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The ‘Phantom Knights’

Lawsuit claims Knights Of Columbus leadership inflated numbers for insurance fraud

This is mighty discouraging. BuzzFeed News reports on the details behind a lawsuit accusing the Knights Of Columbus, the international, US-based Catholic fraternal organization, of falsely inflating membership numbers  so it could continue to profit from its life insurance business. The lawsuit claims that local Knights chapters were told by headquarters that they could not purge their rolls of members they believed were dead or inactive — and that local chapters had to come up with the dues money for these “phantom Knights,” or face being kicked out of the organization.

BuzzFeed spoke to a number of Knights about the situation, and reports evidence backing up the lawsuit’s claims. Excerpt:

In its court filings, UKnight says they have spoken to “numerous” local councils that tell the same story as the members who spoke to BuzzFeed News, being forced to keep “phantoms” on their rolls and and pay their fees to the state and national organizations. The lawsuit cites examples: a New Jersey council that listed having 316 members, but in reality had only 54; a Texas council that attempted to purge 80 members who hadn’t paid dues in years, but were told by Knights above them that they were only allowed to remove eight. Another council tried to remove half its listed membership due to inactivity — about 200 members — but were denied by leaders on the state and national level.

Councils set their own membership fees, which can vary from around $30 to $100. If a council had 200 phantom members, the paying members could be forced to cover anywhere from $6,000 to $20,000 in extra dues. Often the local chapters just gave up and paid the extra dues themselves, the men told BuzzFeed News. Sometimes the Knights paid out of pocket for the phantom members; other times they were forced to dip into the money they had raised for charity. (The Knights of Columbus councils hold frequent fundraisers to keep the organization and its charitable works afloat.)

“Why should our fundraising money go to pay dues?” McAtee said. “It should go to do our charitable works, the main reason the Knights exist.”

Eventually McAtee was so disturbed and disillusioned by this, he said, that he resigned from his post. Now, years later, he is considering filing a lawsuit over the issue, and talking with his fellow Knights about disbanding his local Knights chapter all together.

“If you follow the money, you will find the truth, and that’s what I did,” McAtee told BuzzFeed News from his home in Mobile, Alabama. “It’s time for it to come to a screeching halt. I mean, this is just simply not right.”

We’ve all heard about the Knights of Columbus, but I bet not many of us outside of the organization knew that it was not only a charitable fraternal organization, but also

 a major life insurance company. In 2017, the Knights sold $8.78 billion in life insurance to its members, and the Knights’ website says it has a total value of more than $100 billion of life insurance coverage. In 2017, [KofC leader Carl] Anderson made an annual income of $1.4 million, down from $2.2 million in 2014.

“As a result of these revenues, [Knights of Columbus] Supreme and its executives, in contrast to the local councils, sit among the world’s elite power,” the lawsuit argues.

The Knights say they have 1.9 million members in the world, but the lawsuit alleges they are inflating this number by about 30% in order to keep its insurance rating high and keep selling more policies. In its website’s FAQ under “Is the Knights of Columbus financially strong?” its response is that the Knights have “42 years of superior ratings for financial strength” and currently is rated A+ by the insurance rating agency AM Best.

So why is this such a big deal? More:

As well as Catholics in general, men with Knights life insurance seem to be growing older without new young customers to replace them, three insurance agents for the Knights of Columbus told BuzzFeed News. Membership sheets of nearly 100 members provided to BuzzFeed News from different chapters of the Knights showed that the majority of those insured with the Knights were more than 50 years old, and many were in their sixties and seventies. If younger people aren’t buying policies and paying into the life insurance pool as those insured with the Knights grow older and die — or from the point of view of life insurance, stop paying into their funds and collect life insurance claims — the Knights will find themselves giving out more money than they are taking in.

BuzzFeed reporter Ema O’Connor goes on to quote the judge in the case complaining in a May pretrial hearing that the Knights have resisted her efforts to get basic financial data from them. The judge said, according to the court transcript, “All that has done to me is make me wonder if there’s something there … it makes me wonder what’s going on.”

Read the entire story. 

It’s important to recognize that the Knights of Columbus distributes tens of millions of dollars annually on charity, like disaster relief. The lawsuit’s does not claim that the Knights fail to do this. The lawsuit is limited to claims about the Knights’ overall membership, and how alleged membership inflation has falsely kept the Knights’ insurance business rating high.

On the Knights’ insurance business page, Supreme Knight Carl Anderson says that the order’s insurance business has experienced “17 consecutive years of growth.” He explains it thus:

I firmly believe that our moral compass has helped guide us through a turbulent decade and an uncertain economy. While other companies were making ethically questionable and unnecessarily risky decisions, we were not. While others were looking for novel ways to do business and to increase profits, we were not….We stayed true to our principles and knew that if we did the right thing for the right reasons, we would get the results that we wanted — and we have.

From an interview with Anderson on another page of the KofC site:

Supreme Knight: The Knights of Columbus is not like “most insurance companies” because we are not concerned with profit in the way a traditional business is. Our “bottom line” is different. It’s not a question of how much money we made; it’s a question of how many Catholic families we protected. That is our mission.

The lawsuit — here’s a link to the filing — challenges this narrative. It goes to trial on Monday in Colorado. Depending on what comes out in the proceedings, we may learn that the Knights of Columbus’s leadership exploited the little guys in the thousands of chapters around the country, and turned the respected organization into a front for an insurance scam. If the lawsuit’s allegations stand up in court, that means that some of the proceeds taken in by this tax-exempt organization have really been going to keep the insurance business alive on false, Ponzi-like premises — and, it would appear, to keep paying the big salaries of the organization’s leadership.

In this screenshot for the federal 990 form the K of C filed in FY 2017, we see the salaries of the top leadership of this non-profit, tax-exempt charity, including the board of directors. Notice that Archbishop William Lori of Baltimore was paid $125,000 as a director of the Knights, for one hour of work each week as the Knights’ “Supreme Chaplain” (plus nine hours weekly for “related organizations,” which means … what, for an archbishop?).

Are any of this blog’s readers involved in their local Knights’ chapter? If so, what does these allegations sound like to you?

Aside from the many good works the Knights do, the organization has also been active in socially conservative political causes. If the court finds for the plaintiffs in this lawsuit, the loss of the Knights’ leadership’s credibility will be a blow to social-conservative political fortunes.

UPDATE: Kat Blomquist, a spokeswoman for the Knights Of Columbus, reached out to me with this statement:

“Recent media interest in a contract lawsuit with a company aspiring to be a vendor of the Knights of Columbus has focused on our organization’s membership retention processes. Some of the claims made by this company were dismissed early in the case, but some media reports are reporting inaccurately and failing to mention these facts. We look forward to responding to the remaining contract issues before a jury in the coming weeks, but in light of incorrect news reports we believe we must stand up for the integrity of the Knights who are driven by its mission of supporting fellow members and their families and helping those who are not able to help themselves.”

Blomquist clarified in a subsequent e-mail that the racketeering claims were dismissed by the court in 2017, but BuzzFeed did not report this. This is important. If the court dismissed the claims not related to the contract issues, then where does this leave the BuzzFeed story? That is, if the court dismissed the claims of the lawsuit that have to do with membership retention, and dismissed them because the judge found them unpersuasive (as opposed to, say, irrelevant), then that dramatically undermines the case the critics cited in the BuzzFeed article make.

Stay tuned. If you find any more detailed information on this, send it to me.

UPDATE.2: A reader writes (and gives me permission to post):

I’m a 4th Degree K of C (a member of a council at St. Gertrude’s in Cincinnati, Ohio, as are most of the Dominicans you met when you were recently here).  I have been following this lawsuit.  But there are a number of issues that need correcting in both the Buzzfeed article and your post.

Fr. Michael J. McGivney founded the K of C with the primary purpose of providing life insurance for Catholic men.  He literally became an expert on insurance for this very reason (see the book Parish Priest by Douglas Brinkley).  In fact, Father McGivney cared very little for the rituals, ceremonies, uniforms, etc.  (Although, Catholic men joining secret societies at the time was hugely problematic and having a healthy Catholic alternative for male fellowship/fraternity was also very important).

Membership in a council and membership in the insurance program are two separate things.  A member of a council is not necessarily a member of the insurance program, but because of our charter, an insurance member must be a Knight (or a minor child of a Knight).  For example, I pay $25 for annual membership fees (which probably only covers my subscription to Columbia Magazine), but that does not put me into the insurance program.  I chose to enroll in the insurance program separately, of my own volition and pay for that through my premiums, but it’s not required.

However, I am not sure why there is this negative implication about the insurance component in the first place.  Insurance is an important financial tool.  I have a wife and five children and I am the primary breadwinner.  I want to make sure that in the event of my death, they will not become destitute and lose their home.  I cannot afford to save the amount of money they would require to maintain their current standard of living, hence the benefit of having life insurance.  This is a really good thing!

My wife and four of our five kids have a rare genetic immune disorder.  I haven’t found a secular life insurance company yet that would underwrite people with their condition.  But, the Knights did!  At least, I was able to purchase life insurance for my minor children that, when they turn 18, they can continue to have and increase if they so desire, or cash out.  K of C underwrote them when no one else would.  So, now I’m helping to ensure my kids can better financially protect their families should they have them.  I fail to see why this is something negative or nefarious?

Furthermore, unlike secular insurance companies, the K of C is careful to invest in funds that do not violate the teachings of the Church.  For example, they famously dumped their investment funds in Disney when that company clearly went down the LGBTQ advocacy path – maybe this explains Buzzfeed’s interest in the case?

As for the lack of new, younger members, to both councils and the insurance program, this is certainly an issue.  But, that’s also a broader issue for the Catholic Church, Christians in general, other faiths, secular volunteer/civic/community organizations, etc.  Younger people are generally too busy, too disinterested, too cynical, to join and belong to these important endeavors.  I’m 45 and although I’m not the youngest member of my council, our membership does lean heavily toward men 60 and older.  We do need younger men to join and engage – and I have no issue supporting that effort.  I think “Phantom” Knights are more of an issue at the council level.  We do have many on our rolls that are not active.  It’s a problem; one we’re working on.  But, let’s be clear, we all suffer if these type of institutions fail.  You can clearly find out all of the charitable programs the Knights sponsor – charity regardless of religious affiliation.

Finally, yes, Carl Anderson is one (presumably) wealthy man and I’m sure his salary is more than I’ll ever know.  But, on some level, I don’t really care.  If the man is making more than he’s worth, or not charitable with his own income, that’s on him and the Supreme Council.  However, there needs to be some clear context here.  He is, in effect, the CEO of an international organization, the insurance side of which manages $24 billion dollars in assets and has $88.4 billion dollars of Insurance in Force.  I want the best man for that job; I’m sure it requires a special skill set.  And, unlike other CEOs, he is also an ambassador of sorts.  I certainly don’t know the man, but he is actually one of the reasons I joined the K of C.  I kept seeing him out there, not just rubbing elbows with the popes and presidents, but actually evangelizing the culture.  I enjoyed his (pre-BenOp) books: A Civilization of Love: What Every Catholic Can Do to Transform the World and Beyond a House Divided: The Moral Consensus Ignored by Washington, Wall Street and the Media.  I don’t think he handled the transition from the old 4th Degree Regalia to the new uniform, but in the grand scheme of things, that’s rather insignificant.  I also don’t know about the “salary” for Abp. Lori; it is my hope that there’s nothing scandalous lurking in it.  I don’t see how anything tangible can be gleaned from simply looking over a Federal 990 form.  Is that going in to his personal checking account? Does it go to the Archdiocese of Baltimore to reimburse for the time taken away from his archdiocese?  Does that get donated to some other charitable cause?

Given the scandals of the last 2,000 years(?!), I don’t have an issue with someone asking pertinent questions, digging in to see what this is all about, but I would wish that more was known before things start getting reported.  Given your mission over the last decade, I would expect you to be a little more supportive of the K of C.  After all, we’ve been trying to evangelize the culture, create intentional disciples, and promote family security (all “BenOp” goals, no?) since 1882 – sometimes we’ve been very successful (remember that every time you say “… under God…” in the Pledge of Allegiance).  As a Knight, I feel that there is a real focus on our organization right now, and for all of the wrong reasons.  I’m sure, like every organization, we too are in constant need of reform, but I am also incredibly honored to be a Knight of Columbus.  In my personal experience, I serve with some of the finest men I have ever known and I would hardily encourage every practicing Catholic man over 18 years old to join… and even, to buy the insurance!



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