(Photo: Worship band at Gateway Church Southlake campus. The church campus was constructed for $86 million and opened in 2010.)
By Barry Bowen and Pete Evans
Two class action lawsuits filed in 2024 are creating an opportunity to produce court precedents for suing churches engaged in alleged financial fraud.
In July, Mormon donors merged five cases filed against the Mormon Church into one class action lawsuit.
According to the Salt Lake Tribune, “A total of nine plaintiffs — so far — are alleging that senior church leaders and their money managers lied for decades about using member tithing donations solely for charitable causes while instead investing the cash in a multibillion-dollar ‘slush fund’ at Ensign Peak Advisors, the faith’s investment arm.”
The Mormon class action case follows another groundbreaking lawsuit. In 2021, Mormon Church donor James Huntsman sued the church for $5 million, alleging that church tithes were used to build the City Mall Center in Salt Lake City.
On September 25th, Huntsman’s case was heard by the United States Court of Appeals for the Ninth Circuit, which has not yet rendered a decision.
In early October, four Gateway Church donors filed a class action lawsuit alleging that Gateway Global Ministries was spending less than $3 million on missions when the total should have exceeded $15 million annually in recent years. Robert Morris and other church leadership had claimed 15% of money given to the church would be spent on missions.
Precedents created by the Mormon lawsuits may determine the outcome of the Gateway class action lawsuit.
Importance of Court Precedents
District attorneys, state attorney generals and government agencies such as the Justice Department/FBI have shown great reluctance in investigating and prosecuting church leaders for financial fraud.
One of the most important reasons for not prosecuting fraudulent pastors is rarely discussed: There are not enough precedent-setting court decisions criminalizing various forms of religious fraud.
For example, televangelists often falsely promise supernatural blessings such as debt cancellation and divine healing to donors that give specific amounts of money, but when these supernatural blessings fail to appear, the preachers are never charged with fraud for lying to donors.
Former prosecutors have told Trinity Foundation that new case law is necessary for building a legal framework to aggressively prosecute religious fraud.
Prosecutors rely on previous court decisions to establish how the laws apply to various allegations. Wikipedia explains, “The legal doctrine stating that courts should follow precedent is called stare decisis (a Latin phrase with the literal meaning ‘to stand by things decided'”).
Sometimes donor lawsuits filed against churches and ministries are dismissed. On other occasions, the lawsuits are not resolved by a judge or jury due to donors and non-profit leadership reaching an out-of-court settlement agreement.
In 2019, Gospel for Asia (GFA) agreed to pay back donors $37 million in a settlement agreement. Because the case was not decided by a jury or judge, there was no finding of fraud, and GFA’s leadership still maintains it is innocent of the allegation it gave significantly less than 100% of funds it promised to spend on foreign missions.
What is Gateway Global Missions?
The finances and operations of Gateway Global Missions are shrouded in secrecy.
In 2021, MinistryWatch examined Gateway Church’s financial reporting practices. Journalist Kim Roberts wrote, “No recent financial audits could be located on the church website. The 2020 Annual Report did not include a financial statement.”
Gateway Church’s 2015 annual report projected $21.6 million in revenue for its global fund in 2016, which would be administered by Gateway Global Ministries.
While Gateway Global Ministries operates a separate website from Gateway Church, it is not a separate legal entity.
There are three American non-profit organizations named Gateway Global Ministries, and they are registered in Colorado, Michigan and Wisconsin, but none have ties to Gateway Church in Southlake, Texas.
Also, a search of the IRS Tax Exempt Organizations Database finds no tax-exempt organizations named Gateway Global Ministries.
Therefore, Gateway Global Ministries operates as an integrated auxiliary of Gateway Church.
According to the IRS, “The term integrated auxiliary of a church refers to a class of organizations that are related to a church or convention or association of churches, but are not such organizations themselves.”
By functioning as an integrated auxiliary of a church, Gateway Global Ministries avoids the requirement to file a Form 990 with the IRS which would disclose total revenue, total expenses, compensation of highly compensated employees and the amount of cash grants to both domestic and foreign non-profits.
In 2011, the Senate Finance Committee produced a memo for Senator Chuck Grassley, questioning if religious non-profits were taking advantage of church status to avoid financial transparency: “This raises the question of whether church status is being gamed to shield such activities of a tax-exempt entity from public scrutiny.” The memo also noted, “As a result, we are concerned that the ―integrated auxiliary classification is also being gamed.”
Church Governance
Like many megachurches, Gateway Church reserves key decision making to the church’s board of directors. When Robert Morris incorporated Gateway Church in 2000, Article Eight of the church’s articles of incorporation stated, “The Corporation shall have no members.”
Church attendees are prohibited from becoming voting members of the organization and therefore lack the power to vote on church reforms or disclosures such as approving a motion to make past financial statements public. The church donors cannot vote on the firing of a pastor or approve a church budget.
In August, Gateway Church filed a nonprofit periodic report with the Texas Secretary of State website listing its current seven board members: Tre Wilbanks (president), Kenneth Fambro II, Jeremy Carrasco, Dane Minor (secretary), Thomas Miller, Gayland Lawshe and Kevin Grove. Robert Morris served on the board before resigning and previous banking documents indicated he was Gateway’s CEO.
Restricted Donations
To win their case, attorneys for the plaintiffs must prove that Gateway Global Ministries spent far less on missions than church leaders claimed. The attorneys will likely argue that tithes to the church should be classified as restricted donations.
When a donor gives money for a specific purpose, the outcome is a restricted donation. If the money is not spent on the intended purpose, fraud may occur.
Sometimes it is difficult to determine donor intent based on how donations are given. Church attorneys may argue that when a church attendee gives a check without selecting a specific purpose, the donation should be classified as unrestricted.
The easiest donations to investigate are those made through the church website. The Gateway Church donate page features a drop-down menu of giving types. Donors may choose between giving to a local church campus or select from a list of ministry outreaches.
For example, a forensic accountant would attempt to identify how much money was given to Israel Crisis and how much was sent to Israel.
Betting on the Haul and Following the Money Trail: Gateway Church Obtained $65 Million in Loans, Owed $20 Million to Daystar Television Network
Because Gateway Church has not provided church members with audited financial statements, the court case will rely on financial documents obtained during discovery.
As Gateway Church was constructing its big Southlake, Texas campus, Trinity Foundation investigator Pete Evans obtained church financial records through dumpster diving revealing large loans financing construction of the campus. These records provide insight into Gateway’s previous debts which required the church receiving large amounts of donations.
In 2009, church debt grew rapidly due to construction projects, exceeding $76 million. Dallas TV station WFAA reported in 2010 the Southlake campus cost $86 million.
The overall project cost of phase one was to be approximately $102,483,215 as stated in a Construction Loan Agreement in September 2009. The following screen shot discloses four of Gateway Church’s lenders.
(Total loans obtained, excluding Legacy Bank, was $76,099,114 as of 2009)
Daystar Television Network, then led by televangelist Marcus Lamb, gave the church a lifeline in the form of a $20 million loan. The loan agreement required the loan be paid off in 19 years. Tarrant County records show the note was paid off by 2012.
Gateway megachurch money and expenditures were flowing back then as people flocked to hear and see Robert Morris. Thomas Lane (President), Robert Morris (CEO), and David Smith (Secretary), whom the bylaws called its “Board of Elders”, agreed to pay back several loans on behalf of Gateway Church.
The Certificate of Corporate Resolutions stated, “Borrower (Gateway) expects to derive substantial benefits from the above described (Daystar) loan,” and at a “per annum fixed rate of interest of six and no 100ths (6%)”, and states that the loan is subordinate to a previous $35 million dollar loan from Prosperity Bank.
Trinity Foundation discovered more multi-million-dollar loans taken out by Gateway in 2014 and 2018.
Financial Transparency
In 1987, Pastor D. James Kennedy testified before Congress, claiming church donors have a responsibility to check out the organizations they financially support.
Because churches are not required to file a Form 990 with the IRS disclosing how funds are spent and churches are not required to provide donors with comprehensive financial statements, donors frequently lack data needed to make informed donor decisions.
If the Gateway Church class action lawsuit forces church leadership to provide audited financial statements in the future, the litigation will be worth it.
Corrupt church leaders thrive in financial secrecy. Religious institutions would be less of a haven for misuse of donor funds if churches and ministries were required to disclose lists of all related organizations, names of compensation committee members, legal expenses and total compensation (including housing allowances) for their leaders.
Robert Morris owns millions of dollars of real estate. True transparency would reveal if this accumulation of wealth was financed by large housing allowances, excessive compensation (over $1 million in annual salary for a non-profit executive), or book royalties.