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Lilly Foundation monitoring Charles Street AME bankruptcy

The Lilly Endowment said it is monitoring the contentious bankruptcy proceedings of the Charles Street African Methodist Episcopal Church, in the wake of reports that the Boston congregation tapped restricted grant funds while it was struggling financially.

According to depositions filed in federal bankruptcy court in Boston, church leaders acknowledged borrowing at least $300,000 from the Lilly funds, which were earmarked for a residency program for pastors in training.

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Ronni Kloth, a spokeswoman for the private foundation, based in Indianapolis, declined to say whether the Charles Street AME had broken any rules or covenants of the grant. “The Endowment hopes that the congregation will find a way to continue to operate the pastoral residency program as it was envisioned when the grant was made,” she said in a statement.

Kloth added, “We will continue to monitor the progress of the program and developments in the Church’s dispute with its creditors.”

The improper borrowing of grant funds was only the latest sign of the financial straits the historic Roxbury church has been in for the past few years. Charles Street AME filed for bankruptcy protection last March after falling behind on about $5 million in loans owed to OneUnited Bank. OneUnited had threatened to auction off the church, sparking a highly public battle between the two black institutions.

In court Monday, lawyers for the bank seized on the church’s use of restricted funds as further evidence Charles Street AME has not been forthcoming in its financial disclosures.

On Tuesday, Judge Frank Bailey order the parties to come up with language they can agree on about further disclosure by March 4. If they can’t agree, he said, the bank should submit its own suggested language by March 5.

Meanwhile, the church’s lawyer has said Charles Street AME is repaying the funds it borrowed. The church’s pastor, Rev. Gregory Groover, said, “We clearly understand and appreciate how grave an error that we committed.”

A lawyer for the bank was not available for comment.

Beth Healy can be reached at bhealy@globe.com.
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