New Ethical Concerns at Family Christian Stores
Family Christian Stores filed for bankruptcy last month. According to court documents, their debt was over $100 million. The debt includes $58 million in secured debt owned to Credit-Suisse AG Cayman Islands and FC Special Funding. Most of the other $40 was owed to 27 Christian publishers who had either sold books to Family Christian Stores or sent books to stores on consignment, and were not paid.
Richard L. “Rick” Jackson, principal in Jackson Healthcare, a staffing company in Alpharetta, Georgia, along with two other Atlanta-area business people, bought Family Christian Stores in 2012. It had been a profitable Christian bookstore chain for 80 years, and they bankrupted it in less than three years after buying it. According to IRS documents, Jackson supervised the Chief Financial Officer (CFO) during the period of rapid decline.
A Cozy Deal
Several Family Christian entities are involved, and the role of each is not always clear. What is clear is that there have been several questionable acts in regard to ownership and management by Rick Jackson and his investors.
The first is that they placed their purchase in a nonprofit organization, Family Christian Ministries, which they control. Rick Jackson and his partners, meanwhile, may have reaped tax benefits from gifting their company to their own nonprofit.
The men promised profits from the bookstore chain would go to the ministry, but it appears there have been no profits. Nevertheless, they gave away nearly $1.4 million of funds that should have rightfully gone to creditors. The largest amount, almost $1.2 million, went to the National Christian Charitable Foundation, which is located less than a mile from the Jackson Healthcare office in Alpharetta. A smaller amount went to Faithbridge Foster Care, which is at the same address as Jackson Healthcare.
To compound the ethical questions, Rick Jackson and partners are principals in FC Special Funding, so they will get their money out because that debt is secured. They will lose nothing.
Perhaps the most questionable act was the announcement that Rick Jackson intended to create a new company, Family Christian Acquisitions, and buy Family Christian Stores from the bankruptcy court under the favorable terms of the Section 363 sale process. All creditors are required to approve a Chapter 11 reorganization plan, but Section 363 is a fast-track option that allows a judge alone to make decisions.
In that scenario, Rick Jackson and his partners at FC Special Funding expected to buy back the newly debt-free Christian bookstore chain at a reduced price in the name of Family Christian Ministries. Rick Jackson is listed as the president and a director of Family Christian Ministries according to the most recent IRS filings available (2014). There have been serious concerns because Jackson and his entities are the debtor, lender and buyer.
Jennifer Hagle, the lawyer for the other main secured creditor, Credit-Suisse AG Cayman Islands, thought this proposal was less than circumspect from the beginning. At the first bankruptcy hearing she expressed concerns to the judge about a significant lack of transparency in the proceedings.
Christian Publishers Push Back
It appears that the Christian publishers thought Rick Jackson’s machinations were less than circumspect too.
Chuck Bengochea, president of Family Christian Stores, has said repeatedly that the Jackson and other investors were spiritually minded people trying to do their best, but 27 Christian publishers disagreed with him. They decided to sue in hopes of stemming gigantic losses in the Jackson fiasco.
It is estimated that publishers could lose as much as $60 million, which includes part of the $40 million unsecured trade debt, plus another $20 million in unpaid consignment inventory.
In reaction to the publishers lawsuit, Family Christian Stores dropped their request for the expedited Section 363 sale. They will need to abide by normal Chapter 11 bankruptcy rules, and that means the newly formed Creditors Committee will be in a position to halt any alleged insider trading by Jackson or others.
Officials at Family Christian Stores have said that, regardless of the bankruptcy, “business will continue as usual.” That may be the least satisfactory outcome. The acquisition of Family Christian Stores in 2012, placing it a non-profit, the bankruptcy, and the way it was handled before intervention by the publishers, appears to be a major Christian scandal. The Christian community would likely benefit from new owners who will operate Family Christian Stores with more transparency and a higher ethical standard.