By Ray Stern
By Ray Stern
By New Times
By Amy Silverman
By Stephen Lemons
By Stephen Lemons
By Monica Alonzo
By Chris Parker
The section of the law cited by the commission is titled "Fraudulent Practices."
"It's a complex Ponzi scheme, that's my statement," said Corporation Commissioner Bill Mundell during a commission hearing Tuesday.
Commission attorney Leroy Johnson said BFA and the affiliated companies had sold in excess of $500 million worth of securities to more than 13,000 investors.
Now no one knows if those investors will get their money back.
Except for interest payments and payments on IRA accounts, BFA has frozen investor assets.
"The true financial condition of BFA, Arizona Southern Baptist New Church Ventures and Christian Financial Partners has not been disclosed with the investing public," the commission wrote in its Findings of Fact made public Tuesday.
BFA's board chairman, the Reverend Berry Norwood, and the Reverend Ralph T. Bryan, secretary of Christian Financial Partners, signed a consent order on August 6 promising that the companies would not sell securities in violation of the Securities Act.
They also promised to update investors every 45 days.
In an August 7 letter to investors, Norwood and four other members of a hastily convened "Executive Oversight Committee" reported that longtime BFA president Bill Crotts, general counsel Tom Grabinski and controller Don Deardoff have "relinquished their BFA responsibilities" and noted that bankruptcy of BFA is a "possibility."
At the commission hearing on Tuesday, investors expressed outrage that at the very time their money is frozen, Crotts, Grabinski and Deardoff continue to draw salaries from BFA even though they have "relinquished their responsibilities."
Norwood, a Southern Baptist pastor from Scottsdale, has long supported and, as a board member, approved BFA's questionable investments. Norwood reportedly convinced investors to lend money to the foundation, saying their money was safe.
Although Johnson, the Corporation Commission attorney, says the current BFA board is cooperating with regulators and investigators, investors were distressed that former and current board members who rubber-stamped highly risky business decisions now serve on committees that will oversee or manage BFA's "restructuring."
Former board member Joe Panter, who leads a "management committee," was singled out by investors as one who should be removed. Several angry investors suggested the entire BFA board should be replaced.
"Somebody on that board should have taken five minutes to look at the audited financial statement . . . there were red flags flying all over the place," said Dee Griebel, an investment adviser who counseled clients not to invest with BFA. She said she alerted BFA to its severe financial problems a year ago, but that BFA failed to take care of the problem and instead reaped another $50 million from unsuspecting investors.
The August 7 letter signed by Norwood and former board members suggests that the board only figured out BFA's dilemma about a month ago.
"If we fail to satisfy the state, which is currently working closely with our committees and counsel in an attempt to protect investors, the State may pursue a receivership," the letter says. "Also if we cannot protect BFA and its constituency under current financial conditions, we may have to pursue restructuring alternatives such as bankruptcy. Please understand that it does not appear either condition is imminent [emphasis theirs] but we know that you would not want us to gloss over the reality of this situation."
The possibility of bankruptcy imperils more than $500 million lent to BFA by Christian investors, churches, IRA accounts and trust funds managed by BFA. In solicitations at Baptist nursing homes and in churches, BFA representatives had persuaded many elderly parishioners to "invest" their life savings with BFA by insisting that BFA's profits benefited Christian causes. But by 1998, the last year for which figures are available, BFA had in 50 years returned only a total of $1.3 million of its own money to Christian causes.
In its letter to investors, BFA says it will pay interest to some investors and IRA holders but that it will "suspend redemption of all investment products at this time."
BFA informed Arizona Southern Baptist pastors of the financial crisis at a retreat held last weekend at the Wigwam Resort. One pastor who had recently entrusted $1 million in church funds to BFA reportedly wept uncontrollably when he learned of the news.
BFA's letter to investors, written just three days before the Corporation Commission's action, does not mention the commission's pending hearing. Instead, the letter says that in July "the state indicated that it believed BFA and NCV [Arizona Southern Baptist New Church Ventures] and CFP [Christian Financial Partners] did not provide their clients with information that adequately disclosed their financial condition and, as a result, had violated the Arizona Securities Act."
Jennings Strauss and Salmon, a Phoenix law firm, assisted BFA with "Offering Circulars" that were sent to prospective investors. The law firm's name appears on BFA's most recent Offering Circular, dated June 1, 1999, which sought $100 million from investors. Those Offering Circulars have been called into question by the Corporation Commission.
The August 7 letter to investors refers to the law firm as "our former lawyers."