PHOENIX (BP)–The five final defendants in the state of Arizona’s case against former employees and associates of the Baptist Foundation of Arizona were sentenced Feb. 2 in connection with the BFA’s 1999 bankruptcy.
Donald Dale Deardoff, former BFA treasurer, senior vice president and controller, was sentenced to four years in prison and ordered to pay $150 million in restitution. He pleaded guilty in 2001 to two counts of fraudulent schemes and agreed to cooperate in the prosecution of others.
Sentenced to three years of supervised probation and ordered to pay restitution after accepting plea agreements were:
— Harold Dewayne Friend, a businessman who allegedly participated in financial transactions with BFA that allowed the Foundation to falsely portray its financial condition. He pleaded guilty to one count of attempting to assist a criminal syndicate and paid $240,000 in restitution.
— Jalma W. Hunsinger, former BFA board member, president and director of New Church Ventures and sole shareholder of ALO (both BFA subsidiaries). He pleaded guilty to three counts of facilitation of illegally conducting an enterprise. He previously paid $150,000 in restitution.
— Edgar Alan Kuhn, former president of EVIG and Christian Financial Partners (both BFA subsidiaries) and a director of New Church Ventures, who pleaded guilty to three counts of fraudulent schemes. He previously paid $25,000 in restitution.
— Richard Lee Rolfes, former secretary of Christian Financial Partners and an officer of New Church Ventures as well as former owner of Rolfes Financial Services, which provided accounting services for some BFA subsidiaries, who pleaded guilty to one count of facilitation of a fraudulent scheme. He paid $25,000 in restitution.
Although Friend, Hunsinger, Kuhn and Rolfes pleaded guilty and cooperated in the prosecution of former BFA President William Crotts and former legal counsel Thomas Grabinski, Maricopa County Superior Court Judge Kenneth Fields refused to accept plea agreements reducing the crimes to misdemeanors and designated them as felonies.
The final defendant, Lawrence Dwain Hoover, a former BFA board member, pleaded guilty to one count of fradulent schemes, was sentenced to five years probation and paid $500,000 restitution last fall. He was too ill to stand trial with Crotts and Grabinski, as originally scheduled. He died Jan. 23.
Last July, Crotts and Grabinski were found guilty of three counts of fraudulent schemes and one count of knowingly conducting an illegal enterprise after a nine-month trial. In September, Crotts was sentenced to eight years in prison and Grabinski was sentenced to six years in prison on fraud and racketeering charges. Both men also were ordered to pay $159 million in restitution.
The Arizona foundation, facing obligations of more than $550 million to more than 11,000 investors, filed for bankruptcy in 1999, the largest Chapter 11 filing by a nonprofit organization in U.S. history. A new corporation was formed as part of the bankruptcy proceedings to sell off assets, repay debts and cease operations.
The accounting firm of Arthur Andersen completed a $217 million payment as part of its settlement with former BFA investors in May 2002. It was the second-largest settlement ever paid by a “Big Five” accounting firm to settle litigation not associated with the savings and loan crisis.
Prosecutors in the trial of Crotts and Grabinski argued that the two men transferred bad debt and overvalued property to two phantom companies under the foundation’s control so that the organization would appear in good shape and would continue to gain investors, The Arizona Republic reported. The two also took part in money laundering loans for down payments to foundation insiders, prosecutors said.
The BFA was a separate corporate subsidiary of the Arizona Southern Baptist Convention, and as such, BFA officers and directors were empowered to make all of the subsidiary’s operational decisions. As is usually the case with subsidiaries, all of the foundation’s financial reports, audited by Arthur Andersen, were sent to its parent corporation, the ASBC, which had itself invested, losing $1.2 million in the foundation’s collapse. The ASBC waived its claim to its loss in the bankruptcy in order to increase the recovery of losses by other investors.
The foundation 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.
The ASBC, though having no formal legal relationship with the Southern Baptist Convention, is a voluntary affiliate, being supportive of the national convention’s purposes and works.
Compiled by Art Toalston, with reporting from Portraits, newsjournal of the Arizona Southern Baptist Convention.