PHOENIX (BP)–More than 13,000 investors with more than $483 million in investment products in the troubled Baptist Foundation of Arizona may hear of plans to “deal fairly” with them by October, the BFA’s new management committee said in an Aug. 21 letter.
The letter, signed by BFA board of directors chairman W. Berry Norwood and four others in an Executive Oversight Committee, was said to be “in keeping with our promise to stay in touch with you regularly throughout this difficult time.”
Arizona’s Corporation Commission issued a cease-and-desist order Aug. 10 to the BFA, ordering the Arizona Southern Baptist Convention agency to discontinue immediately the offering and selling of its investment products. According to the order, the foundation or its affiliates sold securities from Arizona through misrepresentations, omissions of fact and engaged in business practices in violation of state law.
BFA’s top three executives voluntarily stepped down from their responsibilities, investors were told. The three, William P. Crotts, president; Tom Grabinski, legal counsel; and Don Deardoff, controller, are on paid leave of absence.
In the Aug. 21 letter, investors were told thousands of the investors had contacted BFA in past weeks and most “have demonstrated a willingness to give us the time we need to find the best possible solution for all of you.”
“We know you’d like us to tell you when you can get some or all of your funds and we’d like to be able to answer that today, [and we] hope you understand that we don’t have quite enough information to be that specific yet,” the letter said. “What we can say, however, is that by sometime in October we hope to be in a position to begin communicating a plan to deal fairly with investors.”
The agency’s financial services representatives and trust administrators have begun meeting with investors “one-on-one,” officials said.
Investors were told the oversight committee is “working overtime” in three areas: — reviewing assets. “We are evaluating each one of our assets and have confirmed that we have substantial valuable assets, but can’t yet be specific about the total worth of those assets.”
— evaluating cash flow. [W]e are determining how cash flow can be matched with our need and desire to pay investors.”
— assessing business plans. “[W]e are looking at the business plan for each asset to evaluate how and if it can be improved.”
“We’ve come a long way in two weeks,” Norwood said. “We wish we had complete answers for everyone at this time, but we owe it to our investors to check and double-check the facts before more information is released. We thank everyone for their patience.”
In a clarification of its earlier letter to investors, the committee said holders of Mortgage-Backed Notes, Maximum Value Performance Notes and Peak Performance Collateral Notes would continue to receive their interest payments although “these policies could change as we continue to evaluate whether our cash flows and asset values are sufficient to repay investors.”
Also, IRA distributions being made to investors will continue, including interest accumulating on the remaining balance. If distributions were not being made, interest will continue to accumulate but no distributions will be initiated at this time except for 1999 minimum required distribution for IRA funds. Regarding Investment Agreements, interest will go directly to that investor. Interest will continue to accumulate in Easy Access Investment Agreements at the current rate but no withdrawals will be allowed.
The degree to which any individual trust is affected will depend on the number and type of BFA, New Church Ventures or Christian Financial Partners investments held within the trust. They are being reviewed, the committee said, and administrators will advise the trusts as soon as possible.
Investors were also told that the committee doesn’t yet know how the BFA got into trouble.
“We don’t know yet, not in enough detail to reach definitive conclusions,” the committee said, adding the board of directors was “shocked” after learning the extent of the state’s concerns.
Investors were also cautioned about initiating legal action against BFA.
“We respect everyone’s right to pursue legal options, but please understand that the cost of legal defense can impact the availability of funds intended for payments to investors. We’re continuing to exert every effort to avoid possibilities such as bankruptcy or receivership to give us time to work out a positive solution to BFA’s current problems.”
Alluding to many inquiries about the status of the three officers of BFA who stepped down, the committee said, “… be assured that their relationships with BFA are being evaluated at this time and decisions will be reached soon.”
The committee said all offices of the agency remain open; “there have been no layoffs but we have put a hiring freeze in place.”
BFA has been under investigation by the state regulatory commission and the Arizona Attorney General’s office for the past year. BFA officials were told in a July 14 meeting with regulatory officials that the agency had not provided its clients with information that adequately disclosed its financial condition and, as a result, had violated the Arizona Securities Act. Focus of the investigation has been the BFA and its subsidiary/affiliated corporations: Arizona Southern Baptist New Church Ventures and Christian Financial Partners, Inc.
The regulatory agency is monitoring BFA’s activities and has not eliminated possible criminal prosecution of individuals if evidenced by the regulatory agency’s ongoing probe. One Arizona Corporation Commission member told news media he likened the BFA’s practices to a “ complex Ponzi” scheme.
At an Aug. 10 corporation commission hearing in Phoenix, with about 50 investors present, the foundation’s credibility and ability to restructure were questioned. One, a certified public accountant and a friend to some investors, said the problem with BFA could have been stopped a year ago if anyone on the BFA board of directors had cared, according to an Aug. 11 story in the Arizona Republic, a Phoenix daily newspaper.
The commission said BFA investors could expect to begin receiving reports every 45 days outlining steps the foundation management is taking to shore up the company. Investigators for the commission were said to be sifting through 2 million documents.
