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Savings Bondage

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."

But Beverly McMillen does not even recall reading BFA's Offering Circular. She doesn't remember if she got the document before or after she and her husband bought the Maximum Value Performance Note.

Beverly McMillen says she knew that repayment of her investment was not guaranteed or insured by any government agency or by BFA itself. But she does not recall reading that BFA's investments are not regulated by any state or federal agency, due to the fact that BFA is a religious, nonprofit corporation.

And she doesn't remember reading that BFA's sales representatives, because they are employees of a religious foundation, do not have to be licensed as brokers by either Arizona or the federal government. BFA's Offering Circular notes that BFA will not sell its notes in states that required such licensing.

"The fact that sales of Notes will be made by BFA employees who are not licensed salespersons means that such persons are not subject to many of the laws and rules which regulate the practices of securities salespersons," the circular says.

All Beverly McMillen recalls is that the BFA salesman assured her the Maximum Value Performance Note was liquid, "just like a certificate of deposit."

"I trusted what I was being told was true," she says.
Then in June, after Edward McMillen suffered an incapacitating stroke, Beverly McMillen learned that their money had been locked up until 2001.

The McMillens needed the money "desperately," she says.
Edward McMillen could not be admitted into a nursing home unless she made an initial payment, but the money she needed to make that payment was in BFA's hands. And Edward McMillen could not qualify for state and federal financial assistance until the McMillens' life savings had been exhausted.

She says when she informed BFA of her problem, the foundation refused to return her $29,000 but provided her with a list of names of people who might buy her note. She tried to sell the note but got no takers.

The BFA Offering Circular warns, "There is no market for the Notes and it is unlikely that one will develop. Consequently, it is unlikely that the holder will be able to find a buyer for his note in the event of any emergency or for any other reason."

With no money of her own, she persuaded a nursing home to allow her to use a charge card to pay for her husband's care.

Then Beverly McMillen sought the help of Catherine Leas, a Sun City attorney specializing in elder abuse.

In a July 11 letter to BFA, Leas demanded that BFA return the McMillens' money. Leas alleged that BFA's salesman ". . . fraudulently represented this investment as one which could be redeemed at any time, although with an interest penalty."

In her letter, Leas wondered why BFA would sell the McMillens, who are both elderly, "an investment that would tie up more than two-thirds of their non-residential assets in an invesment that would be unavailable for five years!"

Leas wrote that if the funds were not returned, Beverly McMillen would sue BFA in Superior Court and Leas would notify the elder-abuse section of the Arizona Attorney General's Office of the alleged fraud.

"Foundations that are religious in nature are not excused from laws having to do with fraudulent practices; in fact, one would think they would hold themselves to a somewhat higher standard of conduct," Leas wrote.

In early August, BFA released the money tied up in the Maximum Value Performance Note to Beverly McMillen. As a result, McMillen did not sue and Leas did not alert the attorney general.

New Times asked BFA why it refused to return Beverly McMillen's money until after an attorney got involved and what impact Leas' letter had on BFA's decision. Crotts responded:

"BFA acted in accordance with the terms of the Maximum Value Performance Note, as disclosed in the Offering Circular dated August 1, 1996, which says 'Notes may not be redeemed, in whole or in part, prior to the stated maturity date of the Note.' BFA provided the McMillens with a list of potential buyers. The note was sold to a third party. The McMillens were accommodated like any other client."

 

Crotts did not name the "third party."

These days, Beverly McMillen spends most of her time visiting her husband in the nursing home.

She tries not to be bitter, she says, and her experiences have not destroyed her Christian faith.

All that's changed is that Beverly McMillen now attends a Methodist church.

Contact Terry Greene Sterling at 229-8437, or online at tgreene@newtimes.com


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