Prosecutors rested their case against two former Baptist Foundation of Arizona officials on trial for felony charges last Wednesday. The trial resumes Tuesday, when lawyers for William Pierre Crotts and Thomas Dale Grabinski begin their defense.
Crotts, former president and CEO of the now-defunct Foundation, and Grabinski, who was general counsel and vice president, are charged with three counts of fraud, 27 counts of theft and two counts of illegally conducting an enterprise. <?xml:namespace prefix = o ns = “urn:schemas-microsoft-com:office:office” />
Prosecutors say they robbed 11,000 investors of $550 million before the BFA went bankrupt in 1999. If convicted, they could face decades in prison.
The BFA case, first prosecuted more than five years ago, is one of a number of recent white-collar trials overshadowed by larger scandals like Enron. Sharing similarities with Enron, including alleged auditing failures by Arthur Andersen, the BFA criminal trial was already in its 17th week when jury selection began in February for trials of former Enron leaders Kenneth Lay and Jeffrey Skilling, charged with similar crimes in <?xml:namespace prefix = st1 ns = “urn:schemas-microsoft-com:office:smarttags” />Houston.
Yet after 104 days before a jury, the BFA trial plods on after Lay’s and Skilling’s May 25 convictions of corporate fraud. The reason, a spokesperson for Arizona’s Attorney General’s office told EthicsDaily.com, is complexity of the case, with numerous allegations of “bad-bank” loans, phony corporations, a Ponzi scheme and flurries of year-end transactions to hide from investors that the Foundation was losing money.
Donald Conrad, chief counsel for the criminal division of the Attorney General’s office, said there is no way to know how long the defense’s case will take. Earlier estimates said testimony might continue into July.
The state alleges the BFA, as a non-profit corporation chartered in 1948 to help Southern Baptist causes, was exempt from banking laws but functioned much like a financial institution. The BFA raised funds through sale of investment agreements and mortgage-backed notes, which in turned were invested in real estate.
When Arizona’s real-estate market tanked, the state alleges, Crotts and Grabinski, along with five earlier defendants who pleaded guilty and one unable to stand trial for health reasons, hid losses from investors in a web of subsidiaries, while continuing to solicit new investors to cover the difference.
Investors, mostly recruited in their churches, were promised high-yield returns and told their investments were as safe as if they were in a bank and that a portion of proceeds would be used to advance the Lord’s work through planting of Southern Baptist churches.
Prosecutors say the BFA in 50 years in fact returned only $1.3 million of its money to the Southern Baptist community, while lending nearly $140 million to companies associated with current and former board members.
The defendants were indicted by a grand jury in October 2002, after an earlier indictment was thrown out on a technicality.
The Arizona Corporation Commission ordered the Foundation to stop selling securities in August 1999. The BFA filed bankruptcy three months later, listing assets of $220 million and liabilities of $640 million. A BFA liquidation trust was set up to sell off assets to allow investors to recover part of their money.
The trust so far has paid $453 million to creditors and investors, returning investors, depending on type, either 55 percent or 69 percent of their original money back. That includes a settlement of $217 million paid investors by Arthur Andersen, later accused of auditing failures in the collapse of Enron, in January 2003.
The case is believed to be the largest affinity-fraud case in U.S. history, involving investors not only in Arizona but California, Texas and other states.
The defendants deny there was any fraud but only disagreement about the value of real estate. They insist they, too, were victims, because they also lost money they had invested when the BFA collapsed.
Bob Allen is managing editor of EthicsDaily.com.
Previous related stories:
BFA Fraud Trial Postponed Till August
Baptist Foundation of Arizona Trial Postponed, Again
Trial Scheduled for Former Baptist Foundation of Arizona Officials
Opening Arguments Begin in Baptist Foundation of Arizona Trial
Baptist Foundation of Arizona Trial Continues
Baptist Foundation of Arizona Case Has Similarities With Enron
Former Baptist Foundation of Arizona Official Makes Deal
Judge Denies Mistrial in Baptist Foundation of Arizona Case