Savings Bondage

A Baptist Foundation of Arizona investor gets her savings back--with a little help from a lawyer

Beverly and Edward McMillen wanted to help the Lord.
As members of North Phoenix Baptist Church, one of the Valley's largest Southern Baptist congregations, the McMillens took their pastor's advice and began investing their life savings with the Baptist Foundation of Arizona (BFA) as early as 1989. The way the McMillens understood it, BFA would borrow money from them, pay them an attractive interest rate, reinvest the money and return profits to Southern Baptist causes.

"We thought we were helping the church and helping missionaries. . . . We thought we were helping other people," says Beverly McMillen, 68.

She did not know that BFA had returned only $1.3 million of its own funds to Southern Baptist causes in 50 years. She did not know that as of December 1996, BFA had lent nearly $140 million to companies controlled by two former board members and a current board member. (BFA's insider deals were disclosed in New Times' special report, "The Moneychangers," April 16 and 23.)

Beverly McMillen, who worked at a bank at the time, had just one desire--to keep her money liquid, so that if either she or her husband fell ill, they could pay for their care.

But when Edward McMillen suffered a severe stroke earlier this year, and needed expensive nursing care, Beverly McMillen says she learned that BFA considered the bulk of their life savings--about $29,000--untouchable until 2001. BFA would not release the funds, which were invested in a so-called "Maximum Value Performance Note," she says, even after learning of Edward McMillen's illness.

Beverly McMillen pursuaded a nursing home to let her charge the first days of her husband's care on a credit card.

Then she hired a Sun City attorney specializing in elder abuse.
After hearing from that attorney, BFA released McMillen's money in August.
In a September 4 letter responding to New Times' questions about its actions in the McMillen case, BFA president William Crotts denies that Maximum Value Performance Notes are marketed as CDs and says the terms of the note are spelled out in the note's "Offering Circular" (a document that lays out the risks and terms of the note and which should be read carefully by investors before any documents are signed).

Asked to respond to Beverly McMillen's contention that she was misled into thinking her investment was "just like a CD," Crotts wrote: "A Maximum Value Performance Note is not 'just like a CD' nor is it marketed as such. The principal invested in a Maximum Value Performance Note is locked-in until maturity of the note, as disclosed by BFA's Offering Circular in the section entitled Terms, pages 4-5."

Asked why BFA sold the elderly McMillens a note that locked up principal for years, Crotts wrote: "BFA does not act as an investment advisor for any client. Clients decide based on their own needs and circumstances whether to make long or short term investments. The McMillens made their decision based on their own circumstances."

Like many elderly clients of the Baptist Foundation of Arizona, the McMillens were solicited by BFA sales representatives.

A BFA sales representative left the McMillens a flier that declares, "Here at BFA, our commitment is to 'up close and personal service.' So, if you're not physically able to get around the way you used to, or if you're simply too busy, just give me a call. I'll be happy to stop by to visit with you about our financial services or to pick up your investment."

The flier also says that by investing with BFA, "you'll be earning yourself an attractive interest rate while benefiting the Lord's work."

In 1996, the McMillens had most of their money tied up in liquid BFA "Investment Agreements." At the time, Beverly McMillen was still working, and her husband stayed at their retirement condo.

Beverly McMillen says that after her husband suffered a series of small strokes, he became so susceptible to telephone salesmen that he would "buy the Brooklyn Bridge."

In October 1996, after receiving a phone call from a BFA representative, Edward McMillen, then in his late 70s, told his wife he had switched most of their savings--about $29,000--from a liquid BFA investment agreement into BFA's "Maximum Value Performance Note," Beverly McMillen says. At the time, she still had faith in BFA, so she signed the investment papers.

According to documents BFA gave to the McMillens, the note is collateralized with seven notes receivable and two money-market accounts. Of the seven notes receivable, at least four were written by real estate companies linked to current or former BFA board members. Two of those loans are linked to former board member Jalma Hunsinger, whose main company, ALO, had a negative net worth of $116 million at the time the McMillens bought their note, according to Arizona Corporation Commission documents.

BFA's Offering Circular, which the McMillens received, discloses the risk associated with the real estate related investments, although it doesn't mention the links to insiders.

Asked whether BFA told the McMillens that some of the collateral was linked to current and former board members, Crotts replied: "No. BFA made all necessary disclosures in its Offering Circular for the MVPN. The identities of individuals are irrelevant because the security is in the collateral assets. In addition, the MVPN's are general obligations of BFA, which may be satisfied from any assets of BFA."

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