Fraud in Non Profit Organizations

Non profit organizations are constantly exposed to risks of abuse and fraud which are growing by the day. Business news today is reflective about the ongoing array of unaccounted assets, earnings that are restated and repeated instances of fraud in companies. Such cases are mostly represented by some big names in the business world which have lost most of their credibility in sustaining the trust of the investing public. Especially in the case of charitable and non-profit organizations, the public outcry has already harmed the image of these companies in addition to harming the objectives for which these companies were set up (Rosoff et al, 2008). A typical example of such a fraud is of the New Era Philanthropy where myriad financial abuses and misuse occurred during a period of five and a half years. In the light of the conditions and events under which such frauds have occurred, this paper will highlight New Era Philanthropy’s modus operandi about the manner in which the fraud occurred and how such fraud could have been prevented. The paper will define the problems, conduct a literature review, provide the methodology and then outline the results, analysis and findings. The paper is a case study in critically expanding upon the circumstances that led to the frauds and how they were carried out, culminating in a discussion, analysis and conclusion about the case.

Introduction

Background

The exposure of the Foundation for New Era Philanthropy attracted a lot of press coverage as a Ponzi Scheme in 1995. The company had made promises to non profit organizations that the funds they deposited with the company would be matched within six months. The company was established by John G Bennett in 1989 and was actively engaged in privately canvassing for investors to invest their funds with the company. The deposited amount would be invested in suitable funds and returned after a specified time period. For about five and a half years the company continued to collect funds amounting to millions of dollars from investors who at times implored upon Bennett to invest their money, in view of the increasing popularity of the schemes offered. Bennett was a charismatic personality with in depth knowledge about how charity donations were to be handled and his expertise in all aspects of a non-profit making company assisted him in swindling millions of dollars. Initially Bennett began with promises of returning the charity donations with added benefits in three months by way of matching funds with unidentified investors, but the three months period was gradually stretched to ten months. However the truth was that the investments were legally matched with gainful investments only in the initial months and after such period the money did not appear to be coming and the Ponzi pyramid scam came into existence.

Problem Statement

Bennett had informed his prospects that New Era Philanthropy donors met regularly in person. It is noteworthy that William Simon, the US Treasury Secretary had suffered big losses in the scam. He had requested for entry as a donor, was not given any reply by Bennett, but had invested anyway. With so much liquidity, Bennett made a number of private investments. He bought substantial stakes in a travel agency, a publishing company and some other businesses. By the beginning of 1995, New Era Philanthropy began to be praised in the media for having doled out large sums of money to religious and charitable organizations. However its end was to come very soon. The Wall Street Journal published an article on May 15, 1995 expressing doubts about the credibility of the foundation and the same day the Foundation gave up in being confronted with a law suit that demanded the repayment of a $44 million loan. New Era Philanthropy filed for bankruptcy protection in stating that its assets were only $80 million against a liability of $551 million.

Ponzi schemes die sooner or later since they are intrinsically unsustainable. The New Era scam came to an end primarily due to the investigation conducted by the Pennsylvania Attorney General’s Office which had received an anonymous letter from a whistle blower from New Era. After this enquiry the matter was registered with the Internal Revenue Service. It was Albert Meyer, an accounts professor at Spring Arbor College who alerted the Wall Street Journal and federal investigators about the pyramid scam.

When the fraud came to light and criminal charges were filed by the New York Securities & Exchange Commission, Bennett appeared on television and made a passionate admission of guilt along with an expression of regret to the thousands of people who suffered losses at the hands of his company, in the hope that they would all benevolently pardon him instead of canvassing to have him sent to jail. This charitable appeal is said to have been made by Bennett because most of the losers were charities and church associations.

Significance of the Study

Although most organizations and their internal accountants may not become victims of such scams, fraudulent activities are always encountered and the basic purpose of Ponzi schemes is to assimilate into different kinds of fraud. Indeed vital lessons can be learnt from the case. Foremost is the fact that companies need to maintain an attitude of professional caution and alertness while investigating all aspects of the issues that do not make financial sense. Most participants in the schemes did not question the claims made by Bennett and it was Meyer’s scepticism that made him to doubt the authenticity of promises of doubling donor money in a short time. Whenever there are deceitful proposals the pieces do not fit perfectly and investors need to examine the inconsistencies and gather appropriate evidence to ascertain the truth.

When things appear to be extra good they are usually not true and fraudsters, specifically those that perpetrate Ponzi schemes exploit investor greed in pulling through their scams. It is true that the only way to make a Ponzi scheme to survive and succeed is to give investors abnormally high returns, which was exactly what was done by Bennett and New Era. People must realize that such frauds start on a small scale and then they grow in intensity. Hence it is better to be aware of trust than about reason and it is better to avoid placing faith in other people’s faith. The new Era experience has made investors to realize that no purpose is fulfilled in jumping on the bandwagon and that charisma as exhibited by Bennett is no substitute for substance.

A number of lessons were learnt from the experiences of investors in Bennett’s Ponzi scheme. The investors who suffered could have avoided the losses by having taken certain preventive measures as is warranted in all financial decisions. They could have avoided in being caught by such a scheme in remembering the saying that if “it is too good to be true,” in all probability it will most likely not be so. Many investors were carried away merely by getting recommendations from friends and acquaintances about the reliability of Bennett’s schemes. The investors should have investigated thoroughly before committing themselves to the funds.

Assumptions

John Bennett, founder of the Foundation for New Era Philanthropy did not plead to contest the 82 federal charges of fraud levelled against him. His attorney claimed before the judge that it was religious fervor that made Bennett to engage in the given activities and that there was no means for him to prevail in the trial. Bennett himself made it clear explicitly before the judge that he did not wish to contest the charges. During all the hearings his lawyers attempted to impress upon the judges that it was primarily due to unchecked religious fervor that made Bennett to act in such a manner. He believed that the promises he made of doubling the investments with corresponding funds from anonymous donors that did not exist, were not intended to commit fraud, but were for a religious cause. He took such actions in fulfilling his mission from God to change the world for the better. The plea taken by Bennett on the basis of religious fervor annoyed a large number of evangelicals who cautioned that such logic was not acceptable since it could pardon all crimes if accepted.

Literature Review

The Sarbanes-Oxley Act was passed in 2002 to bring back public trust amongst corporate leaders in the USA, which had been shattered by a number of highly perceptible scandals such as the Ponzi schemes of John G Bennett Jr (The Sarbanes-Oxley Act, 2002). According to Vanden Berk (2006):

“Most nonprofits breathed a sigh of relief that its reforms appeared to focus exclusively on for-profit corporations and had little to do with them. But our sector has suffered its own loss of confidence², and it is only a matter of time before the Sarbanes-Oxley requirements filter their way into our nonprofit organizations. Sarbanes-Oxley represents a fundamental shift in enforcement methodologies. It seeks to ensure that corporations make good financial decisions by mandating certain practices: establishing responsible review structures, making financial information more easily available, and providing sanctions against those who intentionally misstate financial information, hide important transactions, or engage in self-dealing to the detriment of the company and its shareholders,” (Berk, 2006).

The New Era Philanthropy Ponzi scheme is amongst the most publicized non profit scandals that have involved financial mismanagement in the USA. As a consequence of large scale fiscal corruption amidst non-profit organizations, the Sarbanes-Oxley Act enables the taking of appropriate policy measures in calling for higher levels of ethics and accountability amongst employees, Directors of Boards and members of management teams. The Sarbanes-Oxley Act provides for the addressing of ethical behaviors in the non-profit sectors since the rising numbers of cases of financial mismanagement have enhanced concern about the relevance of governance reforms in the non-profit sector (Goliath, 2007). As a result of the complications arising from the scandals such as New Era Philanthropy, stock exchanges in the US now require tougher auditing standards as provided by the Sarbanes-Oxley Act. Boards and management have started becoming more cautious in reporting and preparing financial data with accuracy and have become aware of their responsibility towards shareholders of not complying with the provisions of the Act (Felton, 2004).

As a consequence of the fraud at the Foundation of New Era Philanthropy, it was discovered from the available documents and subsequent law suits that more than $354 million had been embezzled by the company out of which Bennett extracted $8 million for himself. After liquidating the foundation’s assets the courts were able to reduce the loss to $135 million that was to be shared by the participants in the schemes of the foundation. This implied that investors who had suffered no loss on account of having withdrawn earlier had to also return the money to be eventually shared by those who were not careful enough. Gerard M Zack (2003) has rightly observed that in order to identify the core issues of alleviating the fear of fraud in non-profit organizations it is essential to take care of the following problems:

• What makes a non-profit organization uniquely vulnerable to fraud?
• What are the most prevalent–and preventable–types of schemes?
• Which financial controls are most effective for combating each type of scheme?
• Which administrative systems and policies can best catch and control fraud?
• What are the roles and duties of management and the board of directors?

In this context, according to Wallace (2006):

“This basic scrutiny may have prevented past frauds involving nonprofits. For example, the legitimacy problems surrounding the highly publicized Foundation for New Era Philanthropy might have been revealed a decade ago had this basic step of checking status, tax filing and registrations been taken. The organization promised various financial managers that money would be doubled in six months through matching contributions from anonymous super-wealthy philanthropists. The Foundation for New Era Philanthropy collapsed, after being entrusted with more than $200 million by educational nonprofit institutions, including the American Red Cross, the University of Pennsylvania and other well-known entities. Federal authorities described the Radnor, PA, charity as a classic Ponzi scheme, since early participants were paid off with the funds from later donors.6 Bankrupt and sued by the sec for massive fraud, New Era did not file a federal tax return or register with the Pennsylvania Bureau of Charities until 1993, although it was incorporated in October 1997,” (Wallace, 2007).

The reality pertaining to ethical behavior in some non-profit organizations relates to the misuse of funds by management and to the confusion that prevails over allocation of funds. Ethical behavior and its influence on the nonprofit organization play an important role in ascertaining its reputation and in acquiring public support. The suspicions arising out of unethical behavior can lead to decline in public confidence and reduced donations in calling for extra accountability and oversight. Gibelman and Gelman (2001) have reported that managers in nonprofit companies are actively involved in conspiracies, thefts, frauds, embezzlement and misappropriation of funds. Amongst those that commit such misappropriation are treasurers, chairmen, Chief Financial Officers and Chief Executive Officers. In regard to the large scale corruption in nonprofit organizations, Cedzo (1993) has pointed out that : “whereas business for years has been the bad guy in terms of the public’s acceptance of the credibility of its actions, education and the nonprofits have been ranked with apple pie and motherhood. That’s no longer true.” (Cedzo, 1993, p. 18). In this context the Sarbanes-Oxley Act of 2002 has been accepted by several states in holding executives responsible for ensuring the authenticity of their financial reports. The Internal Revenue Service (IRS) has also circulated a staff discussion document that outlines the proposals to be followed by nonprofit companies. It does appear with the occurrence of such developments that the kind of fraud as committed by Bennett may not be possible to commit now.

Bennett had invited several friends and contacts to donate in his organization and informed them that by investing $5000 for three months, the amount could be increased by 100%. He was able to influence the investors in telling them that there were certain secret investors who would match their investments in enhancing their values. Bennett’s friends agreed to his proposals and invested the required amounts, which in effect were used by Bennett to pay off his bills. Initially the doubled amounts were paid back by Bennett and thereafter he increased the minimum investment to $25000 as also the waiting period. Different donors were given different information and as the waiting period gradually increased from three months to six and eventually to ten months, the number of unidentified investors, beneficiaries and philanthropists began to vary. It was believed by people that John Templeton, the renowned philanthropist and investor was one of the anonymous investors. Additionally, it was believed that Prudential Securities was also a part of the set up of the Foundation of New Era Philanthropy.

Bennett expanded his activities in 1994 by allowing non profit organizations to donate for his company. The company began to expand with the Philadelphia Academy of Natural Sciences asking for a match sponsored for $250000 after which a number of companies such as Philadelphia Public Library, University of Pennsylvania and several Christian organizations and churches began to join. The New Era Philanthropy was primarily an affinity scheme in which people of common interest such as Christian charities and local non profit organizations were cheated. Bennett utilized the huge funds collected from such organizations and further enlarged his empire by opening branches in Radnor, Pennsylvania. He played with the aspirations of such companies by attracting them with glossy literature and brochures. He increased his sales force and devised attractive schemes for companies by giving fees and commission to them against the donations raised by them. For example if an agent got a donation for $10,000,000, he could keep for himself $1000,000 and deposit the remaining $9,000,000 with New Era Philanthropy and take back double the amount after six months.

Most often no questions were raised by the donors and whenever proof was asked for, Bennett would give evidence of his Foundation owning government bonds. But little did the donors realize that such bonds were already pledged as collateral against other loans taken by him. He had the foresight to make prospective donors to confirm from Prudential Securities about his organization’s credibility. The fraud was tipped of and came to light primarily because of the tax returns as filed by New Era Philanthropy, which were available publicly. The details of several funds held by New Era Philanthropy were not incorporated in the financials of these returns. Bennett had used the services of a minor one man CPA company which had not been able to satisfactorily comply with the investigative requirements of Coopers & Lybrand, the firm that investigated the matter.

Bennett pleaded guilty to the charges and did not contest the 82 counts of fraud and money laundering. For having collected $354 million on the basis of fraudulent deals and promises, Bennett was awarded twelve years in jail. However his attorneys continue to say that he did not intend to cheat anybody, but was made to suffer because of some misapprehensions in being unsure of what he was gradually getting into in fulfilling his mission from God to change the world for the better. In this context the Securities and Exchange Commission had stated that:

“The indictment states that, in order to obtain funds from benefactors and nonprofit organizations, Bennett made various representations about the operation of New Era, all of which were false. Some of these representations are: 1) That the anonymous donors existed, that they provided matching funds, and that there were trust agreements with these anonymous donors, when, in fact, there were no anonymous donors and money from later donors provided the matching payments for earlier donors; 2) That Bennett was not paid for his work at New Era, when, in fact, he transferred over $3.3 million from the New Era accounts to the accounts of Bennett-related entities; 3) that money from benefactors and non-profits was being held in escrow or “quasi-escrow” accounts at Prudential Securities, Inc. during the holding period, when, in fact, the funds were being used to secure a large loan at Prudential, and some of the funds used to repay contributors to New Era were paid from the loan account; and 4) that New Era had a board of directors of prestigious individuals, when, in fact, Bennett was the only director.” (The Securities and Exchange Commission, Litigation Release No. 15095, United States of America V. John G. Bennett).

In September 1996, when the prosecution finally finished its investigation, John G. Bennett, the President and founder of The Foundation for New Era Philanthropy was indicted on eight-two different counts. “The indictments charged Bennett with one count of bank fraud, sixteen counts of mail fraud, eighteen counts of wire fraud, one count of making false statements to the government, three counts of filing false tax returns, one count of impeding the administration of revenue laws, fifteen counts of money laundering, and twenty-seven counts of money laundering to promote and unlawful activity,” (United States of America v. John G. Bennett, 1996).

Methodology

Several sections of the Sarbanes-Oxley Act of 2002 would have been violated had it been applicable at the time of this criminal occurrence. Some of the more pertinent violations would have been:

• Title III, Corporate Responsibility, section 302
• Title IV, Enhanced Financial Disclosures
• Section 401, Disclosures in Periodic Reports
• Section 404, Management Assessment of Internal Controls
• Section 406, Code of Ethics for Senior Financial Officers

Section 406 of the Act provides for the enforcement and institution of different codes of ethics which is vital for the ethical performance of all business entities irrespective of the business being carried out, whether for profit or not. Had proper ethical practices been provided for during the time of the criminal occurrence New Era Philanthropy would never have been able to indulge in the malpractices that it engaged with in duping thousands of investors. By creating ethical codes under provisions of the Act, the entities are infused with moral fibers in utilizing some simple experiments before indulging in acts that have been outlined by Blanchard and Peale, in their book The Power of Ethical Management. A typical question to ask in this regard pertains to whether “is it legal, is it fair, and how will this impact me personally,” (Blanchard and Peale, pp. 121). In establishing the ethical practices, the company could have been assisted in using the leadership theories of Edgar Scheins. By combining these two principles Bennett’s company could have established an organizational culture in avoiding the criminal acts as committed against the several charitable organizations, financial institutions and the public at large (Scheins, 1997).

There are a number of lessons learnt from the New Era fraud. The inherent qualities of professional scepticism exhibited by Albert Mayer were not present in other people that were dealing with Bennett since most of them did not question the claims made by the New Era Philanthropy. Meyer had doubted the authenticity of most of the assertions made by New Era. Meyer’s scepticism prompted him to investigate further in discovering the scam. People should have been more alert to the fact that Ponzi schemes operate on the basis of appearing to be extra lucrative in terms of returns but on close scrutiny the truth can be ascertained after careful investigation.

If people would have been cautious from the beginning of the scheme they would not have fallen into Bennett’s trap of money getting doubled in a short span of time. By avoiding falling prey to such Ponzi tactics investors could have saved their money since otherwise they would have investigated the use of collected funds in finding if they were intended for good use. Everyone jumped on the bandwagon in being drawn into the scam since they saw that other reputed companies were also participating in the schemes floated by New Era. It is evident that the cost of not taking a fresh look towards the feasibility of the schemes can be enormous. People were carried away by the charisma and charms of Bennett and felt motivated to invest in seeing his positive outlook and zeal. Had the investors assessed his company rather than being taken away with his personal charms, most of them would have been saved of the huge losses.

It should be kept in mind that the ultimate loss resulting from such scams is much more than just the money invested. The long term ramifications reach beyond the losses of initial investments and in the instant case the individuals and charity organizations could come under the scanner of the Internal Revenue Service (IRS). Bennett’s company could lose its status as a tax exempted company and the investors’ tax deductions could be in danger and under such conditions the very purpose of diverting funds for charitable causes is not fulfilled; hence a valid reason for IRS to disallow the tax deductions and exemptions. The investors were under the scanner to ascertain whether they had claimed double tax deductions while some tax lawyers even suggested that a number of donors had tripled their tax deductions from the scheme.

The Servant Leadership and Stewardship Theory would seem to apply best to the ill fated Foundation for New Era Philanthropy. If John Bennett could have used this theory in the development of his foundation, his few employees might have been empowered in coming to the realization that their non-profit organization was defrauding many hapless victims. Furthermore, the establishment of moral guidelines for its executives and employees might have served to thwart the malfeasants before it began. Robert Greenleaf’s theory of Servant leadership is visionary in engaging a number of experts in different businesses towards a better organizational culture. It is true that his prescription for organization change and employee empowerment continues to achieve remarkable success for organizations throughout the world.

The Servant leadership theory explores the relationships amongst perception of leaders and the extent of trust between managers and employees. The leadership approach is firmly grounded upon ethical doctrines and has over the years developed in terms of popularity both in the public and private sectors, in being used efficiently by practitioners and consultants (Spears, 1998). It is however a leadership theory that has not yet attracted much attention from scholars. The theory envisions an open, principled and considerate leadership in creating a deep appeal towards an indifferent and cynical public that is fed up of scandals and bureaucracies. The Servants Leadership theory is much critical of the ethical compliance as insisted upon by the present day governments (Gawthrop, 1998). It is thus evident that the Servant Leadership theory is much applicable to the New Era Philanthropy Organization of Bennett and would have worked in the interest of the company as also of the donors in avoiding the enormous losses. The organization would have been better managed on ethical practices in making all levels of employees and management to be ethically responsible in running the affairs of the company.

Results, Analysis and Findings

On August 22, 1996 a bankruptcy Judge approved $39 million dollars as a settlement to begin paying back money to those who had invested in New Era. Approximately 65 cents of every dollar invested will eventually be returned to those taken in by Bennett’s scam. The following year Bennett had finally received his sentence. On September 22, 1997 Bennett was sentenced to 12 years in the Fort Dix Federal Correctional Institute after pleading no contest to the charges arrayed against him.

For close to five and a half years Bennett collected hundreds of million dollars from investors who almost begged him to take their money. Bennett’s charisma, prior knowledge of charity donations and shear deviousness allowed him to continue to swindle the multitudes out of their investments. What initially started out as a promise to return charity donations with matching funds from invisible investors within three months eventually stretched to a ten month waiting period. In truth, investments were matched with legally gained funds only in the first few months of the organizations operation. After this initial period the Ponzi pyramid scam was used to keep things going.

It should be kept in mind that the scam had far reaching consequences since the ultimate loss resulting from such scams was much more than just the money invested. The long term ramifications reach beyond the initial investments and in the instant case the individuals and charity organizations could come under the scanner of the Internal Revenue Service (IRS). Bennett’s company could lose its status as a tax exempted company and the investors’ tax deductions could be in danger and the very purpose of diverting funds for charitable causes was not fulfilled; hence a valid reason for IRS to disallow the tax deductions and exemptions. The investors were under scanner to ascertain whether they had claimed double tax deductions and some tax lawyers even suggested that some donors had tripled their tax deductions from the scheme.

List of multiple choice questions have been prepared that throws light on all aspects of the scheme and its ramifications.

How did John Bennett use the funds he embezzled from New Era Philanthropy?:

1. To purchase a home for a family member. (Incorrect, this was only one of the many ways he spent his ill gotten gains)
2. To purchase a new home for himself. (Incorrect, this was only one of the many ways he spent his ill gotten gains)
3. To cover his personal debts and floated checks. (Incorrect, this was only one of the many ways he spent his ill gotten gains)
4. To invest in companies he owned. (Incorrect, this was only one of the many ways he spent his ill gotten gains)
5. All of the above were ways he spent the money. (Correct! Though Bennett initially used the money to cover his person debt and checks he had floated, he eventually became more brazen and spent it on many things.

John Bennett was able to continue his ponzi scheme for so long due to:

1. The fact that he was a one man show. (Incorrect, New Era Philanthropy had many employees to include the use of an external accounting agency.)
2. The fact that it was solely a family own and ran business. (Incorrect, other employees were not family members.)
3. The lack of external, non-associated account auditing. (Incorrect, the best answer is F.)
4. The secrecy with which he established the organization and its public persona. (Incorrect, the best answer is F.)
5. Both C and D. (Correct! If non-profit organizations were required to have reoccurring external accounting audits run by disassociated firms, this scheme would have been caught much sooner. Likewise, Bennett’s organizational cover story of a group of secret philanthropists willing to make matching donations was instrumental in ensuring its continued success.

How was Bennett’s scheme finally busted?:

1. A disgruntled college intern turned him in. (Incorrect, a college intern was never associated with this story.)
2. A college professor figured it out. (Correct, Albert Meyer, a Spring Arbor College accounting professor became suspicious of New Era Philanthropy and decided to investigate it.)
3. A Wall Street Journal reporter exposed his scheme in the paper. (Incorrect, though the Wall Street Journal did break the story to the world it did not discover the fraud.)
4. A large donator with connections to the Harvard University failed to see his name included in a published monthly contributors list. (Incorrect, though Harvard University did made donations to New Era Philanthropy they were not involved in exposing the scheme.)

The type of fraud committed by John G. Bennett to steal money through a non-profit organization was a:

1. Ponzi scheme. (Correct! The type of fraud perpetrated by Bennett was a pyramid scheme named after Charles Ponzi.)
2. Bonzi scheme. (Incorrect, a bonzi is a type of small plant.)
3. PLT scheme. (Incorrect, PLT scheme is an innovative programming language.)
4. Primerica Scam (Incorrect, the Primerica Scam is a multilevel marketing organization.)

The Sarbanes Oxley Act of 2002:

1. Has proven to be an effective means of curbing fraud in profit organizations and should be expanded to include non-profit organizations immediately. (Incorrect, since 2002 the amount of fraud committed by profit organizations has increased.)
2. Was established to protect investors from fraudulent accounting practices. (Correct! Protecting investors from the possibility of fraudulent accounting activities is a primary goal of the Sarbanes Oxley Act.)
3. Was created to give a false sense of security to investors, and has created expensive and cumbersome requirements that business can ill afford. (Incorrect, though appearing in blogs on the web as repercussions of the act, it has been proven by some to be a false claim.)
4. Outlines proper business ethics and codes of conduct which must be incorporated into all publically traded companies. (Incorrect, though the act does elude both ethics and codes of conduct it does not define what they must be.)
5. Both A and B. (Incorrect, only B is the correct answer.)

Conclusions and Recommendations

The subject scam primarily resulted from Bennett’s charm and charisma coupled with his religious zealousness in dedicatedly capturing the attention of people around him. He was seen as a saint who was on a mission to save charitable organizations that required financial assistance. In being endowed with such an unsurpassed level of public trust he was able to perpetuate the large scale Ponzi operations. A large number of successful and business savvy people were roped in by Bennett, some came in keeping with his status for holding on to Christian principles, while others came because of the genuine concern he displayed for charitable causes. He was aptly described by Dan O’Neill, president of Mercy Corps international:

[Bennett] “seemed like a very cordial and engaging guy – not a shark. He certainly did not seem like a manipulator or someone who was out to get rich. He dressed like the average businessperson working for IBM…I believe the man at his heart is genuinely moved by charity. When he took me out to lunch, I think it was in a Toyota. It was not a Rolls-Royce. It was not a Mercedes. He did not flash dollars, and he did not talk big-money payoffs that seemed exorbitant” (Allen et al, 1998).

The scheme floated by Bennett was rather imaginative since most of the funds collected by New Era were actually not utilized for the declared purposes. They were instead used in securing large loans from Prudential Securities and were utilized in paying off previous financial commitments that had expired their six month periods. Bennett had also diverted large amounts of the collected funds that had accumulated to almost $5 million, to support companies that he owned. Bennett did not take any official salary from New Era but he took millions of dollars from his other companies and as estimated by federal authorities, about $3.5 million was taken by him for his personal expenses. The fraud was perpetrated by Bennett for five and a half years and during this period he succeeded in siphoning off millions of dollars in financing his illegal activities.

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