Jury's verdict: Former Ariz. foundation executives guilty of fraudulent schemes

PHOENIX (BP)--A jury found the former president and the former legal counsel of the Baptist Foundation of Arizona guilty of three counts of fraudulent schemes and one count of knowingly conducting an illegal enterprise July 24, seven years after the collapse of the organization.

“Many in our Arizona Southern Baptist family are ready to close this chapter of our life together and move on,” Steve Bass, executive director-treasurer of the Arizona Southern Baptist Convention, said in a statement to Baptist Press after the verdict.

“As I visit our churches and hear our people, the BFA issue is no longer the ‘hot topic,’” Bass said. “Our churches and people have moved on to our greatest passion: sharing the good news of Jesus Christ with our world. …

“Justice from a secular court of law is only a beginning to the healing that must take place,” Bass, the ASBC director, said. “My prayer is that the first emotions we felt on hearing the news of the bankruptcy and the charges against eight persons -- emotions like shock, disbelief, anger and helplessness -- can now be turned to forgiveness, reconciliation and healing. May we spend as much energy in forgiveness and healing as we did when we were shocked that such a thing could happen. It is now time for the healing to begin.”

The jury, which had deliberated eight days following a nine-month trial, found the executives, William Crotts and Thomas Grabinski, innocent of 23 counts of theft, concluding that the two did not intentionally steal from investors but got into trouble and tried to cover their tracks, The Arizona Republic reported.

Facing obligations of more than $550 million to more than 11,000 investors, the foundation filed for bankruptcy in 1999, the largest Chapter 11 filing by a nonprofit organization in U.S. history. A new corporation was formed as part of the bankruptcy proceedings to sell off assets, repay debts and cease operations.

Crotts, 61, and Grabinski, 46, were taken into custody after the verdict was read, with sentencing scheduled for September. The Republic said the two men could face six to 23 years in prison for each count.

“We do believe the best court system in the world is in these United States of America,” Bass said of the jury’s decision. “We have prayed that justice would be done. From the start, we believed that God could use the jury to weigh the evidence and reach the right verdict.”

The case had been called the largest “affinity fraud” ever, meaning it targeted a specific group -- many elderly churchgoers who had invested their money in building Baptist churches and retirement homes -- The Republic noted.

Also, the accounting firm of Arthur Andersen completed a $217 million payment as part of its settlement with former BFA investors in May 2002. It was the second-largest settlement ever paid by a “Big Five” accounting firm to settle litigation not associated with the savings and loan crisis.

Five other BFA employees or associates accepted plea agreements to felony charges in exchange for their testimonies against Crotts and Grabinski during the trial.

Prosecutors argued that Crotts and Grabinski transferred bad debt and overvalued property to two phantom companies under the foundation’s control so that the organization would appear in good shape and would continue to gain investors, The Republic reported. The two also took part in money laundering loans for down payments to foundation insiders, prosecutors said.

The foundation’s problems go back to April 1996, when then-BFA attorney L. Kyle Tresch resigned, warning officials they had placed themselves in a position of civil and criminal liability.

But it wasn’t until Aug. 7, 1999, that the foundation sent a letter to all investors revealing it had placed a temporary freeze on accepting new investments or redeeming old ones. Three days later the state ordered the foundation to stop violating Arizona’s securities act.

The Baptist Foundation of Arizona was founded in 1948 to raise money for Southern Baptist causes. The foundation and its subsidiaries and affiliates marketed securities throughout the United States as retirement vehicles for investors and served as a custodian for tax-deferred Individual Retirement Accounts. At the time BFA filed for bankruptcy in November 1999, it had total liabilities of approximately $650 million and listed assets of approximately $290 million.

The BFA was a separate corporate subsidiary of the Arizona Southern Baptist Convention, and as such, BFA officers and directors were empowered to make all of the subsidiary’s operational decisions. As is usually the case with subsidiaries, all of the foundation’s financial reports, audited by Arthur Andersen, were sent to its parent corporation, the ASBC, which had itself invested, losing $1.2 million in the foundation’s collapse. The ASBC waived its claim to its loss in the bankruptcy in order to increase the recovery of losses by other investors.

The ASBC, though having no formal legal relationship with the Southern Baptist Convention, is a voluntary affiliate, being supportive of the national convention’s purposes and works.


Complied by Erin Roach with reporting by Art Toalston & Elizabeth Young.

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