Pasco Foundation Settles, Drops Suits
Episcopal News Service. February 19, 1987 [87037]
OKLAHOMA CITY (DPS, Feb. 19) -- A settlement was reached in an Oklahoma District Court on Jan. 29 between the Episcopal Diocese of Oklahoma and a foundation headed by deposed priest John Pasco, after the diocese presented what was described by Judge Tony Graham as a "very strong case."
Graham said that the evidence presented by Graydon Dean Luthey, chancellor for the diocese, showed that by "scheme and artifice" the foundation headed by Pasco had been concealed from diocesan officials. Graham further said that the evidence presented showed that the scheme continued and information about the true nature of the foundation was "obscured or withheld" from the diocese. Pasco and his three attorneys did not present a defense after the diocese rested its case.
The suit filed by the diocese alleged that Pasco and the foundation fraudulently obtained title to church property and funds by channeling them into the control of St. Michael's Church Foundation.
The settlement, requires the independent foundation to pay the Episcopal Diocese of Oklahoma $106,000 and to drop a related suit filed by the foundation against the Diocese of Oklahoma, as well as a libel and slander suit filed by Pasco against the Standing Committee of the Diocese and the Rt. Rev. Gerald N. McAllister, Bishop of Oklahoma.
Financial irregularities that came to light in 1984 during the diocesan comptroller's routine audit of a St. Michael's Parochial Report signed by Pasco, and the subsequent discovery of the independent foundation, led to Pasco's trial before an ecclesiastical court for violation of canon law and his eventual deposition as a priest.
In the civil trial, the Rev. Canon James Harris, C.P.A., retired comptroller of the diocese, testified that from 1979 through 1984 Pasco signed misleading parochial reports that hid the fact that property intended for St. Michael's Episcopal Church had been diverted to an independent foundation out of reach of the Episcopal Church. In court, Pasco admitted under oath signing annual parochial reports to the diocese showing that St. Michael's Episcopal Church owned property that was in fact owned by the independent foundation of which he is president.
Among funds diverted to the foundation was a $50,000 grant by the Episcopal Diocese of Oklahoma to St. Michael's Episcopal Church to assist in the acquisition of land for a permanent church building. The grant application was signed by Pasco for St. Michael's Episcopal Church. The funds, however, were deposited to the account of St. Michael's Church Foundation, described in the court record as an "alter ego" for St. Michael's Episcopal Church, but with no legal connection with or responsibility to the Diocese of Oklahoma. In 1980, the Diocesan Council approved a loan of $30,000 to St. Michael's Episcopal Church. This too, was channeled to the independent foundation.
Officials of the Diocese of Oklahoma were not the only ones surprised by the existence of St. Michael's Church Foundation. In 1978, a building valued at more than $25,000 and a $10,000 check were given to St. Michael's Episcopal Church by Malcolm Deisenroth, a Tulsa banker, geologist and longtime Episcopalian. These, too, were placed in the independent foundation, away from Episcopal Church control. Deisenroth testified under oath that he had intended them for the use of St. Michael's Episcopal Church, not an independent foundation, and had so listed them on his tax returns. Deisenroth's $10,000 check, made out to St. Michael's Episcopal Church but deposited to the foundation's account, was presented in court as evidence.
"I could not believe my eyes," Deisenroth testified when asked about his discovery in 1984 that the check had been endorsed to an independent foundation rather than to the payee, St. Michael's Episcopal Church.
Under terms of the settlement, the diocese will allow Pasco and his group to stay in the building. Because the foundation apparently does not have funds available to pay the full amount of the settlement, the Episcopal Diocese of Oklahoma agreed to allow the funds to be paid in installments at a reasonable rate of interest with a mortgage on the building and property.
"We are completely satisfied with the settlement," McAllister said. "We did not want the building itself. And we have recovered for the Episcopal Church all of the funds that were intended for St. Michael's Episcopal Church in Broken Arrow but diverted to the foundation. We are certainly not interested in taking anything that the foundation members themselves innocently invested in the building. When we specified the terms, we asked only for what the Episcopal Church had invested; that is precisely what we will receive under the settlement.