Baptist Foundation of Arizona
Encyclopedia
The Baptist Foundation of Arizona (BFA) was a Southern Baptist
charity whose fraud
ulent behavior led to the largest collapse of a religious financial institution in U.S. history. The BFA was associated with the Arizona Southern Baptist Convention
, which was affiliated with the national organization. When the BFA filed for bankruptcy
in 1999, it had $530 million in liabilities as compared to a reported $70 million in assets.
The collapse of the BFA did not occur in a vacuum. In 1992, records indicated that the company had lost $3.2 million due to questionable transactions. The Reverend Ed Shaw suggested that the BFA "Explain the situation completely to investors; ask their forgiveness; let them know their gift of principal would help if they choose to give some or all of it." Instead the BFA decided to hide its debt and began a series of dubious activities. Under Bill Crotts, the organization diverted over $140 million dollars to two former and one active (as of 1998) director. The organization did this through the use of over 63 different public and private organizations all directly affiliated with the BFA.
Each of these related companies had Bill Crotts and the BFA's chief attorney, Tom Grabinski, on their board. Grabinski signed documents as an officer for both BFA and a subsidiary. When asked if a conflict of interest existed, the BFA indicated that both parties "had waived any conflicts of interest." Since he was working for both companies, Grabinski was able to authorize questionable transactions. For example, on one day Grabinski attested to the value of a piece of property twice. The first time he attested to the value, he indicated that the property was worth $3.3 million dollars. The second time, on the same day, he declared the same piece of property was valued at $960,000.
We are further committed to protecting our investors through a growing fund balance which will enable us to provide resource and expertise for Arizona Southern Baptist ministries.
BFA's staff members offer professional services through an `up close and personal' client strategy.
The ministry of the Baptist Foundation of Arizona is born out of calling, commitment and sacrifice. Through excellence and commitment in their professional and spiritual lives, our board of directors and staff strive to be effective witnesses for Jesus Christ.
Arthur Andersen
, the Big Five
accounting firm that audited Enron
, paid former BFA investors $217 million dollars for Andersen's failure to identify fraudulent activities at the BFA. When the settlement was originally released, in 2002, there were questions as to whether or not Arthur Andersen, which was at the time being charged for issues surrounding Enron, would be able to make that payment. Christianity Today reported that "the worst case scenario for Baptist Foundation investors would be if Andersen were convicted this month in the criminal case [over its audits of Enron], then quickly filed for bankruptcy-court protection." This settlement was the second largest settlement in the nation's history for a Big Five accounting firm that was not related to the Savings and Loan collapses
.
Southern Baptist Convention
The Southern Baptist Convention is a United States-based Christian denomination. It is the world's largest Baptist denomination and the largest Protestant body in the United States, with over 16 million members...
charity whose fraud
Fraud
In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation...
ulent behavior led to the largest collapse of a religious financial institution in U.S. history. The BFA was associated with the Arizona Southern Baptist Convention
Arizona Southern Baptist Convention
The Arizona Southern Baptist Convention is an autonomous association of Baptist churches in the state of Arizona. It is one of the state conventions associated with the Southern Baptist Convention.-History:...
, which was affiliated with the national organization. When the BFA filed for bankruptcy
Bankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
in 1999, it had $530 million in liabilities as compared to a reported $70 million in assets.
History
The BFA was founded in 1948 and initially sought to provide a financial revenue for participants while supporting Baptist-motivated causes. In 1962, Pastor Glen Crotts became the organization's first president. Under his leadership, the organization held strict moral values. Its officers were forbidden from gambling and drinking alcohol. Twenty years later, Glen Crotts' son, William Pierre Crotts, became the organization's second president.The collapse of the BFA did not occur in a vacuum. In 1992, records indicated that the company had lost $3.2 million due to questionable transactions. The Reverend Ed Shaw suggested that the BFA "Explain the situation completely to investors; ask their forgiveness; let them know their gift of principal would help if they choose to give some or all of it." Instead the BFA decided to hide its debt and began a series of dubious activities. Under Bill Crotts, the organization diverted over $140 million dollars to two former and one active (as of 1998) director. The organization did this through the use of over 63 different public and private organizations all directly affiliated with the BFA.
Each of these related companies had Bill Crotts and the BFA's chief attorney, Tom Grabinski, on their board. Grabinski signed documents as an officer for both BFA and a subsidiary. When asked if a conflict of interest existed, the BFA indicated that both parties "had waived any conflicts of interest." Since he was working for both companies, Grabinski was able to authorize questionable transactions. For example, on one day Grabinski attested to the value of a piece of property twice. The first time he attested to the value, he indicated that the property was worth $3.3 million dollars. The second time, on the same day, he declared the same piece of property was valued at $960,000.
The Baptist Foundation of Arizona's mission statement
In response to the love God expressed in Jesus Christ, the Baptist Foundation of Arizona is a ministry which is committed to providing asset management services to Christians who desire to benefit worthy ministries while earning a market return on their investments.We are further committed to protecting our investors through a growing fund balance which will enable us to provide resource and expertise for Arizona Southern Baptist ministries.
BFA's staff members offer professional services through an `up close and personal' client strategy.
The ministry of the Baptist Foundation of Arizona is born out of calling, commitment and sacrifice. Through excellence and commitment in their professional and spiritual lives, our board of directors and staff strive to be effective witnesses for Jesus Christ.
Fraudulent activities
- Good bank-bad bankBank fraudBank fraud is the use of fraudulent means to obtain money, assets, or other property owned or held by a financial institution, or to obtain money from depositors by fraudulently representing to be a bank or financial institution. In many instances, bank fraud is a criminal offense...
- The BFA had issued millions of dollars in money losing loans. In order to remove these loans from its books, the BFA secretly funneled money to a subsidiary. The subsidiary then used this money to purchase the loans from the parent company. In a Good bank-bad bank scheme, the two companies manipulate transactions to favor the public institution while using the "bad bank" to hide the deficiencies.
- Maximum Value Performance Note - The BFA sold certificates of deposit that were non-refundable during the life of the CD. MVPNs were marketed with the notion that they received a higher than average yield and that part of the investment's return was used for God's mission. MVPNs were "fraudulently represented ... as one which could be redeemed at any time, although with an interest penalty." Elder law attorney Leas wondered why BFA would sell the elderly, "an investment that would tie up more than two-thirds of their non-residential assets in an investment that would be unavailable for five years!"
- Ponzi schemePonzi schemeA Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from any actual profit earned by the individual or organization running the operation...
s - Mechanisms whereby the early investors make a profit by keeping the contributions of later investors. The BFA became dependent upon future investors to pay older investors and loan interest.
- Land flipping - A land flipping scheme is one where a person or company inflates the value of a piece of property to make more money. For example, the Phoenix New Times reported a case wherein a person wanted to sell a $1.9 million dollar piece of asbestos-contaminated property to the BFA for one dollar as a tax write off. The BFA was not interested in making this purchase. They referred the individual to a former BFA director Hunsinger. Hunsinger purchased the property for a dollar. He then used the property, that the BFA refused to purchase for a dollar, as collateral to obtain a $6.8 million dollar loan from the BFA. In other words, for a former director, the BFA accepted a piece of property, the BFA could have purchased for a dollar, as collateral for a loan in an amount 4.9 million dollars more than the property was appraised for.
- Condo properties - The BFA sold property to the elderly that was marketed as a retirement community with a nursing home. The person did not actually purchase the property, but purchased the right to occupy said property. Thus, when people tried to sell it they could not because they did not own anything.
Judgments
In early 2007, several former members of the BFA's executive management team were sentenced for the fraudulent activities associated with the BFA. Donald Dale Deardorff, Senior Vice President and Controller, was sentenced to four years in prison and a fine of $150,000,000. Jalma Hunsinger, President and Director of Church Ventures (a company whose stated purpose was to build churches), paid $150,000. Crotts was sentenced to eight years in prison. Grabinski was sentenced to six years and ordered to pay $159,000,000.Arthur Andersen
Arthur Andersen
Arthur Andersen LLP, based in Chicago, was once one of the "Big Five" accounting firms among PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young and KPMG, providing auditing, tax, and consulting services to large corporations...
, the Big Five
Big five
- Business and government :* Big 5 Sporting Goods, a publicly traded sporting goods company* Big Five , an oligarchy of five corporations that ruled over Hawaii* Big Five , the five largest banks in Canada...
accounting firm that audited Enron
Enron
Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 22,000 staff and was one of the world's leading electricity, natural gas, communications, and pulp and paper companies, with...
, paid former BFA investors $217 million dollars for Andersen's failure to identify fraudulent activities at the BFA. When the settlement was originally released, in 2002, there were questions as to whether or not Arthur Andersen, which was at the time being charged for issues surrounding Enron, would be able to make that payment. Christianity Today reported that "the worst case scenario for Baptist Foundation investors would be if Andersen were convicted this month in the criminal case [over its audits of Enron], then quickly filed for bankruptcy-court protection." This settlement was the second largest settlement in the nation's history for a Big Five accounting firm that was not related to the Savings and Loan collapses
Savings and Loan crisis
The savings and loan crisis of the 1980s and 1990s was the failure of about 747 out of the 3,234 savings and loan associations in the United States...
.