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Charles Street’s cash transfers subject of bankruptcy hearing

Howard Manly

Aside from the ongoing bankruptcy proceedings and his abrupt resignation as Boston School Committee chairman, Rev. Gregory Groover, pastor of the Charles Street AME church, has recently added another problem to his list of ever-growing financial mismanagement practices — “special activities.”

Two years ago, the Lilly Foundation awarded Charles a four-year grant of $875,000 to train young pastors. Its pastor in residency program was expected to be the sole beneficiary of the Lilly grant.

It wasn’t, according to both Rev. Groover and Rev. Opal Adams, the woman who kept the financial books and authored Groover’s annual reports.

Of the $875,00 grant money, only $90,000 remains, according to the church’s latest financial disclosures, and with two years remaining on the program, Adams estimated that the church would need to raise an additional $340,000 to fulfill its program obligations. Based on her own records, Adams testified that the church owed at least $100,000 to the Lilly fund.

“In the last year, we’ve had to, at times, shift funds temporarily to meet an immediate need, and … we would then put the money back in time,” Groover testified.

Groover then said that he didn’t know what the policies of the Lilly Foundation were but he did say that he knew “whatever money was raised we have placed back, if not paid more into the Lilly Endowment.”

The recent depositions of Groover and Adams came to light this week in a hearing before U.S. bankruptcy Judge Frank Bailey to determine if the church’s latest amended financial statements should be used as a basis to repay its debts, including $5.2 million in outstanding debt to OneUnited, the church’s main creditor and the nation’s largest black-owned bank.

Characterizing the recent church financial statements as “inadequate and incomprehensible,” bank attorneys said they demonstrate “a false portrayal of its financial circumstances and purposefully overlooks its obligations.”

“In light of the debtor’s duplicity, and given the true state of the debtor’s financial affairs — that is so far as discovery has uncovered it — there is plainly no credible prospect that it can present a plan or reorganization which is fair and equitable, offered in good faith and feasible,” bank attorneys wrote in a recent brief.  

Judge Bailey delayed making a ruling on Monday.

The latest version of financial statements by Charles Street comes on the heels of its disclosures last summer that showed discrepancies of more than $500,000 in its own books. In one version, the Church claimed to have a surplus of $385,826 in 2011. But in another version, the one compiled by James A. Williams, a certified public accountant, the church shows a deficit of nearly $124,991.

Church attorneys tried to explain away the discrepancy by saying it was an administrative error.

There was no such defense in explaining the transfer of funds. Church attorneys claim they did not know about the transfer of Lilly endowment funds, but when they learned about it, they urged Church officials to stop the practice.

Both Rev. Groover and Rev. Adams testified that they knew the Lilly money was restricted to pay only expenses for the program, but they still transferred money from that account to pay for day-to-day operations.

Making matters worse, they listed the transferred money as income under the headings “special activity” or “general offering” on Groover’s annual pastor reports.  

Adams testified that the transfers were Groover’s idea and that he authorized them. In explaining why a transfer of funds would be considered income, Rev. Adams had the following exchange with OneUnited bank attorney Lawrence Edelman.

“As far as I’m concerned,” Adams explained, “income is the way I reported it on my reports. I use whatever funds are used to take care of expenses.”

Groover and Adams further testified that they did not tell Lilly Foundation that they were transferring money. In fact, Groover appeared confused on whether he should tell Lilly. “I intend to think about it and I intend to do the right — as always, the right thing,” Groover testified. When asked what was the right thing, Groover testified, “I’ll need to think about it.”

The relationship between OneUnited and Charles Street started on Oct. 3, 2006 when Groover agreed to borrow $3.6 million to build a 22,000-square-foot community center on church-owned land near Grove Hall.

Called the Roxbury Renaissance Center, the building would feature a grand ballroom, multi-purpose meeting space, conference rooms, prayer and meditation space and sound proof musical practice rooms. To pay for the construction, Groover said that he would raise money by renting space for wedding receptions and community meetings.

The OneUnited construction loan became due on June 1, 2008, and despite a total of five extensions, the church was unable to satisfy its debt by Sept. 1, 2009. A year later, on Aug. 17, 2010, OneUnited then sued in Suffolk Superior Court for breach of contract.

Also named in the suit was Charles Street AME’s co-signer, the First Episcopal District of the African Methodist Episcopal Church based in Philadelphia. At the time, the First District, based in Philadelphia, claimed it had $65 million in cash and nearly $500 million in assets.

Charles Street had also borrowed another $1.1 million, separate from the $3.6 million construction loan. That loan is also in default.

As part of its initial defense, Charles Street attorneys argued in legal documents that the bank made “a reckless” loan and that they knew — or should have known — that the church would be unable to repay as originally agreed.

“The loan was improperly underwritten from the start,” a church lawyer argued in court papers, “and was offered by OneUnited for the ulterior motive of expanding its retail business and gaining publicity, rather than [a] loan made [according] to prudent lending standards.”

To forestall the pending foreclosure of its property by OneUnited Bank, Charles Street filed for bankruptcy in March in a move to keep the church operating as it has for nearly the last two centuries.

In addition to OneUnited, Charles Street owes about $630,000 to Thomas Construction Company, the Dorchester firm hired to build its proposed Roxbury Renaissance Center; another $450,000 is owed to Tremont Credit Union for a loan to repair the church’s roof.

Under oath during bankruptcy proceedings, Groover has admitted that “mistakes were made.”