The last remaining Arizona real estate assets from the defunct Baptist Foundation of Arizona go on the auction block today in a Phoenix hotel.
A liquidating trust created in a 2000 bankruptcy to sell assets and return a portion of funds lost by 13,000 investors hired Southwest Real Estate Auctioneers to sell 10 properties, including custom home lots, a horse property and commercial site, to the highest bidder.
The BFA, an agency of the Arizona Southern Baptist Convention for 50 years, owed investors $590 million when it folded in 1999, against assets at the time worth $240 million. It was the largest collapse of religious financial institution in U.S. history.
Three former BFA officials went to prison and five others are on probation for their roles in what prosecutors called a Ponzi scheme and the nation’s largest-ever affinity fraud.
The BFA Liquidation Trust, formed by order of a bankruptcy court, managed to recover a chunk of lost funds, at last report $453 million, aided by a $217 million settlement of a class-action suit against Arthur Andersen, the BFA’s accounting firm accused of negligence in annual audits for 15 years, in 2002.
Founded in 1948 to raise and manage endowments for Baptist church work in Arizona, the BFA began managing investment funds for individuals in the 1980s. Profits driven by investments in Arizona’s then-booming real-estate market turned into losses when property values tanked.
Instead of admitting those losses, BFA officials allegedly cooked up transactions between shell subsidiaries to make it appear on paper they were still showing a profit. They stepped up marketing, largely in appeals through the state’s Southern Baptist churches, hoping to bring in enough new money to pay off older debts.
That went on until whistleblowers went to the press, in a series of investigative articles by the Phoenix New Times, prompting investigations by the Arizona Corporation Commission and attorney general. Officials ordered Foundation officials to stop selling securities in 1999. That November the BFA filed bankruptcy.
By last year, the three-fourths of victims with secured investments had recovered about 69 percent of their original money, while non-secured investors received proportionately less, about 55 cents on the dollar.
That help came late for many investors, including elderly churchgoers who forked over money they needed to live on, sold by appeals touting “Biblically based” investment plans and urging faithful Baptists to “do good by doing good” and become “bolder stewards” of God-given resources.
After the collapse, the Arizona Baptist convention asked churches to contribute 1 percent of their undesignated receipts to repay defrauded investors in a grassroots effort called Restoring Our Integrity but closed the account down a few months later after just 66 of 400 congregations pledged to support the plan.
State convention executive director Steve Bass said the lack of commitment didn’t indicate a lack of concern for investors, but, “There is no glass jar in the backyard of the Arizona Southern Baptist Convention where I can go dig up these assets.”
After a 10-month trial, William Crotts, the BFA’s president and CEO, was sentenced in September 2006 to eight years in prison for conviction of fraudulent schemes and artifices and knowingly conducting an illegal enterprise. A former lawyer, Crotts inherited the job from his father, the agency’s founding president, in 1982. Trustees fired him in April 1999.
Thomas Grabinski, general counsel, received six years in prison for the same crimes. While finding them guilty of fraud, a jury acquitted Crotts and Grabinski of theft, finding they didn’t intend to steal from investors but got in over their heads when investments started losing value and tried to cover it up.
A third defendant, Donald Dale Deardoff, 49, the BFA’s former treasurer, was sentenced to four years in prison last February, even though he expected a lighter sentence in exchange for pleading guilty and testifying against Crotts and Grabinski in the criminal trial.
A mid-year report last July informed investors that the BFA Liquidation Trust hoped to sell all remaining assets and distribute funds to investors by the end of 2007, but litigation and a declining real-estate market was holding up sale of the last major asset, part ownership in Paseo del Sol, an 820-acre community in Temecula, Calif., with 291 residential and commercial lots.
A two-year decline in California’s real-estate market, coupled with recent problems with sub-prime mortgages, reduced the value of the trust’s interest in the development originally estimated to be worth $10 million to $20 million, the letter to investors said.
Bob Allen is managing editor of EthicsDaily.com.
Bob Allen was the managing editor at EthicsDaily.com from 2003-2009, writing more than 1,500 news stories during his tenure. He is currently the news editor at Baptist News Global.