A criminal trial for four former Baptist Foundation of Arizona officers accused of defrauding 11,000 investors out of $570 million has been postponed from August until Sept. 14, due to scheduling issues.
Former BFA president and CEO William Pierre Crotts, ex-general counsel Thomas Dale Grabiniski and former directors Lawrence Dwain Hoover and Harold DeWayne Friend are charged with up to 32 counts of felony fraud, racketeering and theft in crimes alleged during the largest bankruptcy of a non-profit charity in history. They were indicted by a grand jury in October 2002, after an earlier indictment was thrown out on a technicality.<?xml:namespace prefix = o ns = “urn:schemas-microsoft-com:office:office” />
Three other former leaders of the foundation pleaded guilty to reduced charges and agreed to cooperate with the investigation.
The four are accused of selling worthless investment funds to individual investors, under the guise that they were as safe as putting money in a bank and that part of the earnings would go toward supporting churches. Prosecutors call it one of the largest cases of affinity fraud in <?xml:namespace prefix = st1 ns = “urn:schemas-microsoft-com:office:smarttags” />U.S. history.
They allegedly misled investors about the fact that the foundation, formed in 1948 to raise and manage endowments for Baptist church work in Arizona, was losing money. Instead, prosecutors say they hid losses in a web of subsidiaries, while using funds from new investors to make payments to earlier investors, a scam known as a Ponzi scheme.
Many of the investors were older and retired and learned of the investments through their church. They were promised high returns and that some of their money would be used to advance the gospel.
After the Arizona Corporation Commission ordered the selling of securities to cease, the foundation filed for bankruptcy protection in November 1999.
Some losing money had invested their life’s savings. Some have died in the nearly five years it has taken for the case to go to trial.
A civil class-action suit was settled in 2002, with Arthur Anderson, the foundation’s former accountant, paying investors a total of $217 million for its role in the collapse.
At the time BFA filed for bankruptcy, it had total liabilities of $650 million and assets of $290 million. Liabilities included about $570 million owed to investors. Under a plan approved by the bankruptcy court, a BFA Liquidation Trust was set up to wind up affairs of the organization and to return any net recovery of funds to investors.
As of last December, about $371 million had been returned to investors over four years, between 55 cents and 69 cents on the dollar of their original investment, depending on the type of fund they purchased.
The criminal trial was originally set to get underway Feb. 2, 2005, but was later delayed until June, and then a second time until Aug. 3, to allow defense lawyers more time to prepare their case.
On April 26, Judge Kenneth Fields of Superior Court of Arizona in Maricopa County moved the starting date to 9 a.m. on Wednesday, Sept. 14, based on “scheduling issues with the Court’s calendar.” The trial is expected to last from four to six months.
In February 2004, a jury awarded two of the defendants more than $4 million to help pay their legal fees. Grabinski and Crotts sued an insurance company that tried to withhold coverage, claiming their liability policies didn’t cover claims arising from the sale of public securities. The court ruled, however, that the exemption did not apply to tax-exempt bonds offered by the BFA and that the officers were reasonable to assume they were covered by the policies.
Another judge ruled Crotts indigent after paying attorney fees for four years and ordered the county to pay him up to $50,000 for expert witnesses to assist in his defense. That order was vacated after the insurance carrier lost an appeal and paid Crotts $2.1 million in actual and punitive damages.
The Securities and Exchange Commission defines an affinity fraud as an investment scam that preys upon members of an identifiable group, such as religious or ethnic communities, the elderly or professional groups.
Perpetrators frequently are—or pretend to be—members of the group. They often enlist respected leaders from within the group to convince people the investment is legitimate and worthwhile. Often, those leaders also become a victim.
Bob Allen is managing editor of EthicsDaily.com.
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BFA Fraud Trial Postponed Till August
Trial Scheduled for Former Baptist Foundation of Arizona Officials