By Ray Stern
By New Times
By Amy Silverman
By Stephen Lemons
By Stephen Lemons
By Monica Alonzo
By Chris Parker
By New Times
Chartered to raise funds for religious charities, the Baptist Foundation of Arizona and its web of subsidiaries have neglected good works in favor of financing real-estate empires for insiders, investing in highly speculative land deals and lavishing generous salaries, offices and automobiles on staff. While giving a pittance in philanthropic donations to Southern Baptist causes, the Baptist Foundation of Arizona loaned companies controlled by one sitting director and two former directors nearly $140 million, which the insiders plowed into real estate. BFA records are clouded by a complex web of 63 interlocking companies--a maze that allowed BFA to insulate the transactions even from members of its own board of directors. Despite the veil of secrecy, records examined by New Times during the past six months show that BFA ledgers have been inflated by improbable stock transactions and blue-sky real-estate appraisals. While BFA claims it has never missed a payment to its religious investors, its current liabilities suggest a day of reckoning is at hand.
We are a ministry dedicated to serving the Lord and furthering Southern Baptist and other Christian causes. We re-invest your money and the profit we earn goes to further such ministries as Christian education, care for children and senior adults, missions and new church starts. Your investment actually touches the lives of countless numbers while you earn a very attractive interest rate.
--From a Baptist Foundation of Arizona brochure
The $368 Million Real-Estate Machine
Sixteen years ago, when a young Phoenix attorney named William Pierre Crotts succeeded his father as president of the Baptist Foundation of Arizona, few members of the Southern Baptist community complained about nepotism.
Southern Baptists simply trusted that Bill Crotts, then 36, was the best man for the job--even if he happened to be the son of the retiring president, Pastor Glen Crotts.
In 1962, Glen Crotts had given up the pulpit to become the first full-time president of the Baptist Foundation of Arizona [BFA]. Under his guidance, BFA was a typical religious foundation--a benevolent institution that raised and invested money and returned the proceeds to charitable causes of Arizona's largest Baptist denomination. At the time, BFA's articles of incorporation demanded that directors uphold strict Southern Baptist morals and abstain from both alcohol and gambling.
But under Bill Crotts, BFA has engaged in a different kind of gambling.
A six-month New Times investigation reveals that companies controlled by one sitting BFA director and two former directors have received nearly $140 million worth of loans in complicated real estate and stock transactions with BFA.
Public records in several states indicate that for at least 10 years, BFA has served as a seemingly bottomless pool of capital for this cadre of insiders.
BFA's managers appear to have gone to great lengths to disguise the insider loans--creating a labyrinth of 63 for-profit and non-profit companies. And until 1996, when auditors fully disclosed all the insider deals, Bill Crotts kept the majority of the trusting 21-member BFA board in the dark, several former directors say.
BFA has borrowed more than $265 million from "investors"--church treasuries, individual church members and the general public. BFA does not guarantee repayment of the loans (which are not federally insured), but relies instead on its position of trust in the Southern Baptist community. The foundation pays interest rates several points above those offered by federally insured certificates of deposit.
In pronouncements from its $6.5 million headquarters at 1313 East Osborn, BFA claims to be a financially sound $368 million company that re-invests the money it borrows in real estate and real-estate-related notes, with profits returned to Southern Baptist causes.
Yet the true financial condition of BFA remains a mystery.
BFA's own audited statements--the most recent is for 1996--don't disclose enough detail about its real estate holdings to reveal how well the company is doing, according to a financial expert retained by New Times to analyze BFA's financial statements. (See related story on page 31.)
Although BFA has not been investigated by any law enforcement agency, and has not been accused of any crime, the paper trail raises questions about whether all of the insider real-estate transactions were legal. When some of BFA's activities were generically described to law enforcement officials, they declined to comment for the record but suggested such practices warrant investigation. (The newspaper did not identify BFA during any interviews with law enforcers and industry observers.)
The key question is whether insiders broke the law by "self-dealing"--conducting transactions to their benefit at BFA's expense.
Self-dealing violates the Internal Revenue Code. It violates state and common law regarding fiduciary duty. It violates fraud statutes.
Marcus Owens, director of the Exempt Organizations Division of the Internal Revenue Service in Washington, D.C., says penalties for self-dealing range from revocation of tax-exempt status to prosecution of individuals.
Self-dealing can render a corporation vulnerable to civil liabilities--and on occasion open its directors to criminal liability, says Michael Manning, the Phoenix attorney who represented banking regulators in a successful 1993 civil lawsuit against Charles Keating and who today represents union pension funds in the bankruptcy case of former governor J. Fife Symington III.
Paul Nelson, director of the Evangelical Council for Financial Accountability--a Washington, D.C., self-policing group that monitors religious foundations and charities--was told generically about the insider loans. Nelson says that if New Times' "facts are right," such large insider loans should arouse suspicion.