A Friendly Letter

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Seventh Month (July), 2000

Part Two (2) - continued

XIII

Ironically, even Phil Harmon has said more than that about the collapse of his empire than the yearly meeting whose members he so freely exploited. At least he did to me, when we had our exclusive interview.

Yes, while doing field research in Washington state, I obtained an exclusive interview with Phil Harmon.

Okay, so it only lasted about 30 seconds. And never mind that it took place on the voice mail tape at a friend's house where I was taying. I had asked questions, Harmon answered, and we saved it. Here it is, in full:

"The only statement that I would have to make is that I feel terrible about the things that happened, and things are terribly distorted. As time goes on, the rest of the story will come out. And I just really grieve for the negative impact that it's had on the Christian community, and particularly on the Friends. I'm just seeking God's will on how to work what's become an unbelievable situation out."

Harmon's whole career was built around Christian communities which make much of their commitment to the Bible. One might think that if Harmon even halfheartedly shares this commitment, he would do more than grieve for other people's losses. By rights, he would also have to consider himself to be in very deep spiritual trouble.

After all, the scriptures resound with denunciations of confidence men. Take the notorious passage in First Corinthians Six, just after the command to avoid lawsuits, where Paul lists the categories of the "unrighteous" who "shall not inherit the kingdom of God."

In recent years whole denominations have endured agony and schism over whether Paul meant to include homosexuals on this list, in verse 9. But I have seen no questions raised about the legitimacy of the next verse, which specifically names "swindlers" as destined for the outer darkness. It's a category that here to stay.

For that matter, a chapter earlier, in 1 Cor. 5:11, Paul insists that Christians are "not to associate with any so-called brother if he should be...a swindler--not even to eat with such a one."

And while his victims lose sleep over paying their medical bills and buying groceries, do any of the Harmons ever wake up in a cold sweat, hearing echoes of Matthew 23:14: "Woe to you, scribes and Pharisees, hypocrites, because you devour widows' houses, even while for a pretense you make long prayers; therefore you shall receive greater condemnation."

Or maybe Isaiah's searing censure: "Woe to those who...rob the poor of my people of their rights, in order that widows may be their spoil." (10:1)

I cite these verses because Phil Harmon clearly had a thing for widows. He could smell one with a nest egg, especially a devoted Christian, from miles away. Even the mother of the police chief of Stanwood wasn't safe. A widow, Phil got to her through her son, and took them for $159,000.

I wonder.

Does Harmon feel their pain?

In any event, he feels his own. The mighty have fallen far in this case.

XIII

"Things are terribly distorted," and "the rest of the story will come out." With these hints, we may be able to get a sense of what Harmon's version of what happened would be, if he were prepared to speak it. Here are some of the other villains that have been suggested:

1. Congress. In his letter to investors of August 7, 1996, Harmon said his financial troubles had begun in Washington, DC. His investments had been built on real estate tax shelters, he explained, and quite successfully. "However, in 1986, Congress unexpectedly turned the real estate tax shelter world upside down with the passing of the 1986 Tax Reform Act', which completely eliminated the benefits of this type of real estate partnership tax shelters."

2. Excessive generosity. Harmon wrote that as a result of the tax reform, many such tax shelter partnerships ended in bankruptcy, but "that was not a course I felt I could follow. I sincerely believed I could bail out everyone's investments...I thought I could turn our circumstances around by voluntarily stepping in to support the partners' equity. In hindsight, I now painfully realize that it was not realistic....

3. A Missing real estate turnaround. "Over the past several years, I continued to pour my personal assets into the operations, thinking it would all work out, and that the higher appreciation in real estate I had realized in the past would return. It simply did not happen! It never seriously occurred to me that any client would lose substantial amounts of money."

4. Embezzlement. When FBI agents searched Harmon's office, we have already heard that they were seeking, as their report stated, "records relating to an embezzlement by a former employee; files about an alleged embezzlement by another former employee," and that while some of these records had been removed, they were later recovered. The amounts involved are unspecified, but Steve Schroeder indicated that the allegations were credible, and the amounts were substantial enough that the two persons involved might well be indicted as a result.

Harmon approached this topic very elliptically in his letter. "Through the years, " he wrote, "I have seen myself as a vision person. I have focussed on conceptual ideas and opportunities. Day to day management has never been my strong point. Consequently, I surrounded myself with competent professionals, albeit some more competent than others....I should have paid far more attention to detail on every phase of our operations."

In sum, these data suggest the following as a possible counter-explanation for Harmon's downfall: His business succumbed to the fourfold blows of congressional betrayal, slumping real estate values, internal fraud, and his management neglect.

Keep in mind that Harmon later pled guilty to fraud, so most of these statements (except the ones about embezzlement) must be taken with a grain of salt. But their general thrust is that of the basic defense against fraud charges: he wasn't swindling anybody; his was an honest business venture that went bad in a risky, uncertain world.

Assuming that Steve Harmon and Terry Beebe are also to be indicted, the outline of their defense is likely to follow closely the unsuccessful effort they made to avoid being included in the injunction which preceded Phil Harmon's indictment. Their argument in that case was simple: We didn't know what was going on.

They portrayed themselves as simple, highly-focussed insurance salesmen, who paid no significant attention to what went on above their heads in the rarefied world of investing.

The federal attorneys heaped scorn on these contentions, pointing out that both men were Directors of Phil's holding company, and highlighting such incidents as the down payment on Steve's house made with funds diverted from NFIT. And the court did not buy it. But a criminal trial is a more demanding arena than a restraining order, and they will likely have another chance to make this case.

In the meantime, incidentally, life goes on while these two wait for Steve Schroeder's other shoe to drop. Steve Harmon has moved from Camano to Mt. Vernon, about fifteen miles north, and is still selling insurance. Terry Beebe has stayed in Stanwood, and has found another job.

XIV

To hear Phil tell it, the adjustments forced by his change in fortune have been drastic. He is required to file monthly financial reports with the bankruptcy court; and in the last months of 1997 he reported monthly expenses of over $3000, with no income except the $693 his wife Esther was earning working as a part-time supervisor at the Stanwood Taco Time fast food restaurant owned by Steve.

(How long this place will stay afloat is an open question. When I visited Stanwood, we drove past this Taco Time; it was nearly deserted, in the middle of the day. "A boycott is on," a well-informed local resident advised me. "It hasn't been announced or anything; people are just staying away.")

The Harmony Mist is gone, sold by its creditors late in the fall. The Maui condos were sold about the same time.

In January, 1998, the Harmons moved out of their shorefront estate, following Steve to Mt. Vernon. Presumably Phil's main agenda items in those days was working with the feds on the recovery efforts, and preparing to go to jail for either five or eight years. People close to his case tell me he has been in touch with Chuck Colson and Colson's Prison Fellowship group.

Phil may still retain a few of his cars, though. I found a 1952 Jaguar at the Camano Closet, the storage depot which the Harmons still own. It was parked away from the street, but still stuck out among its otherwise very middle class milieu of other cars, RVs and small boats. The Jaguar was dark green, and looked sleekly middle-aged.

XV

Phil Harmon stole much more money than Priscilla Deters. Yet his story takes much less time to tell. This narrative discrepancy grows mainly out of a marked differential in imagination and ambition.

Deters, for all her lies and theft, was out to build a monument to a vision. An outlandish and twisted vision, perhaps, but not lacking in scope and ambition. She comes from a subculture dominated by gaudy church empire builders: Rex Humbard and his Cathedral of Tomorrow in Akron; Robert Schuller and the Crystal Cathedral. Her obsession with Jackson Bailey's painting led her down a trail of legal and financial complexity that would take several books to untangle completely.

Had she succeeded, the Florida landscape, already pocked by tourist spectacles, would have had yet another, and one with a plausible claim to something unique. And chances are it would have produced a lot of revenue, possibly for the philanthropic work Priscilla never stopped talking about. Plenty of the religious landmarks and shrines which are revered today have histories no less dubious, if examined as closely.

By contrast, Phil Harmon's criminality, while by far the more productive and efficient, seems to have had no ambition higher than to establish a line of provincial gentry. His role was that of founding robber baron-patriarch, the donor to local charities and collector of cars, the doting grandfather who took his progeny to Disneyland at age five and to Hawaii when they turned fifteen.

Had he gotten away with it, he would likely have devoted some of his declining years to a methodical airbrushing of his past and reputation. It would probably have worked, too; such refurbishing is one of the most time-tested traditions of the American wealthy.

The difference between these two is evident in their business names: Most of Harmon's are local: Skagit Valley Associates, Family Investments, Northwestern Investments. When Deters formed a Florida company to buy the Life of Christ painting, she called it the International Artorium of the Masters, Inc. I have no clue what an "artorium" is, but the scale of aspiration is clear.

I admit it: between these crooks, I feel a grudging admiration for the kitschy visionary Deters. Finding out something of the truth about her has made for a fascinating journalistic odyssey, whereas even an hour aboard the Harmony Mist talking about antique cars would have bored me to tears.

Grudging admiration, yes; sympathy, no. When I remember the victims, especially the widows, I say: a pox on both their houses.

XVI

The victims of these frauds, however, were not only individuals. Their costs have been paid by institutions as well. Among Friends, especially the groups influenced by Wesleyan holiness thought and culture, the roll of groups that have been damaged is long, and it needs to be tallied. Here is a partial list:

1. The schools: George Fox University, where Eugene Coffin, Phil and Steve Harmon were honored members of its inner circle for years. Barclay College and the Houston Graduate School of Theology, both of which were put at serious financial risk, with Houston not yet out of the woods. Barclay's president paid with his job, and in Houston, Delbert Vaughn recently stepped down to Chancellor.

2. Northwest Yearly Meeting. Right under its nose, and even nourished in its bosom, has come what Steve Schroeder calls the largest white collar fraud scheme he's ever seen, a scam big enough to qualify for its own federal code name. One could perhaps be forgiven for thinking that the scale of these events alone would merit some explicit attention and open concern.

Or if not the scale, then surely the plundering of some of its leading members by one of its own would be, one might think, traumatic enough to be a catalyst for discussion and action to understand what happened and avoid future depredations.

Instead, the Harmon affair has highlighted a wall of silence so thick and entrenched that even the world's people have noticed. "There's something very secretive down there," a key investigator of the Harmon case remarked to me not long ago, referring to Northwest Yearly Meeting.

3. North Carolina Yearly Meeting, where a basically sound structure was deliberately undercut by an ethically dubious administrator in search of partisan advantage, and the processes of accountability were shredded, short-circuited and silenced.

4. The Friends Ministers Conference, utterly discredited, perhaps beyond recovery.

5. Its sponsors, Friends United Meeting and Evangelical Friends International, damaged as instruments of inter-yearly meeting cooperation, their leadership shown up as irrelevant to efforts to prevent or stop such raids. (Friends United Meeting, however, by reporting the Harmon scandal in Quaker Life, has managed to regain some credibility.)

6. YouthQuake, the one place where these scandals touched the unprogrammed branch of Quakerism, now has a shadow on its integrity, due in part to a tawdry pattern of stonewall and whitewash, and in part to the lingering possibility of actual misconduct.

7. Mid-America Yearly Meeting, where a Superintendent's exposure and disgrace was followed in short order by the effective banishment of the Trustees who had the courage and integrity to call him to account, and save the body from financial calamity.

Students of what is called "affinity group crime" emphasize that just about any ongoing group is vulnerable to criminals who know how to exploit the trust that comes from a common bond, be it religious, ethnic, family, or even professional. In the holiness culture, part of the bond is the conviction that sanctification removes all desire or inclination to sin. This belief tends to increase trust, especially in those whom "God has raised up" as leaders.

Recall Maurice Roberts facing down the Trustees in 1993. Rodney Pitts had a Dun and Bradstreet report showing the shady character of Productions Plus; but what was that up against Roberts' wife, who had prayed with Priscilla Deters?

Or remember R.J. Wegner, the North Dakota Nazarene Superintendent, who defiantly insisted that he would take the word of people "in the church"--specifically Priscilla Deters and her agent Chuck Crosby--over worldly interlopers like the state Securities Commissioner.

Such "believers" warm the hearts of con artists. They are like sheep that cannot scamper fast enough into the arms of their shearers.

Yale's Arthur Leff described this phenomenon clearly in 1976: "...those who join such mark pools are believers,' in a more general sense than that they happened to believe in this particular scheme....the members of an operative Ponzi seem to have a larger-than-usual complement of a common psychological impulse which may be called commitment momentum.' This tendency...is peculiarly useful in retail buncos like Ponzis...."

Leff goes on to tease out some of the factors making up this "commitment momentum": "it does seem as if patsy' is an extraordinarily unattractive self-image for most people....Though there are notable exceptions...it is agreed among all observers that, by and large, fleeced marks go home nice and quiet. That, of course, could be understandable as an attempt to avoid the obloquy and shame of public exposure. What is more to the point is the clinically common' experience (reported by all conmen) of not being able to blow off the mark because he wants another play. That is, the mark isn't merely avoiding the consequences of facing his ripoff; he cannot even bring himself to see himself as a rippee....The social-psychological tendencies [congames] tap are apparently deep and pervasive."

Wegner and his "Dakota Project" are prime examples of such folly. It was five years before he sheepishly, and furtively, admitted that the $527,000 he had so enthusiastically collected for Deters, from nearly two score churches and individuals around the state, was lost. Only in October of 1996 did he finally file a claim with Receiver Richard Clements.

A shrewder Dakota Nazarene, whose church opted out of the "project", summed up this studied gullibility this way for the Grand Forks Herald: "Like Billy Sunday said, Sinners can always repent, but stupid is forever.'"

Finally let us not forget the refrain of the newly penniless Camano Islanders about Phil Harmon: "I knew him from church."

But let our brush strokes not be too broad here. There are plenty of good people, and some shrewd ones too, in the evangelical yearly meetings. I think of Chuck Hise, for one, thwarting Deters by taking no chances with Quaker Gardens' $100,000. In North Carolina there were Scott Parker and Carter Pike. They may have been outmaneuvered by Billy Britt, but they did their duty, and weren't gulled by his grasping after its treasure for Deters' scheme and Delbert Vaughn's overweening ambitions.

Still, neither Priscilla Deters or Phil Harmon would have gotten very far unless they knew how to identify and play on the weak points in their holiness culture. The loud silence among so many of the Nazarene victims reinforces this sense.

XVI

Another corroboration comes by contrast. In the east there are Quakers of a different sort--theologically liberal, and nonpastoral. Several of these yearly meetings have sizeable budgets; one, Philadelphia, manages a portfolio in the hundreds of millions. A couple of years ago, nonprofit groups and churches in Philadelphia and in many other places were rocked by the New Era scandal, a Ponzi scheme like none other, which raked in something like $150 million.

The basic ploy of New Era could have been cribbed straight from Priscilla Deters, if were not a classic before either of them came along: the mastermind, one John G. Bennett of Philadelphia, persuaded his victims he could double their money without risk, because he had a network of "anonymous donors" who would match his clients' deposits. The money poured in. Sound familiar?

Bennett is now behind bars, and some of the money has been recovered. But the point in mentioning him is this: among his scores of victims around Philadelphia, including some of the most prestigious cultural and religious groups, Quaker names were notably, strikingly absent. And this in William Penn's city, where there are far more Quaker meetings, schools, colleges, hospitals, service groups and so forth, than anywhere else. All of them need to raise money, yet I've not heard of one which fell for Bennett's scam.

How did they avoid it? Principally, it seems, by virtue of a paradox; these theologically liberally Quaker groups are fiscally quite conservative. Their money is hedged about by policies and traditions which keep it in safe and unspectacular vehicles.

Phil Harmon came to Philadelphia once, to sniff out the prospects for signing up the American Friends Service Committee, with 100-plus employees, for the National Friends Insurance Trust. They didn't bite. And after the New Era bubble burst, AFSC's fundraisers reported to its top staff that they had not even been approached by Bennett. He must have known they were too stuffy to fall for his scheme.

This does not mean that the Eastern Quakers are or have been immune to financial scandal. (I know of one Quaker-related group in Philadelphia which was looted from within and destroyed a few years back.) But there are institutional safeguards which are widely in place among them, and which make a major difference in effective prevention.

Take regular outside audits, for example. Philadelphia has them routinely; so do most of the other large nonpastoral groups. But too many of the evangelical bodies do not. North Carolina didn't, until after its $100,000 and its longtime Superintendent were gone. Audits are a basic institutional precaution, worth the cost. As the 1996 Auditor's report for Philadelphia Yearly Meeting put it, "...we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements." Put more plainly, auditors are paid to look for fraud.

A more unusual "remedy" is one that is impossible to institutionalize, but which needs to be named just the same: it is the raising up of some superintendents who are also prophets, ready to break ranks with the guild mentality and blow the whistle on scams or malpractice among and by their own kind. Such prophetic gifts were notably lacking in the crop of incumbents among whose flocks Deters and Harmon ran rampant.

For individuals, especially of the holiness groups, these cases suggest a need to reexamine the widespread attitude of blind trust in sanctified leaders and others "in the church," especially when it comes to money. The appropriate level of skepticism in matters financial could be summed up in the following advice, which I believe is also theologically sound:

Trust in Jesus; check out everybody else.

Checking things out does not require taking on worldly cynicism. It merely calls for taking seriously Jesus' counsel that, "I send you out as sheep in the midst of wolves; therefore be wise as serpents and harmless as doves." (Matthew 10:16) I have always felt that the point of this advice is that unless we study to be wise, we will not succeed in being harmless as doves. Instead, we'll be like the sheep, ready to be shorn, or turned into mutton.

Checking things out also means items as basic as insisting on a prospectus (Phil Harmon didn't have one), and verifying securities licenses (he didn't have one of them either, nor did Deters). These, along with repeating to oneself the cliche that if something financial sounds too good to be true, it probably is.

(One of Priscilla Deters' early brochures for her matching program anticipated and tried to neutralize this question: "Isn't the [matching] concept too good to be true?" The reply cited an irrelevant Bible verse, then declared, "It is not too good to be true - it is GOOD BECAUSE IT IS TRUE!")

In 1997, a sadder but wiser David Brock, surveying the wreckage of the Friends Ministers Conference, saw it differently. "This is nothing very original, but when you think you're getting something for nothing, you're probably headed for trouble."

None of these measures is foolproof, of course. Liberal Quakers get flimflammed too; prospectuses and licences can be faked; auditors can be fooled, at least for awhile. So perhaps the most important counsel for those who are victimized is this:

Speak up. Get mad.

Raise hell, like Mary Washburn, and Leatha Hein.

Don't suffer in silence.

Janet Reno told an interviewer that, "It is very important, and I just urge anyone who is reading this to understand how important it is to call, to call and let us know if you have been the victim of a crime...."

Dick Johnston agrees. "The situation with white collar crime today is not unlike the underreporting of rape a few years ago, when we couldn't get many victims to come forward. We've done good work in overcoming that with regard to rape; but we're not there in this area yet."

To which I would add: don't expect an instant response; we've seen how difficult law enforcement work in these cases is.

But keep the heat on. Another cliche still applies--The squeaky wheel gets the grease. Remember how feverishly Priscilla and Phyllis and Eugene Coffin worked to keep Will Haworth quiet? A fraud victim's embarrassed silence aids the crooks.

In the Harmon case, the two Quaker heroes are the widowed sisters, Esther Hardinger and Lois Hutson. They had the nerve to overcome their shame. They stood up in front of the Washington press corps to speak of their victimization, and their anger. Their small voices make the orchestrated silence in places like Newberg, Oregon echo even louder and more hollow.

XVII

Phil Harmon is going to jail. Priscilla Deters may end up there too, along with several others we have spoken of. In a few years, or maybe longer, authorities in Washington and California might recover some money for Phil's brother Howard, his sister, Terry Beebe's mother Norma, the Dakota Nazarenes, Cherokee friends, and so many others. Keep your fingers crossed.

But even if all the money in these two scams were returned, and all the perpetrators locked up, there will be--there already are--new "affinity group" con artists waiting to take their places. Satan never sleeps, or plays theological favorites. The prophet Jeremiah said it: "The human heart is deceitful above all else...who can understand it?" (Jer. 17:9)

New swindlers will be targeting you and me, our life savings, and our churches' bank accounts. This is as sure as sunrise tomorrow. We had better be ready.

Friends are advised.

>Copyright (c) by Chuck Fager. All rights reserved. Reproduction in any form prohibited without written (i.e., hard-copy) permission from the author.

Sources

Note:Neither of the defendants in these cases is talking to reporters. However, each has left a significant paper trail, which has been followed up as diligently as was practical given the limitations of time and resources.

Interviews

(Note: most of these interviews were conducted by telephone,)

Bailey, Anthony Jay

Bailey, Jackson

Bales, Dorlan

Bales, Elenita and George

Beebe, Norma

Bertz, Michael

Boles, Paul

Britt, Viola

Brock, David

Brown, George and Janet

Carl, Johnnie

Chambers, John, Sr.

Claus, Tom

Clements, Richard

Coffin, Joe

Coffin, T. Eugene

Coughlin, Tom

Cole, George W.

Coltrane, Kay

Conn, Earl

Craven, Wade

Crawford, George

Crystal Cathedral Information Staff

Eidson, John

Frazier, Royce

Fulp, Mike

Geis, Gilbert

Gerick, Joe

Gradert, Steve

Graves, Robert

Greene, Janice

Gurney, Annette

Hacienda La Puente (CA) School District

Hardinger, Esther

Harmon, Philip

Haworth, Will

Haynes, Patricia Devol

Hein, Leatha

Hise, Chuck

Houghton College (NY) Information Staff

Hutson, Lois

Indiana Wesleyan University Information Staff

Jennings, David Reese

Johnston, Richard

Johnston, Robin

Jorgensen, Christel

Littlefield, Charlene

Littlefield, Randy

Miller, Yvonne

North American Securities Administrators Association

Newby, James

Parker, James

Pike, Carter

Pinkham, Dave

Pitts, Herbert

Roberts, Maurice

Robinson, David

Schroeder, Stephen

Shaw, Curt

Stanley-Green, Della

Swem, Judy

Thomas, Anne

Trent, Linda

Vaughn, Delbert

Virden, Robert

Wagoner, Scot

Walnut (CA) Police Department

Washburn, Mary

And several who prefer to remain unnamed.

Depositions/Affidavits/Declarations

(Note: Duplications of names between this and the preceding list refer to separate statements.)

Allan, Edward

Ashworth, Wayne

Chambers, John Sr.

Cochran, Phil

Deters, Loren

Deters, Phillip

Deters, Priscilla

Donley, Brian

Fulton, Gary

Graves, Robert

Hagemeier, L. Charles

Haworth, Will

Littlefield, Randy

Lynch, Michael

Manning, Rodger

Millhuff, Charles

Neuenschwander, Dwight

Neuenschwander, Evonne

Noonan, John

Overstreet, Stanley Spencer

Skinner, Galen

Skinner, Susan

Stansbury, Richard

Stansbury, Margaret

Steiner, Bradford A.

Swem, Judy

Taft, David

Taft, Christine

Valadez, Mark

Court Cases

Deters/Productions Plus

1991--Desist and Refrain Order, California Department of Corporations

1991--Cease and Desist Order, North Dakota Securities Commissioner.

1992--Theme Park Ventures, Inc. vs. The Graves Company of Kissimmee, (Florida)

1993--The Graves Company of Kissimmee vs. Theme Park Ventures, Inc. (Appeal-Florida)

1994--Application for Search Warrant, California.

1995--Troy B. Cooper and Mamie L. Cooper vs. Theme Park Ventures, Notice of Sheriff's Sale. (Orlando, Florida)

1995--The People of the State of California v. Productions Plus; World-Wide Community Service Custodial Trust; Priscilla J. Deters; and Does 1 through 200. (Injunction-Receiver)

1996--United States of America v Priscilla J. Deters. (Criminal Indictment)

Philip Harmon

State: Cease and Desist Order, November,

1996 (Washington State Department of Financial Institutions)

Federal:

Criminal--U.S. v. Philip E. Harmon

March, 1997--Complaint for Violation

March, 1997--Arrest Warrant

May, 1997-----Motion for Clarification of Conditions of Release

August 1997---Plea Agreement

September, 1997-Information (Indictment)

(Supporting documents and reports for this case also reviewed.)

Civil-------U.S. v. Philip E. Harmon, Philip S. Harmon, Terrill D. Beebe, Philip E. Harmon Assoc., Inc., Northwestern Investment Co., Inc., Island Mortgage Company, Inc., and Marvel enterprises, L.L.P.

February, 1997--Complaint for Injunction

February, 1997--Temporary Restraining Order & Receivership

March, 1997 --Preliminary Injunction

(Several volumes of additional documents pertaining to this case also reviewed.)