A jury found the former president and the former legal counsel of the Baptist Foundation of Arizona (BFA) 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 (ASBC), said in a statement after the verdict.
“Justice from a secular court of law is only a beginning to the healing that must take place,” Bass 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.”
The jury, which had deliberated eight days following a 10-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.
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 testimony 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 BFA 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 ASBC, 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. (BP)
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