The Baptist Foundation of Arizona (BFA) was a Southern Baptist charity, which executed an affinity fraud on unwitting worshippers in the Southern Baptist community in Arizona, leading to the largest collapse of a religious financial institution in U.S. history. The BFA was associated with the Arizona Southern Baptist Convention, which was affiliated with the national organization. When the BFA filed for bankruptcy in 1999, it had $530 million in liabilities as compared to a reported $70 million in assets.
The Arizona Southern Baptist Convention was founded in 1928. In 1948, the Baptist Foundation of Arizona was founded and initially sought to provide a financial revenue for participants while supporting Baptist-motivated causes. In 1962, Pastor Glen Crotts became the organization's first president. Under his leadership, the organization held strict moral values, including its officers being forbidden to gamble or drink alcohol. Twenty years later, Glen Crotts' son, William Pierre "Bill" Crotts, became the organization's second president.
The BFA consistently sold the concept that its main objective was to help its investors serve the work of the Arizona Southern Baptist Convention, while also providing them with favorable returns, as stated in a BFA investor brochure:
The Baptist Foundation of Arizona declared bankruptcy in 1999, citing $530 million in liabilities against $70 million in assets.[1]
The collapse of the BFA did not occur in a vacuum. In 1992, records indicated that the company had lost $3.2 million due to questionable transactions. The Reverend Ed Shaw suggested that the BFA "Explain the situation completely to investors; ask their forgiveness; let them know their gift of principal would help if they choose to give some or all of it."[2] Instead the BFA decided to hide its debt and began a series of dubious activities. Under Bill Crotts, the organization diverted over $140 million to two former and one active (as of 1998) director. The organization did this through the use of over 63 different public and private organizations all directly affiliated with the BFA.[3]
Each of these related companies had Bill Crotts and the BFA's chief attorney, Tom Grabinski, on their board.[3] Grabinski signed documents as an officer for both BFA and a subsidiary. When asked if a conflict of interest existed, the BFA indicated that both parties "had waived any conflicts of interest."[3] Since he was working for both companies, Grabinski was able to authorize questionable transactions. For example, on one day Grabinski attested to the value of a piece of property twice. The first time he attested to the value, he indicated that the property was worth $3.3 million. The second time, on the same day, he declared the same piece of property was valued at $960,000.[4]
The BFA carried out a number of illegal activities in perpetrating affinity fraud against Southern Baptist worshipers in Arizona.
The Arizona Attorney General's Office and the Arizona Corporation Commission conducted the criminal investigation that resulted in the convictions of eight defendants. At the time of its failure in 1999, it was the largest affinity fraud that had ever occurred in the United States, with a total loss estimated at million (equivalent to $ million in).[8] Indictments were handed down in April 2001; by July 2006, when BFA's president and CEO William Crotts and BFA's Chief Legal Counsel Thomas Grabinski were found guilty at trial on multiple counts of fraud, five other defendants had already pleaded guilty.[8] The trial of Grabinski and Crotts was the longest criminal jury trial in the history of the state of Arizona.[8] Crotts was sentenced to eight years in prison, while Grabinski was sentenced to six years; the two convicted criminals were required to pay $159 million (equivalent to $ million in), each, in restitution.[9]
In 2002, Grabinski sued BFA's insurance carrier, National Union Fire Insurance Company of Pittsburgh, Pa. (National Union), for coverage of his legal fees per the Directors and Officers liability coverage purchased from National Union, plus damages.[10] In February 2004, the jury in the Arizona Superior Court civil trial found in favor of Grabinski, with the Court ordering National Union to pay Grabinski $2.5 million (equivalent to $ million in). National Union appealed that ruling, leading to Grabinski suing them in July 2004 for damages due to abuse of process; the abuse of process claim was denied by the United States District Court for the District of Arizona in a September 2005 ruling on National Union's motion to dismiss.[11] Independent of the abuse of process ruling, the original Arizona Superior Court ruling was upheld by the Arizona Court of Appeals in March 2005, at which point National Union paid the $2.5 million to Grabinski.[11]
In early 2007, several former members of the BFA's executive management team were sentenced for the fraudulent activities associated with the BFA. Donald Dale Deardorff, Senior Vice President and Controller, was sentenced to four years in prison and a fine of $150 million (equivalent to $ million in). Jalma Hunsinger, President and Director of Church Ventures (a company whose stated purpose was to build churches), paid $150,000 .[12] [13]
In 2002, a judge in the civil court case of the BFA Liquidation Trust versus Arthur Andersen, the Big Five accounting firm that also failed to properly audit Enron, officially approved a settlement that would pay former BFA investors $217 million (equivalent to $ million in) for Andersen's failure to identify fraudulent activities at the BFA.[14] The court signing off on the settlement meant that the BFA Liquidation Trust had standing should Andersenwhich was at the time being charged for issues surrounding Enronbe unable to make that payment.[14] Christianity Today reported that the timing of this court approved settlement avoided "the worst case scenario for Baptist Foundation investors" of Andersen being convicted in its then ongoing criminal case regarding its audits of Enron, then quickly filing "for bankruptcy-court protection" from any civil lawsuits not yet settled in a court.[15] At the time, this settlement was the second largest settlement in the nation's history for a Big Five accounting firm that was not related to the Savings and Loan collapses of 1986 to 1995.[14]
In 2007, the first story on the episode "Religious Prey: Baptist Foundation Of Arizona / Medical Scams: Dr. Mikos", of the television series American Greed, covered the fraudulent behavior of the Baptist Foundation of Arizona.[16]