Former officials charged with crimes related to the collapse of the Baptist Foundation of Arizona could have their day in court—more than five years after a bankruptcy cost investors nearly $600 million.
A criminal trial is scheduled for next February for five men charged with felony fraud, racketeering and theft in the largest bankruptcy of a non-profit charity in history.
William Pierre Crotts, the foundation's former chief executive officer; Thomas Dale Grabinski, former general counsel and vice president; former board members Lawrence Dwain Hoover and Harold DeWayne Friend; and Richard Lee Rolles, who was an accounting consultant, face between nine and 32 counts in a grand jury indictment from October 2002. That came after a judge threw out an earlier indictment, saying the first grand jury relied on prejudicial evidence.
The five are accused of conducting a Ponzi scheme, raising money from new investors to pay others, while hiding the fact that the organization was losing money. They deny the charges. Three others pleaded guilty to lesser charges in 2001, while agreeing to cooperate with the investigation.
A majority of investors have recovered about 65 percent of their initial investment to date, mostly from liquidation of assets and out-of-court settlements of lawsuits, according to a recent letter from the BFA Liquidation Trust. Arthur Andersen, later accused of auditing failures in the collapse of Enron, settled with Baptist Foundation of Arizona investors for $217 million in January 2003.
An insurance company settled a suit alleging breach of fiduciary responsibility and fraud against Crotts and Grabinski for $3.75 million, after lawyers for investors determined that the two men didn't have enough assets to satisfy a substantial award, and the insurance carrier tried to disclaim coverage for wrongful conduct.
While it is uncertain how much more money will be recovered, the letter said, several major assets still haven't been sold. "We continue to aggressively market these properties and hope to have them sold as soon as possible," wrote liquidating trustee Clifton Jessup.
Arizona's Attorney General's office said in letter April 15 that a long-awaited criminal trial is set to begin Feb. 2, 2005, in Phoenix. Maricopa County Superior Court Judge Gregory Martin will preside. The letter warned investors interested in attending, however, that it is common for court proceedings to be delayed or rescheduled for various reasons. Plea negotiations also may begin at any time before the trial date.
Prosecutors writing investors last November described several setbacks that resulted in delays and prompted some investors to become disillusioned or to question the state's seriousness about following through with the prosecution.
The most serious delay, lawyers said, was the court order sending the case back to the grand jury 18 months after it was initially filed. A judge found a part of a letter used as evidence from Arthur Andersen blaming the bankruptcy on BFA officials and calling them "crooks" to be "irrelevant, immaterial and grossly prejudicial."
The defendants sought to have a second indictment overturned as well, but a trial court said the case could move forward. The defendants appealed that ruling to an appellate court and the state Supreme Court, but neither accepted the case.
Reassignment of the case to three different judges also slowed progress. A case history on the court's Web site lists about 380 filings of case documents.
The indictments allege that foundation officials in the early 1990s began offering different kinds of investment accounts to individuals. The foundation invested heavily in real estate, and property values declined in the 1990s. Rather than reporting losses, according to the allegations, officials hid them by creating a web of subsidiaries, which loaned money with IOUs they couldn't afford to repay.
After a Phoenix newspaper ran a series of investigative stories alleging a scam, state officials investigated, eventually ordering the foundation to stop selling securities in 1999.
The foundation went bankrupt in November 1999, leaving about 11,000 investors out $590 million. Most were elderly and many had invested their life's savings. Brochures promoting the foundation, often distributed in churches, promised investors above-average returns, said part of their funds would be used to advance Kingdom work and assured investors that their money would be as safe as if kept in a bank.
Investigators call such frauds, which target investors who have a similar interest, as "affinity scams." The alleged BFA scam is believed to be the largest-ever case of affinity fraud, but it isn't the only one. According to CNBC, federal investigators say religion-based scams have swindled at least 90,000 victims out of $2.2 billion over the last three years.
Bob Allen is managing editor of EthicsDaily.com.
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