PHOENIX (BP)–The troubled Baptist Foundation of Arizona, already under investigation for fraud by the state, was hit recently by a class action lawsuit and another by a Southern Baptist pastor, BFA officials confirmed.
The Arizona Southern Baptist Convention agency was sued in Maricopa County Superior Court in a class action lawsuit filed Aug. 27, and on Aug. 30 another suit was brought by a Phoenix-area Southern Baptist pastor.
The class action suit, according to a weekly Phoenix newspaper, was filed by BFA investor Franklin Kestner Sr., who charged the BFA and former and current officers and directors bilked investors by funneling their money into projects “to finance BFA’s officers and/or directors’ real estate deals which were transacted … for personal gain and profit.”
The Sept. 9-15 issue of the Phoenix New Times newspaper said a second suit by Richard A. Kimsey and his wife, Ann, also alleges BFA current and former officers took investment sales “pyramided into a Ponzi scheme in which the mountain of debt could be sustained only by selling new notes and persuading investors to roll old notes into new investment.” Kimsey became pastor of Desert Valley Baptist Church, a Southern Baptist congregation in suburban New River, in March of this year. Kimsey reportedly sold his home in Georgia and took the proceeds, $100,000, and invested them in BFA July 15.
More than 13,000 investors with more than $483 million in investment products are affected by an Aug. 10 Arizona Corporation Commission “cease-and-desist” order against the BFA. It ordered BFA 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.
The BFA’s three top executives voluntarily stepped down, on paid leave of absence, at that time and then on Aug. 26 were fired by the BFA board of directors. The directors instituted a new management team and, in cooperation with the state, told worried investors a plan of action would be forthcoming in October.
The BFA is paying interest payments to IRA holders and other investors who had agreements to receive monthly interest payments, although all of that could change, BFA officials said. Directors told investors bankruptcy for the agency has not been ruled out as the investigation continues. Also, the Arizona Attorney General’s office said criminal indictments are also possible if the investigation reveals illegal activity.
A number of churches in Arizona also are affected. First Southern Baptist Church in Glendale reportedly invested more than $1.5 million with the BFA. The congregation planned to use the money to build a new building.
Pastor Mark Mucklow told the Associated Press the church is looking for other ways to finance the $3 million building.
“We are trying to find God’s will,” he told the AP in a Sept. 3 news release. “We don’t hold any animosity. We want to know what happened.”
Another investor, Robert Hunt, Prescott, Ariz., and his wife, Linda, told Baptist Press they were “absolutely shocked and heartbroken” about the BFA situation. Hunt’s mother died in 1996 and left an investment in BFA, in five figures, which was to finance their son’s college education, Hunt said.
“[BFA is] a very aggressive sales group while claiming to be a ‘ministry,’” Hunt said. “The more we hear about it, the worse the news gets. I am angry, offended and feel betrayed by this church organization my mother entrusted with the bulk of her estate. It appears it’s going to be a long time before this is resolved. Many elderly investors will probably be dead by then.”
Hunt said the Arizona Southern Baptist Convention, which created the BFA 50 years ago and elects its board of directors, should “step to the plate and acknowledge its apparent rogue elephant, and assume at least partial responsibility for damages it inflicted.”
“I’ve been told BFA and other Baptists knew there were problems for some time,” Hunt said. “Integrity should have dictated that they root out the problems, expose them to the light and correct them as soon as they knew. To fail to do so was a sin of omission.”
Problems at the BFA had been apparent to some for several years.
According to the Oklahoma Baptist Messenger, in an Aug. 19 story, former BFA attorney L. Kyle Tresch, now living in Tulsa, Okla., said he resigned in April 1996 and told BFA officials in his resignation letter: “Not only have you placed yourselves in a position of civil and criminal liability for your actions, but you have likewise placed the auditors, directors and even innocent officers in positions of liability.”
BFA was known in Southern Baptist Financial circles as very aggressive. Unlike most state Baptist foundations, the BFA acted as an investment company with for-profit subsidiaries. State Baptist foundations normally act as trust agencies for the state conventions, managing endowments for ministries in those states.
Lorri Paetz, BFA spokesperson, told Baptist Press Sept. 10, “We are aware of the [lawsuit] filings. We are reviewing all of the allegations. We have no comment with respect to ongoing litigation.”
According to the New Times story, an Aug. 30 BFA memo circulated to Arizona Southern Baptist pastors expressed reservations about ministers granting interviews to reporters. Instead, the memo urged pastors to refer media inquires to BFA’s public relations department.
“It is up to you to decide if you want to speak to the media in the future, but we must remind you that the media usually focuses on the bad news and that ‘scaring people’ sells more newspapers,” the memo said.
