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Baptist Foundation leaders await their judgment day.

Lawrence Dwain Hoover lost millions of dollars when the Baptist Foundation of Arizona (BFA) cob lapsed in the largest nonprofit bankruptcy in U.S. history three years ago. Now Hoover is among five foundation officials fighting charges that include fraud, theft and illegally running an enterprise.

Amid efforts to clear his name, the 66-year-old Hoover learned in June that he has lung cancer. "It's been unbelievable," Hoover said. "All I was doing was trying to act as a good member of the board."

While the BFA collapse cost 11,000 investors more than S550 million, the jury is still out on who was responsible and whether foundation officials were victims or perpetrators.

"This is no Enron," said Michael Piccaretta, attorney for former Baptist Foundation Chief Executive William Pierre Crotts. "Bill Crotts does not have a fraudulent bone in his body. He did the best he could to work in the best interests of the people who invested - including himself. He and his family were investing hundreds of thousands of dollars into the foundation. He never profited one penny."

Arizona Attorney General Janet Napolitano expects to prove that foundation officials were consciously defrauding investors until her office shut down the operations in 1999.

"Investors were told some of the profit would benefit Baptist causes. In fact, however, BFA stayed afloat by getting new investors to help meet its financial obligations," an attorney general's statement read. "BFA officials allegedly put non-performing assets and bad investments into 'bad banks,' hiding losses from investors."

That type of arrangement, in which money from new investors is used to pay off earlier investors with no real value created in the process, is commonly known as a Ponzi scheme, an accusation Piccaretta said is invalid.

"It's no different than any other financial institution where people invest money," Piccaretta said. "Everything was disclosed. There were no hidden transactions. If they're calling it a Ponzi scheme, then everything in business is a Ponzi scheme."

Founded in 1948 to raise money for Southern Baptist causes, the foundation and its subsidiaries and affiliates marketed securities throughout the United States as retirement vehicles for investors and served as a custodian for tax-deferred Individual Retirement Accounts. At the time BFA filed for bankruptcy in November, 1999, it had liabilities of about $650 million and listed assets of approximately $290 million.

Piccaretta maintained that, had the state not intervened, BFA could have survived.

"There were sufficient assets that, if held and not sold at fire-sale prices and not used to pay accountants and lawyers, they would have held up if they had stayed around another 18 months," he said.

Napolitano is seeking new indictments of the five officials after Maricopa County Superior Court threw out the first charges in August. Judge Frank Galati ruled that a letter from auditor Arthur Andersen blaming foundation officials for the bankruptcy unfairly prejudiced grand jurors.

"Fairly construed, the letter -- in the guise of evidence -- says to the grand jury: 'Arthur Andersen agrees with the attorney general that these BFA officials are crooks,'" Galati wrote in his opinion.

Andersen, once one of the Big Five accounting firms before its own collapse in a series of scandals that began with Enron Corp. a year ago, has paid $217 million to settle its part in the Baptist Foundation bankruptcy while admitting no guilt. Trustees for the foundation are working on a plan to disburse that payment among creditors.

Among those in line is Hoover, who has filed a claim for $14 million on behalf of his family.

"The last deposit we had there was $815,000 three weeks before the state came in with a cease and desist order," Hoover said. "That doesn't sound like a guy who knew what was going on."

In the criminal case, grand jurors in Phoenix spent six months reviewing evidence before returning indictments last May against Crotts, Hoover, general counsel Thomas Dale Grabinski, director DeWayne Friend and consultant Richard Lee Rolfes, who all pleaded innocent before the indictments were tossed out.

Three other ex-foundation officials, former treasurer Donald Dale Deardoff, Jalma W. Hunsinger, a former board member and president of New Church Ventures, and Edgar Alan Kuhn, former president of a BFA subsidiary and director of New Church Ventures, have pleaded guilty in a plea bargain with the state.

While the national outcry over Baptist Foundation's collapse has largely been drowned out by an unprecedented rash of corporate scandals and the loss of $17 trillion in the financial markets during the past two years, the issue remains hot in Arizona, where Napolitano is running for governor of a state that is suffering its own deep financial crisis.

"It's a political issue in a political year, and you have an attorney general running for governor," Piccaretta said. "There are a lot of people who are interested in the case looking for somebody to blame."

Among religious nonprofits, the BFA scandal is the worst since the Philadelphia-based Foundation for New Era Philanthropy crashed in 1995, costing investors $135 million. John G. Bennett Jr., who masterminded the Ponzi scheme, claimed he was deluded by religious fervor in soliciting $354 million from investors. Bennett, 65, is now serving a 12-year sentence in the Fort Dix, N.J., Federal Correctional Institution and is scheduled for release in 2008.

With the BFA scandal sharing news pages with Enron, WorldCom, Global Crossing and numerous other financial failures, Congress considered including nonprofits in the Sarbanes-Oxley Act that tightened regulation on the accounting and auditing professions with its passage in July. The act established a new board that would regulate the accounting profession and made chief executives liable for any misleading information in financial reports.

Don Busby, vice president for member and donor services at the Evangelical Council for Financial Accountability in Winchester, Va., said the BFA scandal increased interest in his organization's efforts to promote trust in religious fundraising.

"I think we're seeing some good come out of this, based on the calls we're getting from around the country," Busby said. "This made big waves when it hit."

"What we have said to 1,067 members is that although this law does not apply to nonprofits, we think our members should consider the spirit and relevance of this law as they relate to the operations, policies and practices," he said.

For the Arizona Southern Baptist Convention, the similarity in name with the BFA has created some unpleasant associations, but fundraising for the state denomination's cooperative program -- in which the convention receives a percentage of church donations -- has continued to grow over the past year at a rate of between 1 to 2 percent, said Steve Bass, who heads the statewide organization.

"Obviously, the worst impact of all this has been the level of trust," Bass said. "But for the people who know Baptists who live down the street, I don't think the trust has dropped."

While Hoover faithfully attends his home church when he is not in Houston for chemotherapy treatments, he is painfully aware of members of his congregation who also lost money in the Baptist Foundation.

"They are quite upset," Hoover said. "But many of them realize we just apparently were not fully apprised of everything, so there are no hard feelings between us."

Should leaders of the BFA end up going to jail, they will retain support of the church, Bass said.

"They're members of our churches, and our ministers still take care of them," he said. "You don't turn anyone away."

Richard Williamson is a Dallas-based reporter for the Denver News Bureau.
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Title Annotation:Baptist Foundation of Arizona
Author:Williamson, Richard
Publication:The Non-profit Times
Geographic Code:1U8AZ
Date:Nov 1, 2002
Words:1253
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