Baptist Foundation Faces Fraud Charges

Freeze on redemptions leaves pensioners in a pinch.

Indictments appear likely in an investment fraud case involving the Phoenix- based Baptist Foundation of Arizona (BFA), according to local news reports. The Arizona attorney general’s office would not confirm to CT that prosecutions are in the offing, but a staff member acknowledged that an investigation is active.

Arizona authorities estimate that some 13,000 investors have purchased more than $500 million worth of securities from BFA, which is associated with the Arizona Southern Baptist Convention. The foundation was ordered to stop selling securities on August 10 by the state’s Corporation Commission. Three days earlier, BFA had written to its investors that it faced possible bankruptcy and was placing “a temporary freeze” on the redemption of investments. The foundation did say it would continue to make some payments to certain IRA investors.

“This was a soul-wrenching letter for us to write,” says Berry Norwood, the new BFA board chairman. “Our investors are also our friends, our family, BFA employees, board members—we are all affected. We pray for a successful resolution to this situation.”

On August 26, the foundation terminated its longtime president, William “Bill” Crotts, along with Thomas Grabinski, its general counsel, and controller Donald Deardoff.

The foundation’s investments have been marketed primarily to conservative Christians of many different denominations, a large number of them elderly or retired. BFA financial services representatives were mostly Southern Baptist church members who offered attractive, above-market rates of return. With the freeze on redemptions, many investors face financial hardship.

PHONY DEALS: The foundation was organized in 1948 to raise funds for Southern Baptist–related charities. However, it has contributed only about $1.3 million to such groups over its half-century of operation. By contrast, in 1996 BFA spent $16 million on staff salaries and $329,000 on staff automobiles. It also invested in a long series of shaky loans and dubious real estate deals, primarily with companies controlled by members of its board. These insider deals left the foundation facing huge losses and are being scrutinized for possible violations of criminal and civil laws.

BFA’s uncertain financial condition came to light in a prize-winning series of investigative reports by the Phoenix New Times newspaper. Beginning in 1997, these reports detailed how company insiders had spun a web of more than 60 corporate shells to cover the tracks of their deals, while the BFA board, made up of pastors and some lay persons, was told little or nothing about what was going on.

The reports also detailed how the largest of these deals, involving tens of millions of dollars, involved phony land swaps and large loans to board members, many of which were repaid with inflated real estate collateral. These deals had some how gone unnoticed by auditors. BFA’s former accounting firm, Arthur Andersen, is also being investigated by state officials for its handling of BFA audits.

Former BFA president Crotts called the Phoenix New Times “quite anti-Christian” and associated its reports with “attacks from Satan.” For her part, reporter Terry Greene Sterling, who is Catholic, told CT she has been helped by prayers in her work, especially those of the many Arizona Southern Baptists she has heard from. Almost all of them were thankful for her work and said they were praying for her. “I really have felt that support,” she said.

Further, the newspaper responded to Crotts’s barbs by printing letters to Crotts from former BFA professional employees who resigned in protest in 1996 after warning that BFA’s financial dealings amounted to “actionable fraud” that could lead to “civil and criminal liability.” Richard Polley, an accountant who quit, denounced the deals as unbiblical in a letter to Crotts: “The scriptures are quite clear that such an outcome is sin,” he wrote.

BFA officials have denied any wrongdoing and attributed the resignations to a “lack of information or failure to understand the transactions.” But the disclosures prompted state regulators to pick up the trail.

POSSIBLE PONZI? Besides official investigations, BFA’s belated admission of its financial difficulties set off a flurry of litigation. A class action suit was filed in Maricopa County Superior Court by one investor, quickly followed by an individual suit by Richard Kimsey, a Baptist pastor who had put $100,000 into BFA only a few days before the state action became known. Kimsey’s suit alleges that the foundation’s investment program “pyramided into a Ponzi scheme in which the mountain of debt could be sustained only by selling new notes and persuading investors to roll old notes into new investments.”

The foundation has declined to respond publicly to these charges. When CT called BFA seeking a response, staff member Lorri Paetz answered but denied that she was a spokesperson and said BFA had no one who would speak on the record.

However, in a September 11 letter to investors, BFA announced that it was cutting back its 133-member staff by nearly half and closing two satellite offices. The letter stated that by this month BFA hopes to be able to announce a restructuring plan. It also announced that the Arizona Southern Baptist Convention had established a Jerusalem Fund to accept donations for the relief of investors pinched by the freeze on investment redemptions.

Copyright © 1999 Christianity Today. Click for reprint information.

Also in this issue

Revelation NOW: What happens when you treat Revelation like other books of the Bible—looking at its historical context before applying its message to our day? Instead of an end-of-the-world preview, you'll find wisdom to help churches stay faithful in a hostile environment.

Cover Story

Apocalypse Now

New President Promises Reforms

Stop the Dating Game

What Hal Lindsey Taught Me About the Second Coming

Is Revelation Prophecy or History?

Called to Hate?

Church Leader Worships Whites

Time Out

Classic & Contemporary Excerpts from October 25, 1999

A Quaker at War with Himself

A Nation That Sang Itself Free

Getting to Know Me

To the Church That Endures Persecution by Steve Haas

Business Funnels Profits to Churches

Church Shooting Creates New Martyrs

In Brief: October 25, 1999

Porn Store Reborn As Church

Virtue Folds

Church Aids Refugees Despite Violence

Lutherans and Catholics Sign Declaration on Justification

Christian Journalists Ponder Calling

Religious Freedom Report Released

Editorial

Moms Without Marriage

Wire Story

Pro-Life Pharmacist Sues Kmart

Wire Story

Priest Killed for Illegal Conversions

The Millenial Book Awards

Extending the Dream

Letters

Interview: George W. Bush on Faith-Based Plans

Christian Filmmakers Flock to End-times Features

Editorial

Make Disciples, Not Just Converts

Wire Story

Africa: Can Christianity and Islam Coexist and Prosper?

Apocalyptic Palette

You've Got Mail

To the Suburban Churches of North America

To the Pentecostal & Charismatic Churches by Todd Hunter

To the Church Called Mainline by William H. Willimon

To the Inner-City Pastor & Church by Gardner Taylor

To the Rural Church by Susan Wise Bauer

To the Church Which Seeks Seekers by John Ortberg

View issue

Our Latest

The Black Women Missing from Our Pews

America’s most churched demographic is slipping from religious life. We must go after them.

The Still Small Voice in the Deer Stand

Since childhood, each hunting season out in God’s creation has healed wounds and deepened my faith.

Play Those Chocolate Sprinkles, Rend Collective!

The Irish band’s new album “FOLK!” proclaims joy after suffering.

News

Wall Street’s Most Famous Evangelical Sentenced in Unprecedented Fraud Case

Judge gives former billionaire Bill Hwang 18 years in prison for crimes that outweigh his “lifetime” of “charitable works.”

Public Theology Project

How a Dark Sense of Humor Can Save You from Cynicism

A bit of gallows humor can remind us that death does not have the final word.

News

Died: Rina Seixas, Iconic Surfer Pastor Who Faced Domestic Violence Charges

The Brazilian founder of Bola de Neve Church, which attracted celebrities and catalyzed 500 congregations on six continents, faced accusations from family members and a former colleague.

Review

The Quiet Faith Behind Little House on the Prairie

How a sincere but reserved Christianity influenced the life and literature of Laura Ingalls Wilder.

‘Bonhoeffer’ Bears Little Resemblance to Reality

The new biopic from Angel Studios twists the theologian’s life and thought to make a political point.

Apple PodcastsDown ArrowDown ArrowDown Arrowarrow_left_altLeft ArrowLeft ArrowRight ArrowRight ArrowRight Arrowarrow_up_altUp ArrowUp ArrowAvailable at Amazoncaret-downCloseCloseEmailEmailExpandExpandExternalExternalFacebookfacebook-squareGiftGiftGooglegoogleGoogle KeephamburgerInstagraminstagram-squareLinkLinklinkedin-squareListenListenListenChristianity TodayCT Creative Studio Logologo_orgMegaphoneMenuMenupausePinterestPlayPlayPocketPodcastRSSRSSSaveSaveSaveSearchSearchsearchSpotifyStitcherTelegramTable of ContentsTable of Contentstwitter-squareWhatsAppXYouTubeYouTube