Baptist Foundation execs found guilty of fraud - East Valley Tribune: Spirituallife

Baptist Foundation execs found guilty of fraud

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Posted: Tuesday, July 25, 2006 10:30 am | Updated: 3:40 pm, Fri Oct 7, 2011.

Two former executives committed fraud to hide their financial mismanagement of the Baptist Foundation of Arizona, but they didn’t line their own pockets, jurors said in convicting them Monday.

The convictions signal an end to the seven-year legal saga of the foundation’s collapse in which as many as 13,000 investors lost an estimated $500 million to $600 million. The only question remaining is how much time the group’s former president, William Crotts, and former general counsel, Thomas Grabinski, will spend behind bars.

Crotts, 61, and Grabinski, 46, are facing prison terms of six to 86 years at sentencing Sept. 29.

Jurors ended the 10-month trial — one of the longest in Arizona history — by finding each guilty of three counts of fraud and one count of knowingly conducting an illegal enterprise. However, the jury acquitted each man of 23 counts of theft.

Juror Nathan Redmond, 30, said the men simply dug themselves a financial hole.

“They got caught up in something they couldn’t get out of,” Redmond said.

Jury foreman David Dodd, an accountant, said: “We felt they really wanted to make things happen — they just went about it the wrong way.”

Daryl Williams, an attorney for Grabinski, said investors lost money only because the state shut the foundation down, which forced it to sell off many of its assets, such as its property, at cut-rate prices.

“You can’t tell me these people got ripped off,” Williams said after the verdict. “This is extremely disappointing and shocking.”

Juror Sue Favia, 35, an Ahwatukee Foothills elementary school teacher, said the jury acquitted the men of theft after reviewing the language in circulars sent to investors, which stated that their funds were for “general purpose” and some dividends would come from other investors.

“We felt that was enough to cover their butts,” Favia said.

The nonprofit Baptist Foundation of Arizona was founded in 1948 to raise money for Southern Baptist causes, such as building churches.

Prosecutor Donald Conrad alleged in court that the group’s sales pitch was based on religious faith, and investors — most of them elderly — were told the nonprofit was solvent, even though Crotts and Grabinski knew it was losing millions of dollars.

Conrad said the foundation hid its losses from its accountant, Arthur Andersen LLP, by putting them into affiliate companies, which investors weren’t told about and gave the illusion that it was making a profit.

“This case has really been about the victims,” Conrad said. “So many lost their life savings.”

Attorney General Terry Goddard said investors recovered roughly 70 cents on the dollar after lawsuit and bankruptcy settlements, which is above average for fraud cases but still a substantial hit for a retiree.

One victim, Harold McPherson, lost nearly $100,000 after investing nearly $250,000 over two decades. “I guess I put my trust in the wrong people, McPherson said.

Ron Kaiser, 57, said he invested about $43,000 in the foundation beginning in the late 1980s. “Luckily, I was young enough to be able to recoup most of that.”

Baptist Foundation of Arizona timeline August 1999: The Arizona Corporation Commission issues cease and desist order to BFA and its subsidiaries.

November 1999: BFA files for bankruptcy

November 2000: A federal judge signs off on a bankruptcy settlement plan that cashed in an estimated $240 million in BFA assets.

December 2000: The Arizona State Board of Accountancy files a complaint against Arthur Andersen LLP, BFA’s accounting firm since 1984, and seeks $600 million in restitution for investors.

January 2001: The Arizona Corporation Commission and Arizona Attorney General’s Office file suit against Arthur Andersen for issuing “clean” opinions of BFA’s financial health.

April 2001: A grand jury indicts BFA’s former president, William Crotts, and former general counsel, Thomas Grabinski, former board members Lawrence Hoover and Harold Friend and former secretary of Christian Financial Partners Richard Rolfes on various fraud and theft charges.

May 2001: BFA employees Donald Deardoff, Edgar Alan Kuhn and Jalma Hunsinger plead guilty to various fraud and theft charges and agree to testify for the state.

May 2002: Arthur Andersen pays $217 million to settle the lawsuits a week after trial begin. Jennings, Strouss and Salmon, the Phoenix-based law firm for the foundation, also paid $21 million to settle allegations it was negligent. After lawyers fees, the investors had approximately $203 million to split.

September 2004: Rolfes pleads guilty to facilitation of fraud.

September 2005: Criminal trial of Crotts and Grabinski begins. Friend pleads guilty and agrees to be a state’s witness.

July 24, 2006: A jury convicts Crotts and Grabinski, each on three counts of fraud and one count of knowingly conducting an illegal enterprise. However, the two are each found innocent of 23 counts of theft.

- Tribune writer Dennis Welch contributed to this report

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