- Baptist Press - https://www.baptistpress.com -

Ariz. foundation trial opens with Andersen innocence claim

[1]

PHOENIX (BP)–Accounting giant Arthur Andersen claims it was duped by executives of the Baptist Foundation of Arizona in a scandal that resulted in investor losses of $570 million, according to opening statements delivered in court April 29.

Andersen recently drew strong rebukes from investors of the failed foundation when it reneged on a $217 million settlement for its role in the scandal. Attorneys for Andersen told jurors that it likewise had been duped and thus thwarted in uncovering the BFA ponzi-like scam.

An attorney for the investors countered that the firm’s Phoenix office perpetuated the fraud by giving the foundation clean audits over a 14-year period while ignoring, as the Arizona Republic paraphrased it, the company’s own “red flags and a handful of whistleblowers.”

Andersen backed out of the settlement March 29, when its Bermuda-based insurance carrier, Professional Services Insurance Co., refused to follow through on the settlement.

The Arizona Republic called it “a stunning blow” to 13,000 BFA investors who had been told the March 1 settlement would, by the end of the year, help recoup 44 percent of the overall loss in the nonprofit agency’s collapse.

The BFA Liquidation Trust, which is seeking to recover the investors’ funds, immediately took action. In a March 29 statement, the day after receiving notice from Andersen, the trust said “one of the first steps will be to ask the mediator who presided over the settlement negotiations, retired federal judge Layn Phillips, to rule that Andersen has breached the agreement and to order Andersen to pay the $217 million as promised.”

[2]

Richard Himelrick, an attorney for investors, said the foundation crumbled in 1999 after it overpriced and overvalued assets by at least $300 million. He said Andersen knew about the problems but “chose to stay silent.”

Investors’ attorneys have said the pattern was similar to another Andersen client, Houston-based energy-trader Enron, which hid losses with off-the-book transactions. Andersen, whose employees shredded Enron documents, is facing a federal criminal charge for its role auditing that company.

Don Martin, an attorney for Andersen, told the jury pool the wrong defendant was on trial.

“Why didn’t they go after the people who committed the fraud?” the Arizona Republic reported Martin as asking. “Arthur Andersen was not committing the fraud.”

The state, meanwhile, has filed criminal charges of fraud, racketeering and theft against five former Baptist foundation executives, including former chief executive officer William Crotts. Crotts is expected to be among the 80 or so witnesses to be called during the civil trial.

Founded in 1948 to raise money for Southern Baptist causes, BFA and its subsidiaries and affiliates had 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.
–30–