[1]PHOENIX (BP)–The three top executives of the Baptist Foundation of Arizona have resigned, a “temporary freeze on accepting new investments or redeeming old ones” is in effect and the agency’s disclosure policies appear to be in violation of Arizona state regulations, all according to a statement released to Baptist Press by the BFA board of directors Aug. 9.
An agency of the Arizona Southern Baptist Convention, BFA sent investors a letter, dated Aug. 7, indicating the agency has been the “focus of an investigation by the Securities Division of the Arizona Corporation Commission and the Arizona Attorney General’s office” since August 1998. That letter followed an indication by state regulatory officials on July 14 that BFA had not provided its clients with information that adequately disclosed the foundation’s financial condition and, as a result, had violated the Arizona Securities Act.
Arizona state officials also indicated the investigation of BFA “could result in proceedings against individuals at BFA as well as the organization itself.”
A spokesperson for BFA told Baptist Press that the agency’s president, William P. Crotts; its legal counsel, Tom Grabinski; and controller (chief financial officer), Don Deardoff, had “voluntarily” resigned following a July 22 board of directors meeting. Crotts, a former attorney, has been BFA president since 1982, succeeding his father, Glen Crotts, former pastor of First Southern Baptist Church, Tucson, who was the agency’s first president.
BFA, known in Southern Baptist financial circles as very aggressive in its approach to potential investors, is 50 years old and was first funded by the Arizona Southern Baptist Convention in 1962 when Glen Crotts became president.
The focus of the investigation has been the BFA and its subsidiary/affiliated corporations, Arizona Southern Baptist New Church Ventures and Christian Financial Partners, Inc.
In the letter sent to investors, BFA directors said they understood “we were cooperating with the investigation, and that there was no reason to conclude that the investigations would have the effect of depriving BFA of its ability to offer its debt securities in the future. We have also understood it is not possible to predict the outcome of the investigation.”
At the directors’ July 19 meeting, they voted to suspend the offer and sale of securities.
At the July 22 meeting, which was an update on the status of the investigation, board members were “shocked and concerned by the [Arizona state] allegations” which led to a “painful decision.”
Following the resignations of the three executives, the board created an “Executive Oversight Committee” of five people, including board chairman Berry Norwood, pastor of First Southern Baptist Church, Scottsdale, and a former executive director of the state convention Dan Stringer of Phoenix. That committee is responsible for “overseeing and approving major initiatives.”
A second committee will provide day-to-day management of all aspects of the business,” directors said in their Aug. 7 letter to investors.
“This was a soul-wrenching letter for us to write,” said Norwood of the Aug. 7 letter. “Our investors are also our friends, our family, BFA employees, board members — we are all affected. We pray for a successful resolution to this situation.”
Other action by the board included: no insiders, including board members and their families, should withdraw any funds from the three corporations; no checks “from our clients” would be cashed until the board knows more about the state investigation; a Phoenix law firm being retained for counsel with the state investigation; and hiring of the accounting firm of Ernst & Young (not the BFA’s regular accounting firm) for an audit.
Directors also determined that interest payments and IRA distributions will continue but cautioned investors that “this could change after further evaluation of the situation.”
In the three-page Aug. 7 letter, directors also cautioned “if we fail to satisfy the state, which is currently working closely with our committees and counsel in an attempt to protect all investors, the state may pursue a receivership. Also, if we cannot protect BFA and its constituency under current financial conditions, we may have to pursue restructuring alternatives, such as bankruptcy.”
The letter added “it does not appear either condition is imminent, but we know that you would not want us to gloss over the reality of this situation.”
Also, directors noted that “the current BFA subsidiary and affiliate board members and BFA’s employees have over $12.5 million invested” with BFA and its two subsidiary corporations.”
“Likewise, our churches have invested approximately $22 million in our products,” directors said in the letter.
The BFA was formed by the Arizona Southern Baptist Convention to raise resources for Southern Baptist causes. Its primary means of fund-raising, according to a spokesperson, is by conducting two lines of business — estate planning and financial services — to individuals and organizations. The current problems affect the financial services business only, Lorri Paetz, director of public relations and communications for BFA, told Baptist Press.
She said BFA, as a private nonprofit corporation, does not release information regarding the number of investors nor who they are. However, BFA is known as one of the few state convention foundations which allows individual investors as well as investments by local churches.
The state’s investigation, begun in August of last year, followed an earlier and lengthy report in a Phoenix-area weekly newspaper which charged the foundation with seriously overestimating the value of some of its investment assets, especially property, and the close connections between foundation employees and property owners.