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Andersen completes $217M payment to Ariz. foundation investors

PHOENIX (BP)–Accounting giant Arthur Andersen has completed its $217 million payment in a May 6 settlement with 13,000 former investors of the Baptist Foundation of Arizona, the Associated Press reported June 5.

The Arizona Republic, meanwhile, reported June 5 that Andersen had technically missed a June 4 deadline for the payment, but Arizona Attorney General Janet Napolitano’s office nevertheless affirmed “there is a transfer of funds in process.”

Investors lost $570 million in the Baptist Foundation of Arizona’s 1999 collapse.

After attorneys’ fees, former BFA investors are expected to recoup about $175 million in losses from the Andersen settlement. According to The Arizona Republic, investors possibly could recoup 72 cents on the dollar from the Andersen settlement as well as sales of BFA assets and a $21 million settlement with the BFA’s former law firm May 14.

Andersen provided an $11.32 million check to the Arizona attorney general at the May 6 settlement. The final payment of $205.68 million avoids a worst-case scenario for BFA investors of a possible bankruptcy filing by Andersen spurred by its involvement in energy giant Enron’s collapse in Houston.

The BFA case involves the largest Chapter 11 bankruptcy filing by a nonprofit organization in U.S. history and the $217 million settlement is approximately twice the largest malpractice court settlement previously agreed to by Chicago-based Arthur Andersen. The settlement also is the second largest ever paid by a “Big Five” accounting firm to settle litigation not associated with the savings and loan crisis.

Andersen, in a May 6 statement, said it agreed to the settlement “without admitting or denying any fault, in a way consistent with our firm’s plan to resolve this matter for the benefit of all parties.”

“It is important to underscore that investors were the victims of a massive fraud perpetrated by Baptist Foundation of Arizona leadership,” Andersen stated. “In addition to the controller, Donald Deardoff and two associates of BFA who have already plead guilty to criminal offenses, five members of BFA’s senior management, including William Crotts, the President and Chief Executive Officer, and the General Counsel, Thomas Grabinski have been indicted on multiple counts of criminal fraud. There is clear evidence that all members of BFA’s senior management and majority of the Board of Director’s engaged in a conspiracy of silence to deny essential information about BFA’s financial condition to the Arthur Andersen auditors.”

The Andersen statement acknowledged, however, “We believe this resolution is fair and reasonable to investors and to our firm and recognizes the responsibility of a number of parties in failing to stop this tragedy.”

The Baptist Foundation of Arizona was founded in 1948 to raise money for Southern Baptist causes. The foundation and its subsidiaries and affiliates marketed securities throughout the United States as retirement vehicles for investors and served as a custodian for tax-deferred Individual Retirement Accounts. At the time BFA filed for bankruptcy in November 1999, it had total liabilities of approximately $650 million and listed assets of approximately $290 million.

As recounted by The Wall Street Journal March 4, many of the foundation’s investors were elderly churchgoers “attracted by the foundation’s offer of above-market returns on promissory notes and other investment products, and by its mission of using earnings for good works, such as building churches and nursing homes for the poor. [S]uits against Andersen alleged that the foundation had become a Ponzi scheme, needing to raise tens of millions of dollars to pay the high returns it had promised to earlier investors.”

The Journal noted that, according to the lawsuits, a key reason why the scheme lasted “as long as it did … was that Andersen continued to certify the foundation’s financial statements and dismissed multiple warnings by individuals that the foundation was defrauding investors.”

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