A third former Baptist Foundation of Arizona official was sentenced to prison Friday for his role in a half-billion-dollar affinity fraud.
Donald Dale Deardoff, 49, the BFA’s former treasurer, received four years in prison and was ordered to pay $159 million in restitution to 11,000 investors who lost money when the Foundation went bankrupt in 1999.
Four other former officials received probation, but a judge refused to reduce their crimes to misdemeanors, saying they deserved felony convictions even though they entered guilty pleas and assisted in the prosecution of two other defendants convicted following a 10-month trial in July.
William Crotts, the BFA’s president and CEO, was sentenced in September to eight years in prison following conviction of fraudulent schemes and artifices and knowingly conducting an illegal enterprise. Thomas Grabinski, general counsel, received six years for the same crimes.
A third defendant sentenced last fall was Lawrence Dwain Hoover, who received five years probation and a $500,000 fine in exchange for a guilty plea. Hoover, diagnosed in 2002 with lung cancer and too ill to stand trial with Crotts and Grabinski, admitted in a plea bargain to participating in a series of year-end transactions intended to hide losses to investors.
Deardoff pleaded guilty to two felony counts in May 2001, agreeing to pay just less than $551,000 in restitution and to testify in the criminal trial. His sentence could have ranged from probation to 12 years in prison for each count. According to the Arizona Republic, the prosecutor recommended that he serve only one year in county jail.
Other former BFA officials sentenced Friday in Phoenix were:
–Harold Dewayne Friend, 73, the former BFA bookkeeper, who pleaded guilty in September 2005 to one count of attempting to assist a crime syndicate. In his plea agreement, Friend admitted to inflating the foundation’s financial statements beginning in 1989 and creating transactions to show a profit or gain that would reflect well on BFA’s financial standing. The result was to mislead investors into believing money they put into the church-related institution was as safe as if in a bank and profits would be used to further Baptist work in Arizona. Friend was sentenced to three years supervised probation and ordered to pay $240,000 in restitution.
–Richard Lee Rolfes, 50, was sentenced to three years supervised probation and ordered to pay $25,000 in restitution. He served as secretary of Christian Financial Partners and Office of New Church Ventures, subsidiary organizations of the Foundation used to hide losses through “bad bank” IOU loans and property transactions with inflated values. Rolfes pleaded no contest to one count of facilitation in 2004.
–Jalma W. Hunsinger, 69, was sentenced to three years supervised probation and ordered to pay $150,000 in restitution. Hunsinger, a one-time BFA director, was president and director of New Church Ventures and the sole shareholder of ALO, a foundation subsidiary. New Church Ventures had a stated purpose of financing new Southern Baptist churches in Arizona. Yet it raised most of its money by selling investment products to individuals and invested most of those funds in ALO. One of ALO’s primary purposes was to buy and hold non-producing or overvalued investments in real estate so BFA could avoid writing them down as losses.
–Edgar Alan Kuhn, 62, received three years supervised probation and was ordered to pay $25,000 in restitution. Kuhn served as president of EVIG, a foundation subsidiary, and Christian Financial Partners and was a director of New Church Ventures. In 2001, Kuhn pleaded guilty to three counts of facilitation of fraud.
The Arizona Republic said defense attorneys expected leniency for their clients, since they cooperated with the prosecution, but the decision was up to Judge Kenneth Fields, who apparently took into account that many of the investors were elderly and lived in poverty for years before gradually retrieving a portion of their money through a liquidation trust.
“You were in a position of trust,” Fields told one of the defendants. “I can’t justify a misdemeanor.”
A jury convicted Crotts and Grabinski of fraud but acquitted them 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.
Founded in 1948 to raise and manage endowments for Baptist church work in Arizona, the BFA started offering investment funds to individuals in the 1980s, often soliciting investors through their church. Investing aggressively in real estate, the BFA for a time delivered good returns.
When Arizona’s property values tanked, however, Foundation leaders didn’t disclose losses but instead hid them, hoping for a rebound in the real estate market. In the meantime, they continued to bring in new investors, using their principal to pay interest to others in what investigators call a Ponzi scheme.
Whistle-blowers brought the scheme to public attention in a series of investigative articles by the Phoenix New Times alternative paper. That prompted an investigation by state officials, who ordered the Foundation to stop selling securities in 1999. Soon after, the BFA went bankrupt, owing investors $570 million and total liabilities of $650 million, against assets valued at $290 million.
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.