------------------------------------------------------------------- F.A.C.T.Net, Inc. (Fight Against Coercive Tactics Network, Incorporated) a non-profit computer bulletin board and electronic library 601 16th St. #C-217 Golden, Colorado 80401 USA BBS 303 530-1942 FAX 303 530-2950 Office 303 473-0111 This document is part of an electronic lending library and preservational electronic archive. F.A.C.T.Net does not sell documents, it only lends them according to the terms of your library cardholder agreement with F.A.C.T.Net, Inc. ===================================================================== SCIENTOLOGY'S ALLEGED ONE-HALF- BILLION DOLLAR FRAUD SCIENTOLOGY'S FINANCIAL HISTORY A short history of Scientology's previous financial misconduct and fraud is particularly relevant to the later details on Scientology's current billion dollar fraud on the court as alleged in the Wollersheim case. In 1969, the Court of Claims decided Founding Church of Scientology v. United States, 188 Ct. Cl. 490, 412 F. 2d 1197. The case involved the then mother Church of Scientology for 1956 through 1959. Scientology was denied a tax exempt status because payments were disguised and a portion of Scientology's income was secretly going to Scientology's founder L. Ron Hubbard and his family. In 1984, the tax court decided another Scientology case, the Church of Scientology of California v. Commissioner. The case concerned the þnewþ mother church for the years 1970 through 1972. Again Scientology was denied tax exempt status for covertly funneling money to Hubbard and his family, this time through dummy and sham corporations. This newer asset-skimming during the 70's involved money laundering through Panama and then transferring it to Switzerland and other foreign bank accounts. In Founding Church, the court states: þOTC, [Operation Transport Corp. Ltd.], was a sham corporation controlled by L Ron Hubbard and petitioner [C.S.C.], p. 399....Its board of directors lacked bona fides, p. 399.....To disguise these payments as debt repayment and to conceal the OTC sham a cover story was developed, p. 439. þIn pursuit of the conspiracy, petitioner filed false tax returns, burglarized IRS offices, stole IRS documents, and harassed, delayed, and obstructed IRS agents ... Petitioner gave false information to, and concealed relevant information from, the IRS about its corporate structure and relationship to OTC .... þChurch members at the highest levels of the hierarchy, not just ordinary church members, participated in the conspiracy, [emphasis added]þ p.505-506. In this decision, the court states that in the spring of 1975 the Guardian's office personnel (an intelligence division of the mother church): þengaged in a project to falsify petitioners' financial records. The project was undertaken in anticipation of an IRS audit p.436-437....During the years in issue these other percentages, fees, and commissions, so far as the record shows, were apparently received or receivable [from Scientology organizations] by Hubbard for his personal use. Such an arrangement suggests a franchise network for private profit and, in turn, casts doubt upon the propriety of the payments by plaintiff to Hubbard and the members of his family. The fact that Hubbard was the recipient of income from the plaintiff in the form of royalties and commissions likewise occasions the inference of personal gain...Not only can these payments in the absence of explanation, be properly attributable to the individuals as income, but the logical inference can be drawn that these payments were disguised and unjustified distributions of plaintiff's earnings.þ On July 8, 1988 the IRS rendered its Final Adverse Ruling to the newest mother church, the Church of Spiritual Technology (COST). This corporate entity was formed in part from stripped Church of Scientology of California's assets (the previous mother church). In this ruling, the IRS denies tax exempt status to the alleged now þreformedþ new mother Scientology church. Again, new and intermediary dummy or shell corporations were used to funnel money to L Ron Hubbard for his private benefit. þThe same persons who were in charge of Scientology prior to Mr. Hubbard's death hold positions of control or influence in some of these new organizations...Thus as happened in the Church of California case, the income of an allegedly exempt organization, (Church of Spiritual Technology should it obtain recognition of exemption), will be passed through a for profit corporation which is controlled by persons who also held positions of influence in the Scientology structure....þ þSuch self dealing does not lose its identity as private benefit and inurement merely because it is conducted through intermediary individuals and\or organizations.þ From the IRS's Final Adverse Ruling of July 8, 1988 to Church of Spiritual Technology, (COST), pages 8-10. In the preceding IRS rulings drawn from decades of investigatory experience, Scientology's bold and relentless willingness to lie in financial disclosures is repeatedly documented. Historic foundation for doubting Scientology's future financial credibility is repletely established. But just how far, loud, and long will Scientology deny any wrongdoing even when caught red handed? þThe California case also demonstrates inurement... amid continuous representations denying control by and benefit to Mr. Hubbard and a tenacious denial of the actual state of the organization's actual affairs in the face of overwhelming evidence establishing the true nature of the organization's operations,þ (p. 4) IRS's Final Adverse Ruling for COST of July 8, 1988. DETAILING THE ALLEGED BILLION DOLLAR+ FRAUD IN THE WOLLERSHEIM CASE In Wollersheim v. CSC, Scientology's executives, and possibly lawyers, and accountants in numerous ways have conspired and have deliberately presented false evidence and financial statements to the courts: 1.) From the time of the Wollersheim filing to the conclusion of his trial, they have falsely represented to the trial court that L Ron Hubbard did not continue to exercise absolute control over Scientology's corporations and assets, including CSC, whether reorganized or not. (1979-1986.) 2.) In what demonstrates Scientology's ongoing belief in þwhatever you can get away with is fair game,þ the Church of Scientology of California also falsely represented to the court that the new corporations created out of the old mother church's assets (CSC), had a separate corporate integrity. 3.) Scientology further falsely claimed that the asset and liability transfers out of CSC were at fair market value, 4.) and that the control of the old CSC assets had passed out of the control of the same key management principals who had previously controlled CSC,and, 5.) While simultaneously asking the California appellate court in Wollersheim to lower the punitive damage award of the lower California superior court, Scientology continued to represent to all the higher courts up to and including the U.S. Supreme Court the fraudulent net worth statement of 16 million dollars. This financial representation is missing approximately billion dollars in assets. When all the figures are in, this may be the boldest and biggest fraudulent conveyance and bravado bluff begging to be called by an organization claiming religious status in American judicial history. HOW IT WAS ALLEGEDLY DONE To effect this financial and corporate fraud, Scientology stripped the non-tax deductible church of Scientology of California of almost all assets and income production divisions. It then, in nonequivalent adjustments, fraudulently conveyed those assets in some cases to other newly created, as of yet unchallenged by the IRS, tax deductible sham corporations. These audacious false claims and the creation of yet another new set of dummy and shell corporations by Scientology did not go unnoticed. The plaintiff's attorney in Wollersheim consistently argued throughout the pleadings at the California Superior, Appeal, and Supreme courts that all the assets of the mother church, CSC, were never out of the actual and absolute control of the very same key principals of the original CSC. The plaintiff 's attorney argued particularly that L. Ron Hubbard's absolute control through David Miscavige and other key members of the Commodore's Messenger Organization, (CMO), pierced all the newly created corporations. He presented witnesses in former authority in scientology, detailed evidence, and charts. These evidences began to show which assets were stripped from CSC, when they were stripped, and their approximate value, 300-500 million dollars. At the time of trial, the plaintiff's attorney in Wollersheim was grossly hindered from presenting other key evidences and witness testimony that would conclusively show Scientology's fraud upon the court and that would totally refute Scientology's financial credibility. In part, he was stopped from using many of these evidences and witnesses because: 1.) Scientology was appealing much of this evidence under the attorney-client privilege exclusion all the way up to U.S. Supreme Court. 2.) Key witnesses like Laurel Sullivan, Gerry Armstrong, and others were also under restraining orders from discussing or testifying on the financial fraud matters under appeal until they were resolved by the higher courts. 3.) In 1985 at the time of the Wollersheim trial there were also other unconcluded government legal actions and investigations into the actual managing and controlling principals of Scientology, Scientology's financial practices and credibility, and the asset transfer histories of some of the original CSC assets. Scientology was also using every possible appeal and delaying tactic to thwart the use of these new government evidences in any other legal actions of the time. 4.) These hindrances are particularly important when they are added to Scientology's other effective intimidation of non-restrained critical witnesses from testifying concerning its corporate and financial fraud on the court. (Wollersheim had key witnesses back out after þcoincidentalþ alleged intimidation. ) These four combined tactics effectively barred additional critical conclusive evidence of fraud from surfacing and being entered during the original Wollersheim trial. At the current time, the evidences from these other now-concluded government actions, investigations or Scientology appeals have now been ruled admissible or are part of the public record. Some of this new, but no longer barred, unavailable, or inadmissible evidence regarding Hubbard, Miscavige, and Starkey's continuous control, corporate and financial activities, and illegal handling of the assets of the former mother church, (CSC, ) will now be presented. (Misgavige and Starkey are the current key leaders of Scientology.) þIn the Founding Church of Washing- ton D.C. v. Director, FBI, 802 F.2d 1443, (1985) cert. den., 56 U.S.L.W. 3231 (Oct. 6. 1987) to which the service was a party, the government successfully argued that L. Ron Hubbard should be required to appear and be deposed because he was the managing agent [emphasis added] of the church.þ (p. 2). þUtilizing testimony of witnesses from the Armstrong case, the government successfully argued that Hubbard was the managing agent of the Church of Scientology as late as 1984.þ (p.4) þSo far as we can discern, the record reveals no evidence that Hubbard intended to end his relationship with Scientology, but only that he wanted, in his unfettered discretion, to determine whether and how to continue that relationship. Ultimate control, we have no doubt. he possessed until his death.þ (p. 33, quoting from the FBI evidences in Founding church of Scientology of Washington D.C. v. Director, FBI.) and obstruction of justice in the Wollersheim court. The previous three paragraphs are quoted directly from the IRS's final adverse ruling of July 8, 1988 to the Church of Spiritual Technology, (COST). (COST is the new corporate church entity formed out of the old mother church's assets (CSC), after the MCCS project. The MCCS project will be described shortly.) Scientology's witnesses testified and Scientology's attorneys successfully argued that L. Ron Hubbard should be dismissed from any liability in the Wollersheim suit because he was not the managing agent and had no control of Scientology. Because of this perjury, Hubbard and now the Hubbard estate should now be prosecuted and be put back in the Wollersheim case or be prosecuted separately. þIt was common knowledge among senior executives of CSC that Mr. Hubbard had absolute control of all large corporate bank accounts and that he, alone, had the authority to order the withdrawal of very large amounts from these accounts. He controlled these accounts through various people, mainly CMO members. Neither the directors of CSC nor any other CSC executive had such authority or control....þ From another Armstrong affidavit of July 26, 1982. THE COMMON PERSONNEL OF SCIENTOLOGY'S UNIFIED CONTROL The common denominator to absolute control of all of Scientology's assets above, beyond, and piercing the veil of all corporate entities or appearances was and is L. Ron Hubbard, through the CMO, specifically the persons of David Miscavige and later David Miscavige and Norman Starkey. This original arrangement existed from before the time Wollersheim filed his suit in late 1979 until after his trial in 1986. It continued at least until the alleged date of L. Ron Hubbard's death in early 1986. From early 1986 until the present, this absolute control of all of Scientology's assets above, beyond, and piercing the veil of all corporate entities, or appearances has continued to be in the hands of David Miscavige and Norman Starkey, if and only if Hubbard is truly dead. The preceding personnel were able to, as either alter egos, or by virtue of their official positions or agency, or by their other coercive and illegal corporate activities, exercise absolute control and an undue influence over all Scientology corporate entities, directors, and assets. The preceding parties allegedly used their positions for their personal profit at times effecting this profit through the other post-CSC corporations and corporate pockets that they created, controlled, or unduly influenced. þIn early 1980 I was also assigned to a mission, the purpose of which was to work out legal strategies, and get them implemented, which would allow Mr. Hubbard to still control all of Scientology via his Commodore's Messenger Organization, [CMO], while being shielded from any lawsuits or legal involvements or responsibilities.þ (Above quote from Armstrong affidavit of July 26, 1982.) þIn 1980 and 1981 I was assigned to lead the `Mission Corporate Category Sort Out' project. The purpose of this project was to restructure all Church-related entities in a way that it would make it clear that L. Ron Hubbard was not the alter ego of Scientology and in control of all Scientology organizations... Numerous proposals for this restructuring were developed and discussed by high officials of the Church. Legal advice was also sought to ascertain whether the restructuring could be accomplished legally. The project dragged on for longer than necessary because of a disagreement I had with David Miscavige. I was unwilling to restructure the church in a fashion whereby L. Ron Hubbard could continue to assume control at any moment. I determined that for L. Ron Hubbard's own safety he should sever all controls. Miscavige insisted that L. Ron Hubbard be able to maintain control. Therefore Mission Corporate Category Sort-Out was disbanded and Mary Sue Hubbard removed, and Terry Gamboa and Norman Starkey hired new lawyers on L. Ron Hubbard's instruction and they fashioned the structure in place today. þMr. Hubbard died on January 24, 1986. But his death did not alter the history of Scientology's prior operations. Moreover the same individuals who controlled Scientology operations prior to Hubbard's death, and who participated in arrangements which resulted in inurement and private benefit continue to control your operations and those of other top level Scientology organizations after Mr. Hubbard's death.þ (From IRS's Final Adverse Ruling of July 8, 1988 to Church of Spiritual Technology, (COST), page 4.)in key management positions in CSC, or both, or either the MCCS project, or the previously mentioned CSC conspiracy, the same conspiracy which sent many of Scientology's top executives to jail. Hubbard in the end was true to his absolute and well known internal vow of never appearing personally before any government agency. Just days before he had been ordered to appear in court on the before mentioned Founding Church FBI case, Hubbard allegedly died in January 1986. His remains were rushed to cremation after a small-town autopsy. This was also curiously just days before the jury in Wollersheim reached a final unanimous verdict favorable to Wollersheim after conducting a 6 month trial. MORE FROM THE MCCS TAPE TRANSCRIPTS From the affidavit of Gerry Armstrong of February 11, 1985: þThe whole purpose of the MCCS project was to defraud the federal government, litigants against the church [emphasis added], and the courts into believing Hubbard had no involvement with Scientology.þ On June 20, 1990, the MCCS tapes were remanded from the Supreme Court and the 9th Circuit Appeals court in the Zolan case(CV 85-440-HLH). stated: þThe purpose of the MCCS project was to cover up past criminal wrongdoing....The MCCS project involved the discussion and planning for future frauds against the IRS in violation of 18C USC 371....The figures involved in the MCCS admit on tape they are attempting to confuse and defraud the U.S. government.þ From the þDefendants Proposed Findings of Uncontroverted Factþ of November 22, 1989 in COST v. U.S. in which the IRS for its ruling relied in significant part on the affidavit of Gerald Armstrong who was authorized by the church to possess and transcribe the MCCS tapes. þOn or about September 28, 1980, a meeting took place in the Cedars Complex at Los Angeles, California, one of the corporate headquarters of the Church of Scientology of California, (CSC). The Meeting was attended By Charles Parcelle, (CP), Deputy Guardian for Legal, (DGL), at WW, who was in charge of all legal activities for Scientology throughout the world and Laurel Sullivan, (LS), the Personal representative of L. Ron Hubbard, a long term senior executive of Scientology and then In Charge, (IC), of a special legal mission, (MCCS), which mission was seeking to conceal Hubbard's control of Scientology and develop strategies to effectuate actual control by Mr. Hubbard without incurring legal responsibility.þ(p. 37). Coincidentally, on the same day in 1991 that the U.S. Supreme Court remanded the Wollersheim case back to the California Appeals court (to review its previous reduction of Wollersheim's punitive award in light of its just-completed Pacific Mutual v. Haslip ruling that allowed for the due process constitutionality of punitive awards), the U.S. Supreme Court also ruled, as in the lower Appellate court, that the MCCS tapes were now admissible as evidence.U.S. 89-1361 the Church of Scientology v. Wollersheim also before the U.S. Supreme Court at the time of its Zolen ruling, the simultaneous rulings on both issues on the same day hardly seem surprising or unconnected. The Zolen MCCS tape and Scientology's net worth and financial fraud issues were discussed in detail. HOW THE FRAUD WAS ALLEGEDLY EFFECTED THROUGH SCIENTOLOGY'S CORPORATE STRUCTURE In spite of Scientology's greatest effort ever to confuse and to create complex, false, and misleading cover stories and significances to misdirect, overwhelm, and introvert potential government and civil investigators regarding the corporate integrity of its post-MCCS corporate structure and its billion fraudulent conveyance, the fraud really is quite simple. In late 1979 or early 1980 Wollersheim filed his lawsuit against the Church of Scientology of California, (CSC, the mother church of Scientology at this period). It contained the following assets, subsidiaries, and income producing divisions solely within its corporate structure: The Advanced Organization of Los Angeles (AOLA); the American Saint Hill Organization (ASHO); the Flag Ship Organization in Clearwater (FSO); the Publications Organization (PUBS U.S. ); the Estates organization (ESTATES); Flag Operations Liaison Office West U.S. (FOLO WUS); the Los Angeles Organization (LA ORG); Cadet Organization; the San Francisco Organization (SF ORG): the United States Guardian office (USGO), financed by the U.S. Mission Network through the Guardian's Office Worldwide; The Sea Organization Reserves; The Watchdog Committee (WDC); the ED International (ED INT); and the Commodore's Messenger Organization (CMO). What was left at the time of Wollersheim's trial in 1985 was a gutted CSC with almost no remaining income production sources, having only the non-income producing USGO that was first stripped of its Mission Network income. All of these stripped assets never left the absolute control, use, and benefit of those who had absolute control of the CSC at the time of the Wollersheim filing. The same individuals who ultimately created the new dummy corporate pockets, to which the CSC assets were later transferred, still control those corporate pockets. In inflated, non-equitable, and bogus asset and liability adjustments and transfers, CSC gave away 90 to 95% of its assets. It stripped out of CSC its most important income producing and valuable assets during the 5 year waiting period for a court date in the Wollersheim case. The new corporations derived out of CSC assets were formed with the specific purpose to remove the assets from CSC to defraud litigants, the courts, and the state and federal tax divisions. The new corporate þpurchasersþ of CSC assets had full knowledge of pending tax and civil lawsuits in which losing was near certain and soon to be realized. With advance anticipation of defeat due to internal recognition of their own actual torts and illegal activities in the Wollersheim and other cases, Scientology deliberately used the new dummy corporate structures and their fraudulent conveyances to those structures to attempt, among other things, to shield, extinguish, or lower punitive and other liabilities in light of California's þdefendant's net worth criteriaþ for the determination of fair and adequate punitive liability. Artifices were then planned and implemented to escape investigation and to mislead or hinder appropriate organizations seeking accurate information. þIn January 1980, fearing a raid by law enforcement agencies, Hubbard's representatives ordered the shredding of all documents showing that Hubbard controlled Scientology organizations, finances, personnel, or the property at Gilman Hot Springs. In a two week period, approximately one million pages were shredded pursuant to this order.þ (From the decision of the California appellate court, 2nd. district, 3rd. division, July 29, 1991, B025920 & B038975, Super. Ct. No. C 420153.) In these asset transfers, subsequent events help prove Scientology's prior intent. Indicative of Scientology's inequitable non-market value transfers is an 85 million dollar credit to Hubbard and a debit to Scientology. It was called by Scientology, a backdated inventor's royalty for an E Meter Hubbard NEVER INVENTED. This is reminiscent of a similar earlier tactic that was disclosed by the IRS in the Founding Church litigation. þProbably the most covert form of compensation paid to L Ron Hubbard was tithes (or a percentage of the gross income) which petitioner and other Scientology Organizations routed to him in the guise of þFounding Debt Payments.þ This bold level of fraud can be expected to be repeatedly found in like style in any diligent and complete CSC asset and liability transfer by transfer analysis. The newly created non-taxable and taxable post 1980 Scientology corporations were organized, operated, and controlled in significant part as to be mere instrumentalities or adjuncts of the original now-stripped, taxable or soon to be taxable CSC corporation. They became defacto subsidiaries and new corporate pockets that took over the assets of the original CSC subsidiaries. WHENEVER SUCH MASSIVE FRAUD AND FRAUDULENT ASSET CONVEYANCE IS DISCOVERED IN NON PROFIT CORPORATIONS, NON-PROFIT CORPORATIONS CAN AND ALSO SHOULD BE PIERCED IN THE PUBLIC INTEREST. From the MCCS tape transcript: þThere is no need at all for them to be the Board of Directors in order for them to run the Church, but the authority of the Church has to lie somewhere, and on some basis. And since the Church has always chosen a corporate entity, eventually the authority is going to have vest with the Board of Directors. The only reason it's worked so long without that occurring is because everyone has effectively been bound by the authority of LRH and have ignored corporate lines....þ þ[Charles Parcelle] We could say that the RRF, [Religious Research Foundation], and CSC are part of the same church, even though they are corporately different. I mean if anything was a sham corporation, it's RRF. [Allen Wertheimer attorney for L. Ron Hubbard answers.] As I understand it RRF receives monies that would otherwise be due to the California Church for services rendered by the California Church to people outside of the country who decide to pay the Church from outside the country. [CP] That's right. [AWl So that's basically right? [CP] That's right. Foreign þ non-US Scientologists pay RRF, they go to Flag [the flag Ship Org, FSO] and take the services. RRF was originally supposed to hold the money until the service was rendered and then pay it to CSC. But in fact it has not really done that and so CSC has rendered much service to many foreign Scientologists and RRF has got the money. Fortunately for us RRF wasn't incorporated until 1973 and were litigating 1972. So I haven't really tried to sort this one out but it obviously is the classic case (loud laugh) of inurement, if not fraud (several laughs). [Laurel Sullivan] Well put. [speaker unidentified] It's all privileged. [Dick Sullivan] The tape recorder is going here Charles....þ þNow when you talk around a table like this and there is no internal revenue agent present, (whispered: I hope so), bugged or otherwise, one can work out solutions. But when you are a few weeks away from a trial and everything you say is going to be rammed down your throat, then you have to start looking at what actually happened. And its very difficult to assign significances to things other than what was actually being done at the time.þ Applicable at this time is a treasury policy of Scientology written by L. Ron Hubbard quoted by the IRS in the þDefendants Proposed Findings of Uncontroverted Factþ of November 22, 1989 in COST v. U.S. þ...The whole thing is to assign a significance to the figures before the government can. The whole thing is a mess only because arithmetic figures are symbols open to any significance. So I normally think of a better significance than the government can. I always put enough errors on a return to satisfy their bloodsucking appetite and still come out zero. The game of accounting is just a game of assigning significance to figures. The man with the most imagination wins...þ From the affidavit of Gerry Armstrong: þIt is common knowledge among senior executives of the organization and it is the policy of CSC that members of the Boards of Directors are mere figureheads, without authority or control, not for internal corporate reasons, but rather to vest control in Mr. Hubbard. I have personal knowledge that in order to carry out this corporate fraud, organizational executives have engaged in the various unethical practices including backdating phony Board minutes and forging signatures.þ On pages 8-10 of the IRS's Final Adverse Ruling of July 8, 1988 to Church of Spiritual Technology, (COST), the IRS tracks out part of the corporate shells, the unified management, and the asset transfer game regarding Bridge Publications and the International Sea Organization Reserves Trust. These are two of the biggest assets and income producers formed from the Publications Organization, (PUBS US), and the Sea Organization Reserves that were CSC subsidiaries and were stripped out earlier from the assets of Church of Scientology of California, CSC, during the Wollersheim case. NEW CORPORATIONS ROLLING IN INCOME AND ASSETS By late 1985 a growing list of defectors from the highest management levels accused Hubbard, (now the Hubbard estate) of having stolen as much as 200 million dollars from the mother church assets. This was just before his alleged death and just as the IRS was seeking an indictment against Hubbard. According to Vicky Aznerand who was involved in the evidence shredding and at the time was one of the 6 most senior executives in Scientology, Scientology worked þday and nightþ shredding documents the IRS sought. In 1987 Scientology reported to the IRS that its new corporate entity and now-world headquarters organization in Clearwater, (also created in significant part from CSC assets), had $206 million in a reserve pool. In their May 6, 1991 cover story, Time magazine reported that COST, [the new mother church,] reported a $503 million income in 1987 and that high level defectors say Scientology has another $400 million in secret bank accounts. When examined closely, one will again find COST using most of the assets of the stripped CSC and now receiving the income from CSC's previous leading income producers funneled through dummy and shell corporations, once again, ultimately and absolutely controlled by the same individuals who controlled CSC's assets before they were stripped out in fraudulent conveyances. Outside the capabilities and resources of Scientology or a major intelligence agency, the allegations made thus far would be astounding allegations. These actions mentioned were committed with the foreknowledge and/or approval at the highest management levels of the Scientology organization. Nothing gets done in Scientology's robotic organizational structure without detailed orders and programs which per policy must strictly follow either Scientology's secret or public policies. Many of these actions also may have been committed with the knowledge or through negligence in performing proper þdue diligence,þ by the legal and other þoutsideþ professional agencies employed by Scientologyþthe same professionals who are extensively aware of Scientology's criminal history. From the preceding facts, the questions of individual embezzlement and breach of fiduciary trust also now must be raised concerning the key Scientology management principals and their legal and accounting representatives, particularly in the creation of the Hubbard estate and the new Scientology corporations. Speaking of Scientology's corporate shell game in the IRS's Final Adverse Ruling of July 8, 1988 to Church of Spiritual Technology, (COST), pages 8-10: þThe past history of Scientology's operations suggests that the purpose of these organizations may be to disguise the fact that private interests are the ultimate beneficiaries of the reorganized operating structure....þ It would initially appear that Scientology has temporarily figured out how to keep beating and making fools out of the government, adverse litigants, and the tax people, and, getting new nonprofit religious exemptions after it has lost its old nonprofit exemptions. They do this by simply changing the old mother church corporations into new mother church corporations and then transferring assets out of the old mother church's to the new mother churches. They do this by acting faster than the justice system can move and complete litigation on its old corporations. Scientology simply stays one step ahead, BY STAYING ONE CORPORATION AHEAD of its victims and prosecutors. Moving fast in a slow and overloaded justice system has also been used by Scientology to deny the use of key evidences in the trial at hand. By taking numerous separate appeals to the U.S. Supreme Court, the delays effectively bar evidence from being used at the time. If they lose on the issue at a later date, at a higher court, as happened with the MCCS evidence in the Wollersheim case, the trial is over anyway. (In the Wollersheim case, Scientology has been all the way up the courts 4 or 5 times.) Because of this asset and corporation fast shift game, government agencies and victims must demand receivership proceedings for Scientology now and demand bonds be put up by them for their endless appeals. To do otherwise is to court disaster and the possibility of the religious version of the Robert Vesco þflee the county with hundreds of millions in cashþ story. SCIENTOLOGY'S HISTORY OF CRIMINALITY In 1979, nine of Scientology's top executives pleaded guilty to extensive burglaries, forgeries, þinfiltration,þ þobstruction of justice,þ and other crimes carried out against over 100 Federal agencies including the Dept. of Justice, The Dept. of Defense and the I.R.S. In U.S. v. Heldt et. al., the facts showed that church personnel had secreted and destroyed documentary evidence of crime, (688 F.2d at 1243 n.8), had committed illegal break-ins and theft (id. at 1244,1247,1248), had electronically bugged government offices (ibid), had lied to federal investigators and a grand jury (id. at 1246, 1247, 1248, 1249, 1253), had suborned perjury (id. at 1247, 1253), had forcibly restrained, kidnapped, handcuffed and gagged a potential adverse witness (id. at 1244, 1273), and had formulated þconspiracies to obstruct justice, steal government property, burglarize, bug, harbor fugitives from justice, and commit and suborn perjury before the grand juryþ (id. at n. 27 at 1258). In a memorandum urging stiff sentences for the Scientologists, federal prosecutors wrote: þThe crime committed by these defendants is of a breath and scope previously unheard of. No building, office, desk, or file was safe from their snooping and prying. No individual or organization was free from their despicable conspiratorial minds. The tools of their trade were miniature transmitters, lock picks, secret codes, forged credentials and any other device they found necessary to carry out their conspiratorial schemes.þ SCIENTOLOGY'S INTERNATIONAL CRIMINAL HISTORY In England, the þInquiry Into the Practice and Effects of Scientologyþ prepared for the House of Commons in 1971 (The Foster Report), produced a ban on Scientology that lasted several years. In 1977 Denmark, known for its tolerance, Scientology lost its protection contained in the criminal code of justice concerning the protection of religion. In 1982 the full Supreme Court of Victoria Australia ruled that Scientology was not a religion or religious institution but a sham. The court ruled Scientology was a body formed for an object that was illegal under criminal laws. In the mid 1980's France convicted L. Ron Hubbard in absentia for fraud. In 1988, in Milan Italy, 76 Scientologists were com- mitted for trial charged with offenses from fraud, medical malpractice and criminal con- spiracy to extort money, to unlawful detention. In a massive raid in 1990, Spain arrested 71 of the top international leaders of Scien- tology on charges ranging from fraud to tax offenses. The charges alleged involvement in forgery of public documents, coercion, labor law violations, and illicit association. On July 6, 1990, France arrested 6 of the top officials of Scientology in France for the illegal practice of medicine and fraud. If one was observing only a one time or single occurrence of þrenegadeþ criminal activity of one or more adherents, Scientology's criminal history could be less relevant. Here, though, these activities were a part of the secret written policies of the group. As the FBI and IRS have repeatedly uncovered, Scientology's actions and policies were created, approved, and ordered by the highest levels of the organization. These are the day to day activities of Scientology, not þrenegadeþ or þad hoc aberrational acts of individual employeesþþin spite of Scientology's never ending spewing of subsequent þdamage controlþ cover stories. þThis is a criminal organization day in and day out. It makes Jim and Tammy, (Baker), look like kindergarten.þ So says Vicki Aznerand, one of the six top executives in Scientology until her defection in 1987. PERVASIVE PRETEXT, RELIGION, AND SCIENTOLOGY A pervasive pretext standard has been used to address the need of maintaining the balance between not passing judgment on the value or verity of a claimed religious belief on the one hand, and preventing abuse of the liberality of the functional definition of religion on the other. An effective way to show pervasive pretext is through introduction of doctrinal literature not offered by the other side. SCIENTOLOGY'S PUBLIC ORIGIN Pervasive pretext is not found just in Scientology's secret materials. One can see intrinsic and extrinsic pervasive pretext in Scientology's public origin, history, policy and doctrine. Scientology and its alter ego, Dianetics, did not always claim to be a religion: þScientology had its earliest origins in the article entitled Dianetics: The Evolution of a Science which L. Ron Hubbard published in the May, 1950 issue of ASTOUNDING SCIENCE FICTION magazine. Dianetics was described in this article as þan organized science of thoughtþ which offered a therapeutic technique for the treatment of þany and all inorganic mental and organic psychosomatic ills, with assurance of complete cure in unselected cases.þ The science of Dianetics became further developed in subsequent writings by Hubbard and others. This development was solely scientific in nature, and religious aspects were not present. In 1952 Hubbard abandoned Dianetics as such and began to concentrate his energies on Scientology. Scientology was viewed by its followers as a science much broader than Dianetics and concerned with knowledge in general, while Dianetics dealt mainly with psychotherapy and the mind. Nevertheless, the two were quite similar in practice.þ The previously mentioned þFounding Churchþ case involved an effort by the Federal Government to condemn Scientology's E-Meter under the Food and Drug laws. The issue was one of þmislabeling,þ and the government was required to show false secular representations regarding the use and benefits of the device. In the þFounding Churchþ case the government made no effort to attack the þgood faithþ of the religious representations involved. Thus the Court expressly refrained from making certain holdings: þ(1) We do not hold the Founding church is for all legal purposes a religion. Any prima facie case made out for religious status is subject to contradiction by a showing that the beliefs are not held in good faith by those asserting them, and that forms of religious organizations were erected for the sole purpose of cloaking a secular enterprise with the legal protections of a religion.þ The case was then re-tried, and an opinion issued by the District Court entitled United Stags v. Article or Device, Etc., 333 F.Supp. 357 (D.D.C. 1971). The Court stated: þThe bulk of the material is replete with false medical and scientific claims devoid of any religious overlay or reference.þ (333 F.Supp. at 361) The Court's opinion directly and forcefully confronts the issue of claimed First Amendment protection by Scientology. The Court then held that the practice of Scientology was secular. (333 F.Supp. at 359) When the Commissioners of the City of Clearwater, Florida convened public hearings on Scientology on May 5-10, 1982, they received documentary and testimonial evidence with respect to the operation, activities and conduct of Scientology. Based upon the sworn testimony of witnesses, affidavits, state and federal court decisions, and miscellaneous documents reviewed and considered, the Commission made the following factual recitation: þEvidentiary fact: The Church of Scientology is currently engaged in a nationwide conspiracy to impede and obstruct municipal, state and federal taxing authorities, by adopting a religious and charitable guise to avoid payment of taxes.þ þThey (the public) want ministers. We will show them what ministers look like,þ (Vol. 1 p.41). Scientology's internal policy states: þChurches are looked upon as reform groups. Therefore, we must act like a reform group,þ (Vol. 1 p.196). Scientology has nothing to do with religion. The Church did not adopt the religious guise until it was necessary to seek First amendment protection, (Vol.4 p.405). Scientology uses a religious image checklist designed to falsely portray a religious image to mislead officials, (Vol. 2 p.238, 239). The Church uses ministerial garb to convey the appearance of religion, (Vol. p. 43). Church policy instructs members to lie to inquiring officials, (Vol.1 p.226,227). Scientology's expediently developed. þchecklistþ religious overlay is not the result of a sincere religious evolution but of Scientology's reactions to court losses, increasing liability for anti-social activities, and other negative legal confrontations. At the commission hearings, the son of Scientology's founder, L. Ron Hubbard Jr., who had been a top ranking Scientologist, testified that the reason his father began claiming Scientology is a religion was to escape problems he was having with courts, the IRS, the American Medical Association, and to make money, (Vol. 1 p. 276, 286). From Wollersheim v. Church of Scientology of California No. C. 332827 Cal. Super. (1986), exhibit No. 269, HCOPL 29 Oct. 1962, þReligionþ: þScientology 1970 is being planned on a religious organization basis throughout the world. This will not upset in any way the usual activities of any organization. It is entirely a matter for accountants and solicitors.þ Wollersheim's evidence disclosed that Scientology's hierarchy concocted a religious front for financial, legal, and public relations advantages. The religious front was to be used as a þsafe pointþ to obtain favorable tax status, to present a favorable PR image to the courts, and to the media. The religious front was to be used as an immunizing legal and PR shield whenever Scientology was criticized or sued for its dangerous conduct. Evidentiary exhibits consisting inter alia, of Scientology's own policy letters disclosed that Scientology fabricated religious trappings solely for appearances. Notions of religion and religious belief were non-existent in the actual conduct and operations of Scientology. These trappings were but a cloaking overlay. No words reflect the origin to present, pervasive pretext better than those of Scientology's founder. On April 10, 1953, L. Ron Hubbard, in a letter to Helen O'Brian, a Dianetics and Scientology franchise holder, said: þWe don't want a clinic. We want one operation but not in name. Perhaps we could call it a Spiritual Guidance Center... we could put in nice desks and our boys in neat blue with diplomas on the walls and one, knock psychotherapy into history and two, make enough money to shine up my operating scope and three, keep the H.A.S. (Hubbard Association of Scientologists) solvent....I await your reaction on the religion angle. In my opinion we couldn't get worse public opinion than we have had or less customers with what we have got to sell.þ Just seven months later, Dec. 18, 1953, the Church of Scientology, the Church of Human Engineering, and the Church of American Science were secretly incorporated by L. Ron Hubbard, L. Ron Hubbard Jr., Ron Jr's wife and three others. þThose who seek constitutional protections for their participation in an establishment of religion and freedom to practice its beliefs must not be permitted the special freedoms this special sanctuary may provide merely by adopting religious nomenclature and cynically using it as a shield to protect them when participating in anti social conduct that otherwise stands condemned.þ PUBLIC PERVASIVE PRETEXT IN THE PRESENT, DIANETICS TODAY Selling the Dianetics book is the near- exclusive method used to gradually bring new people into the secret Scientology. Bridge Publications, a Scientology affiliate, spends upwards of ten million dollars a year advertis- ing Dianetics on television and in the print media. For a single book promotion, this budget is unprecedented in the publishing industry.See þHubbard Hot Author Status Called Illusion,þ San Diego Onion April 15, 1990 by Mike McIntyre. If you have seen any of these ads, you may recall their complete lack of religious context. Nowhere is there mention of the Church of Scientology as the unequivocal source and benefactor of these ads. You might also recall the promotion of Dianetics as a science, a mental health product, an implied psychotherapy, and as a provider of social science-like secular benefits. From the Clearwater Commission report: þThe practices of Scientology undoubtedly constitute psychotherapy. Among the various psychotherapeutic claims of Scientology are increased I.Q., increased interpersonal communication skills, improved memory, freedom from neuroses and anxiety, marital and family harmony, and cures for drug addiction... All of these benefits are claimed to be achieved in a process of þauditingþ identical to psychotherapy. An auditor, on a paid hourly basis, interviews a þpreclearþ (person receiving services) intensively about the details of his emotional life, while using a lie-detector (the E-Meter) to sharpen his questioning. The auditor keeps notes of everything that is said....The entire process is represented as having a scientific basis and stated to be the product of þresearch.þ The preclear is told that the process, if carried through, is guaranteed to achieve results." At the material time of first contact and the key formative first impression, Scientology deliberately conceals its claim to religious status. Through Dianetics, it advertises its benefits and þcuresþ outside a recognizable religious domain. The ad scripts hardly read, þthe Church of Scientology proudly announces Dianetics, the religious science of mental health.þ Review of current Dianetics ads show Scientology's ongoing pervasive pretext. At material times, through Dianetics, even in its initial level Scientology has failed to maintain a clear, obvious, and coherent front of religious context and religious doctrine when presenting its views to attract new members. Belief in Scientology and Dianetics is held out in such a way that it could be totally predicated on scientific standards, e.g. science, scientific research studies, and comparisons of its effectiveness with psychotherapy. Stated from their documents in the Hubbard Information Letter of 12 April 1961 revised 14 April, þP.E. Handout,þ submitted as evidence in the Wollersheim case: þScientology [auditing] is today the only validated psychotherapy in the world....Scientology is a precision science....Scientology is the first precision science in the field of the humanities....The first science to put the cost of psychotherapy within the range of any person's pocketbook....The first science to contain the exact technology to routinely alleviate physical illness with predictable success.þ These are representations which are usually strongly associated with non-religious perspectivesþperspectives which one normally finds discussed in the particular contents of other disciplines. Now, like then, the content and context of Dianetics promotion is convincingly secular, suggesting competition with businesses providing psychiatric, psychological, or social services. With Dianetics, Scientology drops its religious cloak to recruit young and naive new people into Scientology. When needed in the courts or elsewhere. Scientology pulls the þreligiousþ cloak and shield back up again. Whenever false curative claims are not made in a religious context, the government has a responsibility to protect the public. Representations that are presented as verifiable from some non-religious perspective can be considered fraudulent, if most people in a common sense way, or in a way informed by the various disciplines, would find those representations to be false. þ...it is a gross exaggeration to insist that the energetic, persistent solicitation of E-Meter audited cures for a fee has all occurred in a spiritual setting without use of a secular appeals and false scientific promises made in a wholly nonreligious context. Besides failing to challenge the alleged fraud in Scientology's original establishment, the government has consistently failed to challenge how Scientology presently presents its representations to the public. When it finally takes place, this challenge should consider the misleading and contrary bait and switch practices of Scientology. It also should take into full account the additional use of the coercive persuasion technology by Scientology on its membership. From this perspective it should then be able to finally legally challenge the þgood faithþ and sincerity of Scientology's representations...FOR FURTHER INVESTIGATION OR VERIFICATION, SEE THE JOINDER OPPOSITION OF LAWRENCE WOLLERSHEIM TO MOTION TO SEAL RECORD ON APPEAL; MEMORANDUM OF POINTS AND AUTHORITIES; DECLARATION OF FEB 10, 1990. COURT OF APPEAL OF THE STATE OF CALIFORNIA, SECOND APPELLATE DISTRICT, DIVISION THREE, (CIV.#'s B025920, B038975), THE CHURCH OF SCIENTOLOGY OF CALIFORNIA, PLAINTIFF-APPELLANT AND MARY SUE HUBBARD, INTERVENOR-PLAINTIFF-APPELLANT V. GERALD ARMSTRONG DEFENDANT-RESPONDENT, APPEAL FROM SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF LOS ANGELES, JUDGE BRUCE R. GEERNAERT (SUPERIOR COURT # C 420 153). THIS CURRENTLY IS THE MOST REVEALING OVERVIEWING COURT DOCUMENT EVER FILED AGAINST SCIENTOLOGY. No doubt verifying religious sincerity may be difficult but, þ...subtle and difficult as the inquiry might be it should not be avoided because of convenience.þ U.S.C.A. Const. Amend. 1. ================================================================= If this is a copyrighted work, you are acknowledging by receipt of this document from FACTNet that on the basis of reasonable investigation, you have not been to obtain a copy elsewhere at a fair price, and that you are and will abide by the following copyright warning. WARNING CONCERNING COPYRIGHT RESTRICTIONS: The copyright law of the United States (Title 17, United States Code) governs the making of photo copies or other reproductions of copyrighted material. Under certain conditions specified by law, libraries and archives are authorized to furnish a photocopy or other reproduction. 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