Doesn't Every Church Need a Stunt Plane?

In 2004, LWCC was leasing two airplanes from its senior pastor at a total cost of $74,422 per month! Under the non-cancellable lease agreement, LWCC was also paying for all fuel, maintenance costs and rented hangar space for the planes. And guess who the space was rented from? These were among LWCC's financial obligations listed in the Marshall Group report.

One of the planes was this Cessna 650 that seated 12:

Click here for source. Scroll down for relevant story and image.

The other plane was, apparently, even spiffier...a Flugzeugbau EA 300L marketed as "the premiere aerobatic, sport and professional aircraft on the market today..." In other words, it was a stunt plane. These pictures don't show Hammond's specific plane, but you get a pretty good idea.

Source: Supplement to CREW complaint, 2/9/07.

LWCC’s other loan obligations at the time of the Marshall group report:

• Note for parsonage: balance owed as of 12/31/03 = $369,297
• Note and land lease for hangar: $618,873
• Note for 500 acres near Brainerd: $627,427 due as of report
• Note for 32 acres near Brainerd, $219,305 due as of report

LWCC was planning to pay $893,064 for airplane leases in ’04, ’05, ’06, ’07 and $577,686 in ’08.

The borrower leases two aircraft from its Senior Pastor and incurs related operational expenses such as hangar space, maintenance and staff costs….The Borrower has made both secured and unsecured loans to its Senior Pastor from time to time. One such loan is a mortgage loan secured by the Senior Pastor’s residence in Florida, which bears interest at prime +1%....

The organization leases two airplanes from its President/Senior Pastor under non-cancellable operating leases. The first plane has a lease rate of $39,422/mo…[The second plane] has a lease rate of $35,000/month. The Organization is also required to pay all operating costs of the airplanes…

The mortgage LWCC was seeking from Marshall was to be used to retire loans, give return on equity for private investors, and pay for equipment and facility improvements. The optional $5 million advance would also go for improvements.

As of 10/04 when the Marshall report was prepared, LWCC management was taking serious and unnecessary risks with the organization’s money. At that time, the FDIC insured up to $100,000 per depositor per bank. Many depositors with large cash accounts spread them among several banks so that their assets are fully insured. According to the Marshall Group report, “At June 30, 2004 and 2003, the Church had cash in checking and savings accounts at one bank significantly in excess of federal deposit insurance limits. At June 30 ’04, this amount was approximately $938,000…”

James "Mac" Hammond's Private Bank

After the publicity around LWCC/Hammond’s endorsement of a candidate in October '06, an anonymous source gave The Minnesota Independent (MNIND), an online newspaper, a copy of a lengthy financial report on LWCC that had been prepared in late 2004.

The report had been prepared by "Marshall Financial Group [then known as The Marshall Group], a non-bank lending company that set up and serviced large participation loans, mostly in real estate… Its core business had been organizing and leading loans that were too big for one bank to handle..." Source: Mpls/St Paul Business Journal 11/13/08

The Marshall Group report was prepared in 10/1/04. LWCC was seeking a $20-$25 million loan package from Marshall. Before deciding whether to make the loan, Marshall investigated the church’s financial history, financial practices and its assets and liabilities. The Marshall Group is no longer in business.

MNIND reported that the Marshall Group docs seemed to show financial deals that "heavily benefited Hammond personally." The Marshall Group report listed "generous loans Hammond received from the church totalling $1.9 million. It outlined agreements for rental of airplanes he purchased with church loans, then leased back to the church--at a profit to him of nearly $900,000." MNIND sent the docs to a tax watchdog group (CREW) for its opinion. After seeing the documents, CREW filed a complaint with the IRS.

From the report, here are dates and amounts of loans to Hammond from 1999-2004, and a few other dealings. It's long and slow loading, but if you want to see for yourself, access it here.

LWCC had been founded in 1980 and operated as LWCC. In 12/94 Living Word International Inc. incorporated for religious/charitable purposes. Revenues and expenses of LW Int'l have been intermingled with those of LWCC.

In April 1998, LWCC borrowed $1 million to buy 500 acres near Brainerd. LWCC representatives said it might be developed into a camp. As of the writing of the Marshall Group report, this land had not been developed.

Loan #1. In 7/99 LWCC sold an airplane to Hammond for $1,063,000. LWCC was paid $700,000 in cash and given promissory note for $363,000 at 8.7%. (In other words, it agreed to let Hammond pay off the remainder of the cost over time, in effect loaning him $363,000 toward the cost of the airplane.)

Loan #2. In 4/02 LWCC gave Hammond an additional loan of $30,500. The July ‘99 note for the airplane was restated at $159,000. According to the church, the note was “paid in full” by April, 2003.

Loans #3, 4. In 2000 LWCC two or more loans not including the $30,500. These combined for a 2002 balance of $568,000.

These next two transactions were explained in this way: A business “related by management control” (which the Marshall report didn’t name, but “related by management control” sounds like Hammond or someone close to him) operated internet service and receives subscription revenues for total of hundreds of thousands in ’03 & ’04.

The Church’s integrated auxiliary, Living Word International, Inc., has a contract with a corporation related by management control to provide internet services to Living Word Int’l Inc. Terms of the agreement call for set fees to be paid to this corporation based on the number of subscribers to the proprietary internet service to be offered by the auxiliary church. The corp. provides the necessary access, service and support to allow subscribers to access the auxiliary Church’s internet portal. Living Word International, Inc. is the only customer of this corporation.

?1^st loan to Hammond-owned corporation? In December, 2000, LWCC made a $180,000 loan through Living Word Int’l to “a related corporation that is providing internet services.”

?2^nd loan to Hammond-owned corporation? In June of 2001 there was a second loan to this “related corporation providing internet services” for $198,000. (This was later combined with the 12/00 loan for total of $378,000, unsecured, due 12/04. )

Loan #5. In 12/01 Hammond was given an unsecured loan for $15,000 5.75%. Monthly payments were $288; was declared paid in full in 8/03.

Loan #6. In 5/02 LWCC made another loan to its senior pastor, this time for $155,000, secured by an airplane hangar.

Loan #7. In 5/03 LWCC borrowed $630,000 for a hangar for “leased aircraft.”

Loan #8. In 12/03, LWCC loaned another $177,133 to Hammond, unsecured.

Loan #9. In March ’03 there was yet another unsecured loan to the “Senior Pastor-President,” this time for $225,000.

What questions does this raise in your mind? How about these for starters.

Why was LWCC was loaning large sums of money to Hammond again and again? LWCC is not a bank or lending institution. Secondly, why does Hammond keep seeking loans from LWCC? Why doesn't he go to his bank or other lender?

More from the Marshall Group report, what it means, why it matters, and what happened next, in future posts.