deficits.

      The entire focus had changed from selling properties and liquidating partnerships at a profit, to raising cash to continue operations and pay off the remarkably few investors who redeemed their notes. In 1990 IRM encouraged those with Individual Retirement Accounts (IRAs) to invest in the firm's limited partnerships. "This is exciting because we believe real estate is an ideal investment for an IRA, in that real estate tends to be long-term and growth-oriented, mirroring the investment goals of IRA accounts in general," declared an IRM Update memo.[11]

      In 1994, with the firm's finances more desperate than ever, IRM hit on the idea of enticing investors in the various apartment trusts, which no longer could be sold, to accept unsecured Gamma notes at above-market interest rates with regular interest checks, in lieu of their trust units.[12] A bird in the hand was better than two in the bush, especially since the prospect of profits from liquidation was cast into doubt by the collapse of the real estate market.

      For a decade and more, until 1997, the note holders received interest checks as regular as clockwork. This masked the concern of many for the dismal economic outlook in the Golden State. They wondered how IRM management could extricate itself from its dozens of realty trusts.

IRM goes bankrupt

      The beginning of the end came in 1994 when David Vander Ploeg took the helm as executive director of the Barnabas Foundation. In reviewing its investment portfolio, Vander Ploeg became concerned about his agency's heavy investments in IRM, which came close to the limit of 30 percent in any one portfolio. His fiduciary role, under "due dilligence" norms, dictated that he investigate IRM's financial condition. Vander Ploeg began pressing the IRM officers to disclose the company's overall financial situation, which accounting had never been given to any investor, since IRM as a private company was exempt by law from such reporting. The officers stonewalled at first, but Vander Ploeg, now increasingly suspicious, persisted until he finally obtained current financial and tax records. These revealed IRM's too-heavy debt load. The debt-to-equity ratio of many properties ranged up to 95 percent and a few stood at a disastrous 130 percent. These far exceeded the limit of 75 percent that Barnabas, as a registered financial organization, was obligated by law to heed.

      Vander Ploeg sought clarification from IRM officers, who increasingly considered him a threat, and eventually after several face-to-face meetings he and the IRM principals worked out an agreement to reduce Barnabas's exposure over time. Quietly in mid-1996 Barnabas began redeeming some $5 million in notes as they matured, rather than rolling them over.

      Vander Ploeg's abrupt change in policy toward IRM roiled his own Board of Trustees. President Morren obviously disagreed and so did the largest single investor, Jay Mol, who resigned in protest. Several men shared Mol's views to be patient. Indeed, the Board was evenly split between defenders of IRM and critics who wanted Barnabas to cut its losses. Meanwhile, James Kraai, Calvin College's chief financial officer, got wind of Vander Ploeg's actions and in early 1997 he too pulled back and redeemed one-third of Calvin's $3.6 million in notes as they matured.[13]

      These large cash drains of more than $6 million pushed IRM to the wall. On October 27, 1997 its officers sent note holders a letter with the ominous news that the company had to "suspend all principal and interest payments and loan payoffs" while it reviewed "certain cash-flow deficiencies effecting certain properties."[14] Subsequently, it was revealed that the firm had total debts of $400 million but their properties as a whole were worth only $270 million. The debts were owed to individuals, church agencies, and banks holding mortgage paper. The company collapsed under its own weight like a house of cards.

Letter of October 27, 1997, by senior vice president David J. Buurma, announcing the suspension of principal and interest payments on notes]

      The investors were stunned beyond belief. The money, after all, was managed by Christian Reformed businessmen and secured by rock-solid California realty. Even Morren, the company's vice president and Michigan agent, who had visited the California operation every year, caught no hint of trouble until Vander Ploeg informed him in mid-1996. But Morren, admittedly, had never pushed for full financial details. "They trusted me and I trusted California," he remarked to a reporter. "Dumb, isn't it?" He added, "I'm convinced they kept this from us because we would have stopped selling."[15]

      The failure of the company to report its problems puzzled investors. They asked: How come I didn't hear anything about this before? Why didn't they notify us a lot sooner? Why were they silent so long? "The defaults," said the Grand Rapids Press in a headline story, "reverberated through the local CRC community, where loyalty, thrift, and financial security are bedrock values." These were the very reasons that made IRM attractive in the first instance. One investor, Galen Meyer, former editor of the Banner and a local Christian schoolteacher, declared: "Looking back on it now, what I relied on was the reputation of the outfit. The list of investors was very important.... It's a CRC blue chip list, that's what it is.... Let's face it, with the agencies of the Christian Reformed Church that were involved, it looked so good, it looked so solid."[16]

      Unfortunately, the jilted investors soon "parted like the Red Sea." On one side were those willing to forgive and forget. "It's God's money originally," said Thelma Kunnen. "If he sees fit that we don't get it back, then that's fine." Others were irate and demanded that the culprits be brought to justice in the secular courts. "Those guys took the life savings of people who only had $20,000 to their names and had no business being in this stuff [this kind of investment]. That's shameful," declared Vander Ploeg. The Barnabas director also charged that IRM had given him "false and misleading" statements.[17]

Church officials go to the courts

      The legal maneuvering that followed the August 1997 letter was as messy as the denouement itself. The Board of Trustees (BOT) of the Christian Reformed Church was proactive and named an Oversight Committee to take control on its behalf. After all, nearly $29 million of church monies were involved (13 percent of the total) and, rightly or wrongly, the BOT also decided to act on behalf of the 1,500 individual investors. Besides the denomination's executive director of ministries, Peter Borgdorff, and its chief financial officer, Kenneth Horjus, who was named chair, the Oversight Committee included Vander Ploeg of the Barnabas Foundation and representatives of each of the church agencies involved, plus some twenty individual investors.

[Grand Rapids Press front-page story, November 22, 1997: "CRC looks into Calif. real-estate investment firm"]

      From the outset the church leaders were indignant at IRM management for creating the debacle and frustrated at not receiving financial statements. "The closer we looked, the worse it got," Borgdorff and Horjus told the synodical investigating committee. Very quickly the Californians lost credibility in the eyes of the churchmen, and a mutual spirit of mistrust sprang up after the initial exchanges of letters.

      The first impressions, unfortunately, were lasting impressions. Believing that IRM officials were being deceptive and misleading, the Committee tried to tie their hands by negotiating a "stand-still agreement," the quid pro quo being a pledge not to begin legal action while accountants sorted out the "unholy mess." The agreement barred IRM from making major decisions without the committee's approval.

      The Oversight Committee shielded its dealings in secrecy, under a "no comment" policy adopted by the denominational headquarters. The editor of the Banner was also muzzled after he ran a preliminary report, so as not to expose the denomination to litigation.[18] But a disgruntled New York attorney, not a church member, frustrated the denominational leaders by posting leaked internal documents on the Internet. This put the IRM conflict on the front pages of the Grand Rapids Press and produced howls of protest throughout the denomination.[19] It is noteworthy that an “outsider,” a non-Dutch, non-Church investor, was the first to blow the whistle publicly.

      Meanwhile, Jay Mol, a leading investor and committee member, got a Grand Rapids property management and investment firm, Eenhoorn Development, headed by F.F. Carl Heule and his son Paul, to contact IRM. The senior Heule, a former president of Rabobank in the Netherlands, had immigrated in 1978 and built a successful company rescuing troubled real estate ventures. The firm was known in the trade as a "bottom feeder." The son was a Calvin College graduate and member of the Christian Reformed Church, but his father belonged to the Dutton Independent Reformed Church, which had broken away in 1992.[20]

      The Heules went to California and, after carefully reviewing the company's books and properties, offered to buy all the assets. They promised to pay all investors in full, minus defaulted interest payments, over a period of 10 years, with 5 percent paid up front. Investors experiencing severe hardship would receive 75 percent of their monies immediately as a final payment. To show its serious intent, Eenhoorn put up $400,000 to rescue an IRM property from imminent foreclosure.[21]

      By this time the Oversight Committee had been replaced by an eight-member Creditors Committee, which was to represent all 1,800 corporate and individual investors. The new body, which like its predecessor was dominated by churchmen, denounced the negotiations with Eenhoorn as improper and called the firm's offer vague and lowball. They predicted that better offers would come to hand. In fact, some fourteen offers came in, because Eenhoorn had literally created a market. But none beat their proposal, although three looked somewhat promising at first. Some investors who favored selling to Eenhoorn suspected that the senior Heule's status as a religious “seceder” stuck in the craw of church officials. But the churchmen categorically denied it; they were not bent on revenge but on "bringing some degree of order to the chaos we've been witnessing," said Borgdorff.[22]

      That IRM officials had negotiated a sales agreement with Eenhoorn behind the back of the Creditors Committee was proof that the officials were not to be trusted. The Creditors Committee, after nine months of intensive work and despite repeated urgings to investors to refrain from taking legal action, decided themselves to file suit in California's Superior Court in Contra Costa County. The petitioners asked the court to remove the IRM management and place the company in the hands of a neutral third party under court supervision. The suit charged IRM with "repeatedly violating" its standstill agreement and, more seriously, with "perpetuating a real estate investment pyramid scheme" by taking new money to pay off the interest or dividend obligations to previous investors. IRM denied the allegations and urged that the Eenhoorn proposal be put to a vote of the investors.[23]

      That the lawsuit pitted Christian Reformed Church parishioners against one another was bad enough, but some found it hypocritical that top denominational officials had acted in direct contradiction of their own directives and in disregard of the Apostle Paul's dictum that Christians should not go to law against each other. Indeed, the action seemed directly to contravene a 1972 synodical decision that barred church committees and agencies from going to law against "brothers of our common faith without the expressed prior approval of Synod." Moreover, how could church officials sue members who until recently had been esteemed board members and officers in the body's largest and most prestigious agencies?[24]

      The lawsuit drove a wedge between the investors, with the churchmen on one side, and most individual investors on the other. One group of individuals, calling itself "Concerned IRM Investors," led by Marvin Helder of Cutlerville (a Grand Rapids suburb) and a friend of Jay Morren, sent letters to all investors and convened widely publicized "town hall" meetings in Grand Rapids and California.

      The Concerned group, who claimed to speak for 85 percent of all investors, based on total monies at stake, urged the proposed sale to Eenhoorn as the best deal, and they heavily criticized denominational leaders for mounting a "crucifixion crusade" against the "Christian men" at IRM. The IRM principals were guilty of misfeasance, not malfeasance; they made poor business decisions, not fraudulent ones. "When a man makes a mistake and asks for forgiveness, you forgive him and go on with life," said Helder. Above all, you do not sue fellow church members. Citing Biblical passages that condemned lawsuits among Christians, committee member Frank Deppe told a large gathering of investors at the Christian school in Cutlerville that he was "disappointed" and "shocked" by the action at law. It seemed to some that the denominational agencies were simply trying to squeeze money out of IRM at the expense of the other investors.[25]

[photo: Concerned investors assemble at South Christian High School auditorium, Cutlerville, Michigan, July 1998, to listen to a proposal to rescue IRM creditors from huge losses]

      Helder likened the denominational officials to the Egyptian ruler Pharaoh, who pursued God's people into the Red Sea with his army. The Concerned Investors, like the ancient Israelites, were now being hounded by the church authorities. "God needs hands and feet, and that's you and me," Helder to the agitated crowd, as he handed out a list of the phone and fax numbers of the four church agencies involved, urging the people to flood the switchboards of the church agencies with messages of protest. The investors did just that, and their missives rained down, inundating office staffs. Many voiced bitter recriminations and angry complaints. Borgdorff tried to quell the protests by mailing on church stationery to every church home in the United States and Canada a six-page defense of its actions. The letter explained the rationale for the lawsuit and declared that the Apostle Paul did not bar Christians from using the courts if the goal was not revenge or personal gain but to uphold the rule of law and give sorely needed protection of property. However, this official letter seemed self-serving and added fuel to the fire. "People of good will on both sides are just not seeing it the same way," Borgdorff lamented, and added that the affair was "the most difficult issue he's faced in more than 30 years of ministry."[26]

      The legal action had its desired effect, but the outcome was detrimental, in the opinion of the Concerned Investors. Eenhoorn withdrew its solid proposal, claiming that the court's involvement, with its consequent costly delays, placed the entire deal in jeopardy. IRM then announced that it had no choice but to file for protection in the United States Bankruptcy Court of California under Article 11 of the bankruptcy code. A few weeks later, the four principals resigned and relinquished most of their assets, and the federal bankruptcy judge appointed a new CEO to manage the firm under his oversight.

      Eenhoorn’s spurned firm purchase offer also proved over time to be the only one. And several million dollars of investors' funds were spent in the meantime on professional fees to carry on the legal proceedings. In addition, the opportunity passed to refinance the properties in 1998 while interest rates were at historic lows, which would have saved investors millions of dollars in interest payments. David Buurma, John Van Hofwegen's son-in-law and IRM senior vice-president for client services, blamed his own denomination for the loss of the Eenhoorn option. "I would say the church is certainly responsible for it; it's only because of their fighting that this has dragged out so long," Buurma charged.[27]

      Carl Heule of Eenhoorn was equally blunt about the damage caused by the lawsuit. Church officials took a year trying to create a "level playing field" and "spent millions of dollars of the investors' money" in the process, but they "have nothing to show for it. Maybe they had good motives," said Heule, but I don't know what they were.... If we had been left alone, by October 1 [1998, or within one year of the default], people would have gotten their first check. I thought I was in the home stretch."[28]

      Borgdorff defended the decision to block the "premature sale" to Eenhoorn as fiscally prudent. And it was necessary to get the California courts involved to bring accountability to IRM principals and a "semblance of order to the house." Borgdorff also admitted that the strong public protests of the Concerned IRM Investors had alarmed the church leaders and forced their hand.[29] Clearly, the churchmen and the majority of investors had a sharp difference of opinion, if not a profound difference of philosophy.

IRM in Bankruptcy Court

      The California court subsequently required the Barnabas Foundation to return the $5 million that it had cashed out after 1996, since it had not immediately disclosed its findings about IRM, as it was legally obligated to do. Some of these monies went into a Hardship Assistance Fund that had been set up for those made destitute, along with $200,000 from Jay Morren, the Michigan salesman, who Michigan state regulators fined $30,000 for selling unregistered securities, on condition that he pay into the hardship fund. From the outset all parties had agreed that the small investors needed priority, and these actions followed that plan.

      To aid in its work, the Bankruptcy Court appointed an eleven-member, Official Investors' Committee to provide key advice on the reorganization and final disposition of IRM. Significantly, four of the eleven members were Concerned IRM Investors, including Jay Mol, the largest individual creditor, who was elected chair, Michael Vanni who was named secretary, and Marvin Helder and Frank Deppe. Three other members, Art Den Dulk, Fred Le Febre, and Dirk Mellema, were friends of the Van Hofwegens and former IRM executives. This bevy of bitter critics boded ill for Barnabas's Vander Ploeg and Horjus, the only church representatives on the committee.[30]

[photo: Michael Vanni, JCM's board chair, and Gayle Ing, JCM's CEO, in front of company's California headquarters]

      IRM's court-appointed CEOs, John Barnard (1998) and John Connolly IV (1998-2001), had no ties to the Dutch Reformed community, but both were experienced real estate executives who quickly gained the trust of all the factions. The JCM board, however, was made up of the creditors’ committee, most of whom were Dutch Reformed. So, the church-led plaintiffs announced their intent to drop the lawsuit. This prompted Mol to wonder anew why the plaintiffs went to court in the first place and why they now withdrew. "The IRM principals have agreed for many, many months to step aside if it were done in a way that would not damage the operation or the investments of the creditors," said Mol. "The church and [Preston] Kool [chair of the Creditor's Committee] refused this, wanting a dramatic walking off the job and an immediate dismissal of all the participants involved," Mol continued. "That's not an orderly type of thing to do and I'm shocked that they do not understand this. If they had done it in a legitimate kind of way this would have been accomplished months age, but they wanted to do it in a vindictive way," said Mol. Vanni likewise rebuked the churchmen for their "witch hunting and stonewalling...for nearly a year."[31] 

      Despite these stinging charges against the churchmen, Mol gave his committee effective leadership. It functioned harmoniously, even after Mol's untimely death from a heart attack while working on committee business in California early in the year 2000. A time of healing had begun. Shortly before Mol's death, John Connolly and the Investor's Committee had, with the Court's approval, drawn up a plan of reorganization that might bring closure. The IRM principals, meanwhile, reached an out-of-court settlement with California regulators, agreeing to pay fines of $25,000 and give up their right to sell securities. They also surrendered all control of the company. The reputations of the general partners suffered more than their bank balances, because they only contributed management expertise, not capital, to the company.[32]

JCM Partners

In mid-2000 the investors overwhelmingly approved the reorganization plan and the reformulated company, named JCM Partners, took charge of the properties, then numbering 52 apartment buildings, 2 office buildings, a residential lot, and a 20-acre parcel. The plan created two classes of members, Preferred and Common unit holders, and the notes of Preferred members would be redeemed first, at 40 cents on the dollar. But they could opt to continue on as investors, which 800 chose to do. The discounted payoff amount was guaranteed. Within one year, by June 2001, JCM Partners paid off the notes in three installments. And they did so without having to sell any properties, which would have triggered a large federal tax liability for the original equity investors on accumulated depreciation and capital gains.

 The 1,100 remaining large investors and church agencies, who collectively held more than 90 million “investment units,” together with the hundreds of smaller investors who had opted to hang on, were all at the mercy of the market and the competence of the JCM officers. But they had the potential to recoup more of their investments if things went their way.

Connolly refinanced the mortgages at favorable rates and raised rents to match or exceed levels in neighboring complexes, all of which raised cash for maintenance, which had been deferred for years. This and an upswing in California real estate after 2000 put the wind at his back and allowed him to chip away at the maintenance backlog over the next months and years.

In June 2001, the JCM board of managers appointed as CEO and president Gayle Ing, the wife of Michael Vanni, who was now board chairman. Although this had the appearance of nepotism, Ms. Ing’s credentials were credible. A former executive at Bank of America, she had twenty-five years of experience in real estate property management. The Vanni’s, as investors themselves, also had a personal stake in the success of the venture.[33]

Since mid 2001, the creditors fared better than expected. JCM became a profitable company and has made regular distributions, first semiannually at $10 million and then monthly in smaller amounts. By late 2002, several hundred investors had been paid off and only 775 remain.

In the fall of 2002 a new tumult arose in Michigan when Sequoia Equities, another California real estate investment firm, made a buyout offer to JCM creditors at nearly twice the amount that JCM was paying. Although complicated, as real estate deals always are, the offer seemed a godsend to the church agencies and other local investors. Yet JCM’s board rejected the bid out of hand without discussing it with the investors or allowing them to vote on it. Further, the JCM board enacted various takeover defenses to protect itself from any such attempts. Although JCM ran the company profitably, the interests of its managers seemed to be at odds with the Dutch Reformed church members and agencies in West Michigan still seemingly “holding the bag.” Was the checkered history of IRM to be repeated by JCM?[34]

Thankfully, it was not. During 2003 and 2004 JCM rode the rebound in California real estate and declining interest rates to greater profits, and they paid back millions to the Christian Reformed Church agencies and other large investors. Calvin College and the Back to God Hour are whole again and Home Missions and the Barnabas Foundation will have recouped their original investments within the next year or two. This outcome is “an answer to prayer,” Said Frank Deppe. “I was absolutely sure the company was dead,” said another large investor, Carnell Kikkert, “but step by step they’ve brought it back and it’s a nice payout. I don’t know of any business that I could praise more” than JCM, Kikkert concluded. He spoke for everyone.[35]   


      Although church agencies and large investors came out whole, the IRM debacle cost the church dearly. Key ministries such as new church plants and TV and radio evangelism were temporarily hamstrung, and new giftings under the Barnabas Foundation were cut back by unknown millions of dollars. Over a thousand church members lost thousands of dollars, and some had to struggle to get by in retirement without their life savings. The saddest aspect of the affair was that it shook the implicit spirit of trust between members in the still largely ethnic church, which spirit had long been a hallmark of the Dutch Reformed community. "If we can't trust one another, where will we go?" lamented Jake Evenhouse, a retired Chicago trash collector of eighty-three years, who had sunk his retirement savings of $70,000 into the Gamma fund in 1994.[36]

      The collapse could not have come at a worse time for the life of the Christian Reformed Church. It coincided with a major secession by conservatives, which saw up to 50,000 members leave to form a new denomination, the United Reformed Church, over issues of women in office, theistic evolution, and a perceived theological declension.[37] The IRM scandal threw another pebble into disturbed waters and drew protests throughout the denomination. Regional church assemblies demanded that the national synod investigate the investment of church monies in California apartments and find ways to resolve the tragic situation. Church executives apologized and promised to tighten investment guidelines and policies. At least one, the treasurer of the Home Missions board, resigned in disgrace.

      In short, the IRM affair was an unholy mess that, for a time, tore apart a tightly bound community and gave it a very public black eye. The implicit trust that had bound together the Dutch Christian Reformed community from coast to coast was seriously damaged. That trust had caused the problem in the first place, but in the end that same trust helped the principals to resolve the affair with fairness and integrity. Time heals all, and the acrimony has largely died down between the Christian Reformed Church leaders and those members who believed the resort to the secular courts was morally wrong and fiscally foolish.

      One aspect that still intrigues close observers is the possible impact that the major secession of the 1990s in the Christian Reformed Church had on the fiscal schism among the investors, and vice versa. The two intertwined events added to the spirit of mistrust then plaguing the church. A number of leaders among the Concerned IRM Investors, as well as Carl Heule of the Eenhoorn Group, were already or soon became seceders. In contrast, the Creditors' Committee of twenty that had filed suit and brought IRM down, were all leading church laymen and clerics.

      The interplay between ethnicity and money is at the heart of this unfortunate affair. Members in a church long characterized as “Dutchy” willingly invested their savings in a real estate company run by fellow Dutchmen, based on personal friendships and word of mouth recommendations. Trust was at the heart of the matter, and that rested securely on the ethnoreligious ties that bound together the company officials and investors. Few would have sunk their savings in a company thousands of miles away, run by men they did not know personally, but for the shared ethnic and religious bonds. Church leaders implicitly endorsed the company by investing millions in it, so why not the members? Insiders all, they would capitalize on a sure thing and all within the “household of faith.” The customary cautions of placing one’s money at risk “flew out the window” because the principals were Christian Reformed men with sterling reputations. Without the Dutch church network, IRM would have remained a small California company, not the “high flyer” it came to be.


[1]. "Sacred Scams," Grand Rapids Press, 7 Aug. 2001; "The Fraud Busters," Christianity Today, Jan. 2005, 26-33; "Baptist Foundation of Arizona Lands in Bankruptcy Court," ibid, 10 Jan. 2000, 24.

[2] Officials were Janet Marcusse, Wesley and Diana Boss, and Jeff Visser, among others. "In God They Trusted," Grand Rapids Press, 25 Aug. 2002.

[3]. "Scam suspect knows he has 'to be responsible,'" ibid, 2 Dec. 2002.

[4]. James P. Ronda, "Rural Visions of the Range," Books & Culture July/August, 2000, 24-25; citing Elliott West, Contested Plains: Indians, Colonizers, and the Rush to Colorado (1998).

[5]. A typical partnership agreement was set out in the Prospectus for the Vera Cruz Group, which offered 650 limited partnership units at $1,000 each. This "Private Placement Memorandum" was dated 28 Dec. 1981 (Copy in possession of the author).

[6]. Quoted from "Gamma Secured Investments" prospectus [1994]; IRM Corporation, "Declaration of Jonathan Alton in Support of Motion to Substantively Consolidate Related Debtors and Non-Debtors," bankruptcy filing under Chapter 11, United States Bankruptcy Court, Eastern District of California, 18 Oct. 1999; Darrell Todd Maurina, "IRM Investment Debacle Leads to Litigation," e-mail message NR #1998-080, 8 Aug. 1998, United Reformed Church News Service.

[7]. By 1997 Home Missions had $7.9 million invested, Calvin College $2.4 million, and the Back to God Hour $950,000. In terms of their total invested funds, these proportions represented two-thirds of Home Missions funds, one-fifth of Back to God Hour funds, but less than one-twentieth of Calvin College funds.

[8]. Jim Harger, "CRC looks into Calif. real-estate investment firm," Grand Rapids Press, 22 Nov. 1997, A-2; Harger, "Area investor's faith in limbo after deal goes sour," ibid, 14 June 1998, A1, 17; "The IRM Story: Lots of Trust, Not Enough Understanding," The Banner, 16 Mar. 1998, 6-10; Christian Reformed Church in North America Yearbook 2000, 571-72.

[9]. In 1987, internal memos in Calvin College's financial office discussing planned real estate investments noted that Morren "was very eager that we talk with him before we buy any such investment through someone else. He has worked with a group of California investors for some years. They have been big donors to Calvin. He says they would be disappointed/disturbed if they learned that we bought from someone else before consulting with them" (internal memo of hdw [Henry De Wit, vice president for finance, Calvin College] to Doug Bush, re Jay Morren, 11 June 1987, Calvin College Archives).

[10]. Letter, Frederick H. Le Febre to Investors, "Subject: Investment Property Update," 14 Aug. 14, 1987.

[11]. "IRA Investments," IRM Update, Feb. 1990.

[12]. Letter, David J. Buurma to Vera Cruz Group Investors, 13 May 1994.

[13]. Galen Byker, "IRM Update," Calvin News, Vol. 3, No. 70, e-mail message, 12 Dec. 1997, Calvin College Archives; Harger, "Area investor's faith in limbo," A17

[14]. Barbara Martinez, "Unholy Mess: A Church Grapples With a Schism Caused by a Secular Collapse," Wall Street Journal, 21 Oct. 1998, A1; Harger, "CRC looks into Calif. real-estate investment firm," A1-2.

[15]. Harger, "Area investor's faith in limbo," A1, A17.

[16]. Ibid.

[17]. Martinez, "Unholy Mess," A1.

[18]. The Board of Trustees (BOT) of the CRCNA imposed the gag order on the Banner without so much as consulting the editor. Synod 1998, in response to a protest "overture" by a classis (regional assembly), ruled that the BOT had acted within its purview and in keeping with its fiduciary responsibility, by suspending all Banner investigations and publications. The editor wanted to tell all, but he submitted to the BOT's legitimate oversight authority. See Acts of Synod, 1998, 369-73.

[19]. Maurina, "IRM Investment Debacle Leads to Litigation."

[20]. Investment Oversight Committee of the CRCNA, "Statement Concerning The IRM Corporation Announcement of October 27, 1997," Calvin College Archives; Ken Harger, "CRC moves to protect $11.5 million investments," Grand Rapids Press, 6 Dec. 1997, A1; Harger, "Status of CRC loan still in limbo after meeting," ibid, 19 Dec. 1997, A1; Harger, "Area businessman hopes to rescue CRC investments," ibid, 15 June 1998, A1, A4.

[21]. Harger, "Area businessman hopes to rescue CRC investments," A1, A4.

[22]. Maurina, "IRM Investment Debacle Leads to Litigation." The Creditor's Committee included Grand Rapids businessmen Preston Kool and Julius Mellema, Troy attorney Ken Kingma, Vander Ploeg of Barnabas Foundation, and four representatives of church agencies including Horjus and Borgdorff. Kool had invested $50,000 in IRM, Mellema $25,000, and Vander Ploeg $213,000. The churchmen made Kool chair and first-named plaintiff, rather than a church agency representative, in order to blunt possible negative public reactions. See Maurina, "Bankruptcy Court Appoints New CEO for IRM," e-mail report NR#1998-109, 14 Nov. 1998.

[23]. Galen Byker, "IRM," Calvin News, Vol. 3, No. 76 (23 Dec. 1997); Jim Harger, "Bankruptcy filing opens options in IRM saga," Grand Rapids Press, 16 Aug. 1998, D1, D4; Darrell Todd Maurina, "CRC Officials Explain Lawsuit Against IRM," Christian Renewal, 30 Nov. 1998, 6-7.

[24]. Darrell Todd Maurina, "IRM Investor Files $45 Million Suit Against CRC Attorneys," Christian Renewal, 6 Oct. 1998, 6-7; Maurina, "Christian Reformed Officials Explain Lawsuit Against IRM," e-mail report NR #1998-115, 14 Nov. 1998.

[25]. Jim Harger, "Investors group forms to deal with IRM loses," Grand Rapids Press, 6 July 1998, A1; Harger, "Lawsuit Splits CRC Investors," ibid, 17 July 1998, A1 (quote), A4; Maurina, "IRM Investment Debacle Leads to Litigation."

[26]. Darrell Todd Maurina, "IRM Investment Debacle Leads to Litigation," Christian Renewal 17 Aug. 1998, 4-5; Maurina, "IRM Declares Bankruptcy; CRC Files More Litigation," ibid, 7 Sept. 1998, 5-6, quote on 6; Jim Harger, "Investors rain protest on college for lawsuit," Grand Rapids Press, 18 July 1998, A3; Harger, "After a year, investors pray, suffer," ibid, 25 Oct. 1998, A1, A18, quote A18; Harger, "Lawsuit Splits CRC Investors," quote, A4.

[27]. Maurina, "IRM Declares Bankruptcy," 5-6; Maurina, "Bankruptcy Court Postpones Action on CRC Lawsuit to Remove IRM Management," ibid, 21 Sept. 1998, 4; Maurina, "IRM Management Resigns, New CEO Appointed," ibid, 6 Oct. 1998, 6; Jim Harger, "Principals of failed real estate venture resign," Grand Rapids Press, 22 Sept. 1998, B3; Maurina, "Eenhoorn Announces November 15 Deadline," e-mail report NR #1998-114, 14 Nov. 1998.

[28]. Quoted in Maurina, "IRM Investment Debacle Leads to Litigation."

[29]. Quoted in Maurina, "Eenhoorn Announced November 15 Deadline."

[30]. Darrell Todd Maurina, "Concerned IRM Investors Leader to Chair New Committee," e-mail report, NR #1998-084, 6 Sept. 1998. Two committee members did not belong to the CRCNA--Vanni of Grand Rapids and Henry Conversano, a California businessman.

[31]. Quoted in Maurina, "Bankruptcy Court Appoints New CEO for IRM," e-mail report NR #1998-109, 14 Nov. 1998.

[32]. Jim Harger, "IRM investor struggles with process of bankruptcy," Grand Rapids Press, 13 Sept. 1998, A21-22; Harger, "Proposal would give back 40 percent to small investors," ibid, 20 July 1999, C2; Jim Harger, "$230,000 IRM case settlement draws fire," ibid, 20 May 1999, A15-16; Harger, "IRM payoff plan offers 30 percent of investment," ibid, 26 Nov. 1999; "Small IRM investors favoured in proposed payment plan," The Windmill, 23 Aug. 1999, 13.

[33]. Harger, "A return possible for IRM investors," Grand Rapids Press, 23 Nov. 2000; "Status Report Concerning IRM Corporation and Related Chapter 11 Cases," [March 1999], "The IRM Official Investors' Committee Report," 17 Dec. 1999; letters, John Connolly IV to JCM Members, 1 July, 17 Nov. 2000, 12 Feb. 2001, and Michael W. Vanni to JCM Members, 1 May 2001.

34. Jim Desimplepare, “Regrouped IRM Rejects Buyout Offer,” Banner, Oct. 2002, 40-42.

[35] Robert P. Swierenga, "Burn the Wooden Shoes: Modernity and Division in the Christian Reformed Church in North America," 94-102, in Reformed Encounters With Modernity: Perspectives from Three Continents, eds., H. Jurgen Hendriks, et al (Stellenbosch, South Africa: International Society for the Study of Reformed Communities, 2000).

[36] Martinez, "Unholy Mess," A1.