Arizona Baptist Foundation officials indicted
May 11 2001 by Bob Allen , Associated Baptist Press

Arizona Baptist Foundation officials indicted | Friday, May 11, 2001

Friday, May 11, 2001

Arizona Baptist Foundation officials indicted

By Bob Allen Associated Baptist Press PHOENIX - Five former Baptist Foundation of Arizona officials could face prison if convicted of crimes alleged in a 32-count indictment unsealed May 4. Three other former officials pleaded guilty to reduced charges in exchange for turning state's evidence at an initial criminal hearing in Phoenix. Five defendants pleaded not guilty at the May 4 hearing in Maricopa County Superior Court. They are William Pierre Crotts, the Foundation's former chief executive officer; Thomas Dale Grabinski, ex-general counsel and vice president; Lawrence Dwain Hoover and Harold DeWayne Friend, former members of the Foundation's board of directors; and Richard Lee Rolfes, an accounting consultant.

Charges stemming from a two-year investigation by Arizona's attorney general include theft, fraud and racketeering. It is one of the largest fraud cases involving an affinity group - in this case a religious denomination - in U.S. history.

Sentences for the various crimes carry prison terms of between eight and 12 years. If convicted, the former officials could also be forced to pay up to $550 million in restitution to 13,000 defrauded investors. If convicted of racketeering, the court could go after their personal assets.

Three others targeted in the probe - former treasurer Donald Dale Deardoff; Edgar Allen Kuhn, an officer of Foundation subsidiaries; and former board member Jalma W. Hunsinger - accepted a plea bargain in exchange for cooperating with prosecutors.

Deardoff pleaded guilty to two counts of fraudulent schemes, which carries a penalty up to 12-and-a-half years plus fines and restitution. Kuhn confessed to three counts of facilitating fraudulent schemes and Hunsinger to three counts of illegally conducting an enterprise, less-serious felonies carrying sentences of six months to 18 months. Sentencing for the three was delayed until after the case ends.

The indictments, handed down by a grand jury April 24, allege that the eight defendants worked together to defraud thousands of investors into putting money into bogus Foundation investments between 1994 and 1999.

They accuse the officials of hiding losses while promising investors a high rate of return and promising that part of their investments would be used to further Southern Baptist work.

Meanwhile, they allegedly used funds from new investors to pay dividends on old accounts, an illegal practice commonly known as a Ponzi scheme. As a result, it is alleged, investors lost millions - some their life's savings.

Attorneys for two of the defendants, meanwhile, told the Arizona Republic newspaper in Phoenix that the charges are unwarranted and that their clients are innocent.

Foundation directors fired Crotts, Grabinski and Deardoff in August 1999, a month after the Arizona Corporation Commission said the Foundation violated securities laws by failing to reveal its true financial condition to investors. The agency, following a yearlong probe, ordered the Foundation and two subsidiaries to stop selling investment products immediately on Aug. 10, 1999.

The Foundation filed for bankruptcy protection that November, marking the largest nonprofit bankruptcy in U.S. history.

At that time, it reported assets of $240 million and $640 million in debts. Foundation-owned properties are currently being sold off to return investors a portion of their money. Investors so far have recovered five-and-one-half cents on the dollar of their total claim under a court-ordered restructuring. They expect to receive no more than 31 percent to 44 percent of their investment over the next five years. Criminal proceedings will have no bearing on the bankruptcy case.

Other civil lawsuits are also pending, including a 13,000-member class-action suit against the Foundation. A recent case filed by the state on investors' behalf also seeks up to $600 million from Andersen, formerly known as Arthur Andersen. It alleges that the accounting giant aided and abetted the scam by continuing to issue clean audits despite warnings from whistle-blowers and other red flags.

Andersen denies any wrongdoing. An attorney for the firm told an Arizona newspaper it is hard to catch a client bent on deceiving an auditor.

The now-defunct Foundation was an agency of the Arizona Southern Baptist Convention. It was formed in 1948 to raise and manage endowments for church work in Arizona. It also provided other services like estate planning and financial planning to the state's 400 Southern Baptist churches. It was one of the few foundations affiliated with a Baptist state convention to offer investments to individuals.

Court documents allege the Foundation grew rapidly, beginning in the 1980s, by soliciting individual investors with promises of high returns and that their money would be used to spread the gospel.

"We are a ministry dedicated to serving the Lord and furthering Southern Baptist and other Christian ministries," according to a Foundation brochure. "We reinvest your money, and the profit we earn goes to further such ministries as Christian education, care for children and senior adults, missions and new church starts. Your investment actually touches the lives of countless numbers, while you earn a very attractive interest rate."

The Foundation invested heavily in property, another departure from most state Baptist foundations, which typically shy away from highly speculative investments.

"We were told that we were investing in the Kingdom of God, and when we put our money into this it was going to fund churches," said Dianna Francis of Golden Shores, Ariz. She said she had $35,000 invested with the Foundation when it collapsed. "They didn't say anything about country clubs and golf courses."

When real-estate values dropped in the 1990s, Foundation officers, under pressure to show a profit, allegedly hid losses from investors. Instead of writing down losses, officials allegedly performed paper transfers of holdings through a web of subsidiaries, inflating their value in the process.

To keep cash flowing, they allegedly took money from new investors to pay off old investors. Court documents label it a Ponzi scheme, named after a famous swindle.

As a result of the Foundation's alleged Ponzi scheme, thousands of investors lost money, many their life's savings. Some had sold homes and invested proceeds with the Foundation. Others were saving for retirement or their children's education. Some depended on quarterly payments to live. Most investors were in Arizona, but some are from California, Texas and other states.

About $22 million was invested by churches, according to a 1999 report.

Most of the Foundation's top officers were drawing six-figure salaries. New management after the collapse said there was too much overhead, and laid off more than half of the Foundation's 133 employees in September 1999.

Many of the allegations now appearing in court documents first came to light in a series of investigative articles by the alternative newspaper Phoenix New Times in April 1998. The series, titled "The Moneychangers," alleged insider deals, risky investments, high salaries and that few Foundation dollars were being used for Baptist work.

At the time, Baptist critics accused writer Terry Greene Sterling of being anti-Christian. Asked about the series by Associated Baptist Press in 1998, one Foundation director dismissed the articles as innuendo and character assassination. Later the series won Sterling recognition as journalist of the year by the Arizona Press Club.

Francis, however, said she is grateful to Sterling for exposing those allegations before others were deceived. She compared the Foundation representatives who solicited investments in her church to "moneychangers in the temple."

"They were crooks," Francis said. "They were living high and good."

"What they did was so wrong, and our sanctuary was used to do this," she said.

Francis is one of a number of vocal investors trying to draw attention to the Foundation scandal. A group calling itself "Investors for the Truth" has picketed Arthur Andersen's Phoenix office three times and is planning a fourth protest May 30.

Francis said she is often criticized for speaking out by those who say it "gives God a bad name."

"It doesn't give God a bad name," she said. "It gives the people who use God's name a bad name. God wasn't in this."

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5/11/2001 12:00:00 AM by Bob Allen , Associated Baptist Press | with 0 comments
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