A sixth defendant in the Baptist Foundation of Arizona criminal trial pleaded guilty Tuesday to felony charges of fraudulent schemes and artifices.
According to terms of a plea bargain proposed by prosecutors, former BFA board member Lawrence Dwain Hoover could be sentenced to between three and 12.5 years in prison and agrees to pay a $500,000 fine.<?xml:namespace prefix = o ns = “urn:schemas-microsoft-com:office:office” />
<?xml:namespace prefix = st1 ns = “urn:schemas-microsoft-com:office:smarttags” />Hoover, 71, was one of eight former BFA officials indicted in May 2001 on charges of defrauding 11,000 investors from several states out of $550 million in a Ponzi scheme in the late 1990s.
Two others, former BFA president and CEO William Crotts and General Counsel Thomas Grabinski, were convicted July 24 on counts of fraudulent schemes and knowingly conducting an illegal enterprise. They await sentencing, scheduled Sept. 2.
Three of the original defendants pleaded guilty at the time of the original indictments–dropped on a technicality and later reissued–and agreed to cooperate with prosecutors. Two others later accepted plea bargains, one just prior to the start of the marathon trial last September.
Hoover did not stand trial with Crotts and Grabinski, because he was too ill. He learned in June 2002 he had lung cancer.
Accused of participating in board decisions that allowed the BFA to falsely portray its financial condition, contributing to the organization’s 1999 collapse, Hoover previously maintained he was innocent.
In a November 2002 article, Hoover said he lost millions of dollars when the Foundation collapsed. “It’s been unbelievable,” Hoover said in the Non-Profit Times. “All I was doing was trying to act as a good member of the board.”
But as part of a plea agreement viewing the crime as a “non-dangerous, non-repetitive offense,” Hoover confessed he participated in “a series of year-end transactions that were intended to inflate BFA’s financial statements.”
“These transactions were solicited by and negotiated with William Crotts and Thomas Grabinski and were structured so that I assumed little or no economic risk,” Hoover said. “The transactions were intended to enable BFA to show a gain on its financial statements and were structured to appear to have economic substance. In reality, they were done as an accommodation by me to BFA and resulted in BFA’s financial statements being inflated.”
Hoover said both he and organization benefited as a result of the transactions. “I benefited from participation in investments that were virtually risk-free,” he said. “The funds necessary for the transaction were provided by BFA-related entities and the financing was arranged by William Crotts and Thomas Grabinski. In addition, I benefited from tax deductions for charitable contributions made with the proceeds of the sales of gem stones and my personal residence.”
Prosecutors said the defendants talked investors into putting money into BFA investments and savings accounts, which were supposedly backed by collateral. Investors were told their money would perform better than if in a bank, and some of the earnings would benefit Baptist causes.
In fact, prosecutors allege, the Foundation stayed afloat by using funds from new investors to meet its financial obligations. Losses were hidden in a series of “bad banks” backed by overvalued real estate and worthless IOUs.
The Attorney General’s office began an investigation in 1998 after a series of newspaper reports quoted former employees alleging red flags. The state ordered the BFA to stop selling securities, and it soon filed the largest non-profit bankruptcy in U.S. history. The case is one of the largest affinity fraud cases in U.S. history.
Arthur Andersen, which later was accused of a similar role in the collapse of Enron, settled a civil class-action suit in 2002 for $217 million, while denying any wrongdoing. A BFA Liquidation Trust set up by a bankruptcy court had by March recovered $453 million through settlements and sale of assets, paying investors, depending on the type of account, either 69 percent or 55 percent of their original investments.
A 12-member jury convicted Crotts and Grabinski on three counts of fraudulent schemes and one count of conducting an illegal enterprise, following a nearly year-long trial. But jurors acquitted the duo of 23 counts of theft, saying they didn’t intend to steal from investors but got in over their heads and tried to cover it up.
Their sentencing follows a pre-sentence investigation, including impact statements by victims.
Bob Allen is managing editor of EthicsDaily.com.