Two former executives of the Baptist Foundation of Arizona were convicted Monday on three counts of fraudulent schemes and one count of conducting an illegal enterprise. But a jury found them innocent on 23 counts of theft, saying they didn’t intend to steal from investors but got in over their heads and tried to cover it up.

A 12-member jury deliberated six days before reaching a verdict Thursday, the 121st day of a criminal trial that began with opening arguments Sept. 25. The verdict was sealed until 9:30 a.m. Monday to allow numerous victims wanting to attend time to travel.

Arizona Attorney General Terry Goddard called the verdict “a hard-earned victory for justice and for thousands of victims of fraud.”

Crotts and Grabinski were two of eight original defendants indicted for allegedly defrauding 11,000 investors in the now-defunct Foundation out of $550 million. It has been called the largest affinity fraud in history. Five others pleaded guilty to reduced charges and agreed to testify against the other defendants. One other defendant awaits trial.

The nearly year-long trial was one of the longest and most expensive in Arizona’s history. Originally scheduled to begin in February 2005, it was postponed three times to allow defense attorneys more time to prepare their case. The longest delay was a court order sending the case back to a grand jury 18 months after it was originally filed in 2001, after a judge ruled a letter used as evidence against Crotts and Grabinski was immaterial and prejudicial. The case was reassigned to three different judges.

Founded in 1948 by the Arizona Southern Baptist Convention for the purpose of raising and managing endowment funds to further Southern Baptist causes, the BFA began offering individual investments in the early 1980s.

Unlike most state Baptist foundations, which invest conservatively, the BFA put money in Arizona’s booming real-estate market. When property values dropped in the late 1980s, investigators said, Foundation officers felt pressure to show profits and hid losses in a web of subsidiary corporations, 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.

Investigators call such frauds, which target investors who have a similar interest, as “affinity scams.”

“We were deceived,” said Dianna Francis, an investor from Golden Shores, Ariz., who invested $35,000 from her son’s Navy death benefit with the foundation.

Francis compared the Foundation presentation in her church to “the moneychangers in the Temple” and said Baptist officials were reluctant to discuss the scandal for fear that it “gives God a bad name.”

“It doesn’t give God a bad name,” she said. “It gives the people who use God’s name a bad name. God wasn’t in this.”

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.

Crotts, for example, says he lost $800,000. His lawyer said there was no fraud but only disagreement over the value of real estate. Defense lawyers argued during the trial the Foundation was solvent until the government interfered.

According to court documents, five former BFA employees, four accountants and a lawyer, resigned in 1996 after confronting superiors about practices they viewed as unethical and possibly illegal.

One went to Arthur Andersen, the accounting firm entrusted with auditing the BFA books. Another applying for a new job told a prospective employer BFA was hiding losses in “bad bank” loans while conducting a Ponzi scheme, which in turn reported the claim to Arthur Andersen. In 1998 a financial planner looked into BFA finances and tried to warn Arthur Andersen the Foundation was broke. All three claimed Andersen ignored their red flags and continued to issue clean audits.

An alternative Phoenix newspaper, the New Times, ran a series of 13 investigative reports alleging fraud and insider deals in 1998.

The Arizona Corporation Commission ordered the selling of securities to cease, and the Foundation filed for bankruptcy protection in November 1999. At the time it was the largest collapse of a non-profit in history.

Defense lawyers claimed if the state had not ordered the BFA to stop selling investments, no one would have lost any money.

Arthur Andersen, which later was accused of a similar role in the collapse of Enron, settled a civil class-action suit in 2002 for $217 million, while denying any wrongdoing.

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.

According to the most recent letter to investors, dated March 21, the trust has paid more than $453 million to creditors and investors. Depending on the type of investment, most investors have recovered either 69 percent or 55 percent of their money.

The case involved one of the most complex financial schemes ever brought to trial in Arizona. Goddard said the prosecution of this case was made more difficult by the fact that the two defendants did not personally profit from huge investor losses.

“These verdicts are a victory for thousands of victims who believed the promises made by the defendants. They had their faith shattered and faced the possible loss of all their retirement investments,” Goddard said. “This case makes it clear that no matter how rich or powerful or well-connected you are, if you defraud investors you are going to be prosecuted and convicted.”

James Porter, a Foundation investor and Crotts family friend, said in the Washington Post he believes Crotts is innocent despite the verdict.

“The truth is not determined by what this court said,” Porter said. “Righteous people have spent time in jail before.”

Bob Allen is managing editor of

Share This