29 July 2007

What is the Church's settlement value?

I promise that this will be my last post on the OR sex abuse case, at least until some real steps forward have been taken and I can report on them here. But I was wondering that if the Church is willing to settle this lawsuit, how much should it be willing to offer to make this lawsuit (and the judicial order to reveal its financial information) disappear?

I'll be using a little tool called a decision tree, and if I was more proficient with MS Office, I could probably post a decision tree here. Needless to say, to come up with any definitive answer on what the maximum settlement the Church is willing to offer, I would need a lot more information. But these should provide some tools to analyze with.

So first, we assume that there are two options for the Church- 1) settle out of court OR 2) take it to trial. I think that the case against the Church is pretty weak here and that it will probably win its defense. However, there is always some chance that the judge or jury will rule against the Church even if the Church has the facts on its side. So let's assume that the Church has a 90% chance of success. If the expected value of losing is $45 million (the damages being asked for, probably should add attorney's fees, etc.) and the expected value of winning is $3 million (attorney's fees; note: THIS IS AN ASSUMPTION), that means the weighted average value of the option to take the case to trial is 3.6 million. So the Church should only be willing to give this as a maximum settlement value.

HOWEVER...there are some other key facts to point out. The chances of the Church's success may be overstated above. As the chances for success decrease, the settlement value will rise rapidly. Also, the Church obviously places some value on keeping its financial information secret, so this would increase the expected value of losing the lawsuit (maybe dramatically). I could be completely wrong about my estimate of the attorney's fees and other costs; I don't have any real empirical evidence to back that up. Chances are that the Church will be offering something much more than 3.6 million as a settlement. If so, it probably indicates that the Church thinks its chances are poor or really values its secrecy very highly.


  1. By keeping its records secret from the public, I think the Church makes itself appear like it's hiding something. I believe that the Church uses its tithing funds for good purposes (at least I hope) so I can't help but wonder why the financial records are kept private.

    Maybe our leaders feel like it will cause more harm than good? Maybe it has to do with legal issues? I don't really know the history or legality behind disclosing the financial records of religious organizations. Maybe you could fill me in if you know more about it?

    Hope you're doing well, Adam! Justin just went into training yesterday. My poor husband... Living in the woods off of MREs for ten weeks. Not very fun!

  2. Obviously the fact that the Church keeps it records secret shields it from temporal accountability for the way in which it spends its money. I do not think that we would find any misspent funds if we opened up the Church's books. However, we might find some investments that have failed or particular uses for money that we did not personally agree with. I think that this is one reason why the Church keeps its records secret--to avoid harming the faith of others simply because all of the Church's investments are not increasing in value. Look at what happened to Joseph Smith when the Kirtland bank failed. Tons of apostates.

    Another reason to keep the records secret is because the money would probably make the Church a very attractive target for unscrupulous individuals (even members of the Church).

    Legally, there is no requirement for churches any churches to release financial information. In one of the most important Supreme Court cases, the Court said that the "power to tax is the power to destroy." Not requiring financial records to be released is an important part of separating church and state-if the state cannot see the financials, it can avoid the temptation to tax the churches.