OneUnited asks judge to disallow Charles Street AME Church’s bankruptcy proposal, citing use of restricted funds to finance operations

A lawyer for OneUnited Bank on Monday contested a revised bankruptcy reorganization plan filed by the Charles Street African Methodist Episcopal Church, arguing that new revelations about the congregation’s finances make it less likely the church can afford to pay its debts.

In a hearing in U.S. Bankruptcy Court in Boston, Lawrence Edelman, the bank’s lawyer, likened the church’s accounting to a “trip through the looking glass.”

Citing a motion filed by the bank last week following a number of depositions, he said the Charles Street AME had improperly tapped restricted funds from a grant to help cover its operating expenses prior to the church’s 2012 bankruptcy filing. In one case, the church had tapped those funds after the bankruptcy filing—money the church says it has repaid. The grant money is intended to fund a residency program for pastors in training.

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Edelman said the church’s use of those funds, and failure to disclose that fact, amounted to misleading the creditors in the case.

Charles Street AME owes about $5 million to OneUnited Bank, after falling behind on payments for a nearby community center it was building. The church filed for bankruptcy protection nearly a year ago to head off a foreclosure on the church.

The church’s lawyer, Ross Martin, did not dispute that Charles Street AME had tapped funds from its Lilly Endowment grant when it was stretched for cash. He said the use of the money—other than a single transfer last April—had only recently come to his attention.

“I didn’t know of this when we were here in September,’’ Martin said.

Charles Street AME has a four-year, $875,000 grant from the Lilly Endowment, a private foundation in Indianapolis, to fund its residency program for pastors in training. In a recent deposition, the church’s financial officer, the Rev. Opal Adams, testified that the church had $90,000 left in the Lilly account but would need about $430,000 to cover the next two years of its commitment to the program, meaning it would have to come up with about $340,000 from its own budget.

Rev. Gregory Groover, pastor of the historic Charles Street congregation, also was questioned earlier by lawyers about the grant money. In that deposition, Edelman asked him if he or the staff had consulted with the Lilly Endowment about borrowing the grant funds. Groover said, “We—no, we did not,’’ according to a copy of the deposition filed with the court.

A spokesperson for the Lilly Foundation did not return a call seeking comment.

A frustrated Judge Frank Bailey stopped Edelman and pressed him to what the bank wanted. He noted the two vastly different documents he had received in recent days: the church’s revised proposal “and then I have a nuclear bomb filed against it,” by the bank, he said.

“You think this case should be dismissed,’’ the judge said after a pointed back-and-forth with the bank’s lawyer, who finally agreed. Edelman, the lawyer, said the creditors need to vote again on the church’s plan, with updated financial information that takes into account the use of the Lilly money as well.

The judge said he would consider the arguments and make a ruling.

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