Two former executives of the Baptist Foundation of Arizona accused of taking more than $550 million from 11,000 investors aren't guilty of fraud, but were rather victims of an investment strategy being shut down before it had time to bear fruit, a lawyer argued Thursday in court.
BFA investors protest at Arthur Andersen offices in Phoenix in 2001.
William Crotts and Thomas Grabinski each face three counts of fraud, 27 counts of theft and two counts of illegally conducting an enterprise in the wake of the foundation's 1999 bankruptcy. If convicted, they each could be sentenced to 34 years in prison.
In opening arguments in Maricopa County Superior Court, prosecutors accused Crotts, the foundation's president, and Grabinski, its legal counsel, of encouraging religious investors to put their savings into accounts that supposedly were as safe as a bank, promised good returns and would contribute to the Lord's work by helping to plant Southern Baptist churches.
They began hiding losses in phantom companies secured by bad debt because of pride and fear of losing their reputation as leaders in the Arizona Southern Baptist Convention, Assistant Attorney General Donald Conrad contended, according to a report of proceedings in the Arizona Republic.
"Pride goes before a fall," Conrad said.
But a defense lawyer said fraud cases are motivated by money, and Crotts, a church-going family man, believed in the foundation's mission. Crotts' attorney Michael Piccaretta said "off-the-book" companies were holding assets that officers expected to be valuable when real estate prices rebounded.
If the Attorney General's office had not ordered the BFA to stop selling investments, following a series of investigative reports by the Phoenix New Times newspaper, Conrad said none of the investors would have lost any money.
Opening arguments were scheduled to continue on Friday. The trial resumes Tuesday, and is expected to last up to six months.
Five other BFA officials have already pleaded guilty to felony charges and agreed to cooperate with the investigation. A sixth is too ill to go to trial, according to the newspaper report.
The defendants are accused of using a Ponzi scheme to commit the largest affinity fraud, one targeted toward a specific group--like the elderly or a religious affiliation--in state history.
Founded in 1948 by the Arizona Southern Baptist Convention for the purpose of raising and managing endowment funds to further Southern Baptist causes, the BFA began offering individual investments in the early 1980s.
Unlike most state Baptist foundations, which invest conservatively, the BFA put money in Arizona's booming real-estate market. When property values dropped in the late 1980s, investigators say, foundation officers felt pressure to show profits and hid losses in a web of subsidiary corporations.
Dollar amounts showing up in books as assets were inflated or secured by bad loans, prosecutors say. Knowing the foundation was losing money, BFA officials allegedly continued to seek out new investors, including elderly, church-going folks enticed by mottos like "Do good while doing good."
Dianna Francis of Golden Shores, Ariz., a small community near Needles, Calif., and her husband invested $35,000 from their son's Navy death benefit with the foundation.
A BFA representative gave a presentation in her church. She said she was told the money would be used to grow churches, and she would receive higher interest than if she invested it in a bank.
"My money would grow and God's kingdom would grow. It was perfect," Francis said. She locked her money in for 10 years, rather than opting for a shorter term. "I chose to do long term so it could do more for God's kingdom," she said in an interview in 2001.
"I never had the money to do this before," she said. "Since my son left this money, I wanted to do something that honored God and my son's memory and still have the money to put my daughter through college."
When she finally asked for some of the money to pay for her daughter's wedding, she was told that all funds were frozen. She never imagined, she said, that her money was being used to buy golf courses and overseas properties and pay salaries up to $200,000 a year.
"We were deceived," Francis said, comparing the foundation presentation in her church to "the moneychangers in the Temple."
While investors who are still living have recovered a portion of their original funds through settlements--including $217 million paid by now-defunct Arthur Andersen, the foundation's auditor--and liquidation of real estate holdings, Francis said the worst damage is not material.
"You don't know the spiritual damage that's been done to people," she said. She said Baptist officials were reluctant to discuss the scandal for fear that it "gives God a bad name."
"It doesn't give God a bad name," she said. "It gives the people who use God's name a bad name. God wasn't in this."
Bob Allen is managing editor of EthicsDaily.com.