Accounting firm settles with BFA investors
March 8 2002 by Bob Allen , Associated Baptist Press

Accounting firm settles with BFA investors | Friday, March 8, 2002

Friday, March 8, 2002

Accounting firm settles with BFA investors

By Bob Allen Associated Baptist Press

PHOENIX - Investors in the bankrupt Baptist Foundation of Arizona (BFA) will receive $217 million from accounting firm Arthur Andersen under an out-of-court settlement announced March 1.

The settlement, the second largest ever paid by a "Big Five" accounting firm, headed off a trial scheduled to begin March 4. A lawsuit filed by a BFA liquidating trust had alleged negligence and breach of fiduciary duty by Andersen in audits of BFA.

Similar allegations are being leveled against Andersen in the Enron investigation.

Andersen denied any wrongdoing in the settlement, which resolves a class-action lawsuit by investors, along with a civil suit and disciplinary proceedings by state regulators. Andersen officials said they settled the lawsuit in an effort to avoid a long, costly legal battle.

"This settlement is an important step in building confidence in our firm," the company said in a statement.

The lead lawyer representing the BFA trust, Sean Coffey, said the settlement is larger than normal in such cases and would put money in the hands of investors sooner instead of later.

The settlement requires Andersen to deposit the $217 million in an account controlled by the trust by April 15. After legal costs are deducted, the settlement will provide about $185 million to investors, more than 32 percent of their losses. Another settlement being finalized with the BFA's former outside law firm would net another $18.3 million.

Along with a court-ordered liquidation of Foundation assets, investors could eventually regain about two-thirds of their original investment. So far, investors have been paid about eight-and-one-half cents on the dollar from investments frozen in a 1999 bankruptcy.

The collapse cost 13,000 investors about $590 million. It is believed to be the largest non-profit bankruptcy in history.

Investors, many of whom are elderly and had invested retirement funds with the Foundation, say they were led to believe their money would be used primarily to start new churches and support other Baptist ministries.

Only after it was too late to recover their money did many learn of speculative land deals that lost money when Arizona's real-estate market crashed in the early 1990s.

Court documents alleged that Foundation officers hid losses through a maze of subsidiary corporations, while continuing to solicit funds from new investors to pay off old accounts.

Meanwhile, the Foundation's auditor, Andersen, continued to issue clean audits, allegedly ignoring whistleblowers and other red flags. Andersen has consistently denied wrongdoing, saying its auditors were also victims of fraud.

Three former BFA executives have pleaded guilty to felony charges related to the alleged Ponzi scheme. Five others, including former Foundation president William Crotts, have been indicted and are awaiting trial on charges of fraud, theft and racketeering.

Andersen's settlement with the BFA trust is second in size only to $335 million paid out by competitor Ernst and Young in connection with the saving-and-loan crisis in the 1990s.

Andersen also audits the Southern Baptist Convention (SBC) Executive Committee and LifeWay Christian Resources. SBC officials say they've had good experience with Andersen's Nashville, Tenn., office. LifeWay recently voted to continue to use the firm.

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3/8/2002 12:00:00 AM by Bob Allen , Associated Baptist Press | with 0 comments
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