PHOENIX (BP)–Five ex-officials of the Baptist Foundation of Arizona were indicted on charges of defrauding thousands of investors and three others have pled guilty in a plea-bargain agreement with prosecutors.
Named in a 32-count indictment alleging $550 million was obtained through fraud, theft and illegally conducting an enterprise were:
— William Pierre Crotts, the Foundation’s president and chief executive officer until he was fired in August 1999;
— Thomas Dale Grabinski, BFA senior vice-president and general counsel until he was fired in August 1999;
— Lawrence Dwain Hoover, former board member who allegedly participated in board actions that allowed BFA to falsely portray its financial condition;
— Harold Dewayne Friend, a businessman who allegedly participated in financial transactions with BFA that allowed the Foundation to falsely portray its financial condition;
— Richard Lee Rolfes, secretary of Christian Financial Partners and officer of New Church Ventures [both BFA subsidiaries], as well as owner of Rolfes Financial Services, which provided accounting services for some BFA subsidiaries.
All appeared in court May 4 and were released on their own recognizance.
Pleading guilty and entering into plea agreements with the state were:
— Donald Dale Deardoff, BFA treasurer, senior vice president and controller until he was fired in August 1999, who faces a maximum sentence of 24 years and restitution of $550 million for two counts of fraud schemes;
— Edgar Alan Kuhn, president of EVIG (a BFA subsidiary) and Christian Financial Partners, as well as a director of New Church Ventures, who faces a maximum sentence of six years and $25,000 in restitution for three counts of facilitation of fraud schemes;
— Jalma W. Hunsinger, president and director of New Church Ventures, sole shareholder of ALO (a BFA subsidiary) and former BFA board member, who faces a maximum sentence of six years and $150,000 in restitution for three counts of facilitation of illegally conducting an enterprise.
All three have agreed to cooperate and testify in the prosecution of the other individuals and to testify in pending civil cases. Their sentencing has been postponed until their obligations have been completed.
At a victims’ rights briefing attended by about 150-200 people a few hours before the court session, Sherry Stephens, Arizona assistant attorney general, projected that the criminal cases would not go to trial for a year.
The court session, which was held in the Maricopa County Board of Supervisors Auditorium rather than a courtroom to accommodate the large gallery, was broadcast live to the Phoenix Civic Plaza, where the victims’ rights briefing was held.
During the briefing, Stephens was asked if criminal charges would be brought against the Arizona Southern Baptist Convention. She replied that nothing learned in the course of the investigation would lead the attorney general’s office to further investigate the convention for criminal wrongdoing.
The grand jury indictment against the five individuals alleges that, beginning in 1996, BFA solicited new investors to meet its existing financial obligations. The investments, most of which BFA said were backed by collateral, paid greater interest than most banks. Investors were told some of the profits would benefit Baptist causes.
BFA officials allegedly hid losses from investors by placing non-performing assets and bad investments in “bad banks,” or subsidiary companies.
The Arizona Corporation Commission and state attorney general’s office began investigating BFA in 1998. The Foundation was ordered to stop selling investments in violation of the Arizona Securities Act in the summer of 1999.
Owing $590 million to 13,000 investors, BFA filed for bankruptcy later that year. Under a liquidation plan confirmed by the U.S. Bankruptcy Court in November 2000, an estimated $240 million expects to be recovered through the sale of BFA assets over three to five years.
Collateralized investors will recover about 44 cents for every dollar they invested, while unsecured investors will receive about 31 cents for every dollar invested. So far, investors have received two quarterly payments from asset sales.
According to the Arizona attorney general’s office, the BFA bankruptcy is the largest nonprofit bankruptcy and one of the largest affinity fraud cases in U.S. history.
The Arizona Corporation Commission has filed a civil lawsuit against the accounting firm Arthur Andersen LLP, alleging that audits misrepresenting BFA’s financial condition cost investors millions and led to the Foundation’s collapse. That suit and an administrative complaint by the Arizona State Board of Accountancy seek $600 million in restitution from Arthur Andersen for BFA victims.
Other lawsuits against Arthur Andersen and other potentially responsible parties have been filed by attorneys representing investors.
Clifton R. Jessup Jr., liquidating trustee for the BFA Liquidation Trust, has been named by the court as the victim’s rights representative. Rather than the court communicating individually with all potential victims, it will communicate with Jessup, who will then communicate with the potential victims.