Eighty-year-old William Armstrong sat still as a rock at the Baptist Foundation of Arizona creditors hearing in the grand ballroom of the downtown Hyatt on December 21. Armstrong and about 1,200 other mostly elderly BFA investors attended the routine bankruptcy court proceeding to learn when, and if, they'd ever recover their savings from the detritus of a $640 million Ponzi scheme that enriched insiders.
Private companies controlled by one insider, former BFA director Harold Friend, were paid about $11 million from BFA and its maze of related companies from November 1998 to November 1999, according to bankruptcy records examined by New Times.
But Armstrong, a retired Southern Baptist minister, and his wife, Lois, 76, need money from BFA and can't get a penny. He suffers from diabetes, cancer and a liver malady.
The Armstrongs sold their Casa Grande home in June and wired the proceeds, about $160,000, to their BFA account. In all, the Armstrongs had entrusted about $460,000 to BFA. Their "investments" amounted to promissory notes. BFA borrowed their money at a high rate, and promised to pay it back.
But BFA didn't keep its promises.
It filed for Chapter 11 bankruptcy protection in November, claiming $640 million in debts and $160 million to $200 million in assets.
Now the Armstrongs are living in their RV.
It is the only home they can afford.
Harold Friend, conversely, lives in Paradise Valley. He travels widely and dabbles in the antiques trade. He offices at the Camelback Esplanade.
Friend enjoyed a close relationship with William P. Crotts, the former BFA president who was fired in September. Crotts wrote in a November 1998 letter to New Times that Friend was his "mentor."
And private companies Friend controls got $11 million from BFA in the past 12 months.
In a 1998 deposition, Friend explained his business in vague terms: "I am doing deals every day. . . . I buy and I sell. I buy real estate. I sell companies. I sell rugs. I sell furniture. I sell jewelry. And I sell things I buy. . . . Of course, I am not rich like everybody else, you know, that I deal with. I am just a poor merchant, and I buy and I sell. . . ."
In one year alone, BFA paid seemingly exorbitant consulting fees and commissions to Friend. BFA paid for his auto rental, his life insurance and his parking, among other things.
Friend referred all questions about his finances to his publicist, Gordon James, who says BFA payments to Friend were aboveboard and stemmed from legitimate business transactions.
The $700 monthly auto lease payments, for instance, paid for a company car in Guam, says James.
At the December 21 hearing, Mike Maxson sat quietly in a corner, listening to the Reverend Armstrong blast BFA officials for being un-Christian.
Maxson is a former BFA staff accountant who was among several CPAs and an attorney who quit BFA in 1996 after notifying their bosses several times of potentially fraudulent financial irregularities. Maxson and his family were ostracized from their Southern Baptist church for "causing trouble" at BFA.
Because BFA's official books were "cooked," there is no way to tell how many tens of millions would have been saved -- or how many of the oldsters in the Hyatt ballroom could have been spared poverty -- if BFA had heeded Maxson's 1996 warnings.
Or if investors had acted in 1998, after New Times published "The MoneyChangers," an investigative series on BFA's peculiar business deals and the insiders (including Friend) who benefited from them. New Times also disclosed the Arizona attorney general's investigations of BFA and its accounting firm, Arthur Andersen LLP.
Many of the elderly investors claimed they did not know about the New Times stories. They did not know about the criminal investigations. They said their first clue anything was wrong was when BFA froze their money in August, then filed for bankruptcy in November. Then they began reading about what is turning out to be the largest financial collapse of a religious foundation in the history of the United States.
Many of BFA's insider transactions had been disclosed on financial statements sent to investors, without revealing the names of the insiders. Yet most BFA investors had no idea anything was wrong.
They just trusted the people who ran BFA.
BFA folks were "friends," investor Barbara Dodson explained at the hearing. BFA was family. BFA salesmen and officials joined investors at their kitchen tables for coffee, took the old folks out to dinner. Naturally, investors trusted them. BFA folks were good Christians.
"They were our friends," said Dodson.
"But they were crooks."
Standing in the back of the ballroom, next to a lopsided artificial Christmas tree, were well-dressed attorneys and note-taking regulators and poker-faced publicists with cell phones.
According to the testimony at the bankruptcy hearing, lawyers and accountants and staff are costing bankrupt BFA $1.7 million each month. There are a slew of committees trying to sort out the BFA bankruptcy -- a Restructuring Committee and a Management Committee and an Executive Oversight Committee and an Unsecured Creditors' Committee. Several committees have different lawyers and different accountants. Some appeared to be in competition
Although the professionals say they hope to resolve the bankruptcy within a few months, many financially pinched investors voiced concern over what they saw as their money being squandered on professionals.
At least $354,000 was spent on attorneys and financial advisers to devise a proposed "restructuring plan" that offered investors stock in a new company or a payout of 20 cents on the dollar.
But before that proposal went before the bankruptcy judge for approval, investors had organized opposition.
That proposal was scrapped and replaced with a straight liquidation plan that still must be approved by the judge and investors.
Another expense that irritated investors was $1.4 million paid to Whitestone Financial Group, LLC, which is owned by former BFA board member Joe Panter. Currently, Panter is serving as BFA's temporary chief executive officer.
Several investors said at the December 21 hearing that they did not trust Panter because he was previously associated with BFA. They also accused Panter of mismanaging Main Street and Main, a once-troubled restaurant company.
Panter tells New Times that the allegations about his mismanagement of the restaurant company were false. He says he had nothing to do with the company's financial malaise. He says he took over the company's helm only temporarily, before a new CEO was found to restructure the company's debt.
Panter says the $1.4 million that BFA paid to Whitestone Financial, a company he and a non-BFA-affiliated friend formed without financial assistance from BFA, was for reasonable charges.
For instance, he says Whitestone purchased $400,000 in software for BFA because the foundation had no credit. Of the remaining $1 million, Panter says it paid for about 12 employees who were hired in the spring by the board to sort out BFA's Byzantine finances.
Panter claims he resigned from the BFA board in 1998 to consult for the foundation. He insists he did not realize how dire BFA's finances were until Crotts was fired in September. At that point, Panter gained access to the books of insider companies, where BFA's many debts were hidden.
When he was a BFA board member, Panter says, he did not suspect any impropriety with insider deals because Arthur Andersen did not object to them.
He knows that even though he's been "checked out" by a team of forensic accountants and attorneys, investors still mistrust him.
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"I'd be happy to not be involved," he says. "But I don't want to drop the ball. I don't want to abruptly leave; that would be destructive to the process. . . . I told the Creditors Committee and the Restructuring Committee that at any point if I am in the way of getting things done, I'd be happy to step down."
Panter says he's "hurt, disappointed and frustrated" about the investors losing their money, but he doesn't "feel burdened that I caused this problem . . . but I do feel I have a burden to do something positive about it."
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Contact Terry Greene Sterling at 602-229-8437, or online at firstname.lastname@example.org