By Amy Silverman
By Olivia LaVecchia
By Monica Alonzo and Stephen Lemons
By Chris Parker
By Michael Lacey
By Weston Phippen
News that the Arizona Board of Accountancy took serious action last week against Arthur Andersen LLP, a multinational accounting firm, for allegedly ignoring and covering up fraud within the failed Baptist Foundation of Arizona was "the first ray of sunshine" in a year for Fred and Betty Ordorica.
The Ordoricas, who are both 65, live in Mammoth, Arizona. He is a retired copper processor. She is a retired security guard. They married 15 years ago, thinking, Fred says wryly, that "the second time around is best."
But they both say their second marriage has been greatly tested since BFA filed for bankruptcy in 1999, because Betty did not want Fred to invest his money -- about $130,000 -- with the Southern Baptist organization in the first place.
"The church factor is one of the reasons I could not dissuade him from investing there," Betty says.
Their emotional fallout from BFA's bankruptcy "darn near destroyed the marriage a couple of times," says Betty.
Betty says she sensed something untrustworthy about the foundation and its force of smiling Christian salesmen, so she decided to do her own investigating. She recalls that when she queried the Arizona Attorney General, the Arizona Corporation Commission and the Better Business Bureau back in the mid-1990s, no one had anything bad to say about the religious nonprofit foundation.
The state agencies Betty had questioned had, in fact, turned a blind eye to BFA for years because it was a religious organization exempt from state securities laws. And, after all, why was there any need to worry? BFA had been given "clean" audits by Arthur Andersen for years.
It wasn't until 1998, after New Times published an investigative series detailing how BFA used a web of shell corporations to hide hundreds of millions of dollars in metastasizing debt from investors, that various state agencies launched their own investigations into the $640 million Ponzi scheme.
Arthur Andersen, with $7 billion in revenues last year, has the "deep pockets" to repay investors, so it's become the target of torts and administrative actions, which allege the firm covered up, ignored or contributed to the fraud.
Arthur Andersen has vigorously denied wrongdoing. In a December 8 statement to New Times, the firm wrote: "These are unproven allegations that we will deal with in a court of law, and that is the appropriate place to present our case. It can't be tried in the media. We think it is sad and distressing that innocent people had to suffer as a result of the actions of BFA management and regret that some believe, wrongly, that we are also somehow responsible. As we have said previously, we believe that we took appropriate actions and followed our professional guidelines."
But not everyone agrees.
Here's an update of the lawsuits and administrative actions and investigations swirling around the BFA debacle.
The Board of Accountancy. In 1998, following the New Timesstories, the state board that licenses and disciplines accountants began an investigation of the role of multinational accounting giant Arthur Andersen -- and its accountants -- in the BFA scandal. After all, BFA provided Arthur Andersen's misleading "clean audits" to those investors who wished to see them.
In what is emblematic of a larger national issue -- a growing regulatory distrust of major national accounting firms -- the state accountancy board last week filed a complaint against Arthur Andersen and three of its Phoenix-based CPAs: Jay Ozer, now retired, Ann McGrath and Alan Hague. In a nutshell, the state claims the accountants and their firm ignored and/or covered up clear signs of financial fraud. The board seeks $600 million in restitution for investors and discipline (probation or suspension and revocation of licenses, for instance) and unspecified fines from each of the named accountants.
The state accuses Ozer, who was previously disciplined for his role as an Andersen accountant who audited Charles Keating's fraudulent financial empire before its collapse ("Legerdemain Man?" Terry Greene Sterling, March 2), of a "pattern of continual deviation from professional standards."
McGrath, who was on the fast track for promotion at the firm, is accused of numerous professional "deviations" including ignoring a road map of fraud provided by a former BFA accountant, Karen Paetz.
Hague is accused of covering up BFA's potential loss of nonprofit status, which would force it to comply with state securities laws.
The accountants could not be reached for a response to the allegations.
In a statement released by Arthur Andersen on December 4, spokesperson Linda Rizer said: "We believe it is inappropriate for this matter to be taken up by the State Board at this time. At the proper time, we will respond fully."
The Arizona Attorney General's Office would not comment when asked whether any of the Arthur Andersen accountants named in the accountancy board complaint will face criminal charges for their alleged roles in BFA's collapse.
The Criminal Investigation. In 1998, the Arizona Attorney General's Office began a criminal investigation of certain BFA officers, including president William Crotts, attorney Thomas Grabinski, comptroller Don Deardoff and former board members Harold Friend, Jalma Hunsinger and Dwain Hoover. The investigation is ongoing. Indictments have yet to be filed.
The Lawsuit. In 1999, investors filed a class-action fraud lawsuit against Andersen and BFA insiders, including Crotts, Hoover, Hunsinger, Friend, Deardoff and Grabinski. The Maricopa County Superior Court case is grinding along, hampered by the fact that four judges have recused themselves because of connections with Arthur Andersen or its lawyers. This means current judge Paul Katz has a backlog of motions to rule on.