Directors of the Baptist Foundation of Arizona did not notify BFA's 13,000 investors about an August 10 Arizona Corporation Commission meeting to publicly discuss why BFA could no longer market bogus securities.
But just in case any old folks in walkers and wheelchairs did catch wind of the public meeting, BFA honchos were well-protected. Armed Capitol police officers towered over the elderly investors as state officials detailed the possibility of bankruptcy and the fact that BFA had frozen what little investor money it still had. Investors also heard about an ongoing criminal investigation by the Arizona Attorney General's Office and a state investigation of BFA's auditors, Arthur Andersen LLP.
Two months later, state officials have determined that BFA, which is affiliated with Arizona's Southern Baptist denomination, owes about $540 million to investors and is thought to have perpetrated the largest charity scam in United States history.
The life savings of thousands of hardworking retirees may have been squandered by BFA on a complicated Ponzi scheme involving unprofitable real estate and stock transactions that enriched a handful of high-living insiders.
In 1998, when New Times began an investigative series on BFA ("The MoneyChangers," April 24, 1998), the newspaper brought several of those questionable insider deals to the attention of the BFA board of directors. In letters to New Times reviewed by the BFA board of directors and co-signed by board chairman Berry Norwood, a Scottsdale pastor, and former BFA CEO Bill Crotts, who was recently fired, BFA assured New Times that nothing was amiss, that BFA was a financially sound institution doing the work of the Lord.
But the Lord got shortchanged.
BFA's own financial statements showed that, in 50 years, the foundation has only returned about $1.3 million of its own dollars to Southern Baptist causes.
The Corporation Commission has given BFA a chance to come up with a "restructuring plan" intended to show how the company will be run in the future. Since the August meeting, BFA has fired half its staff and hired a slew of lawyers -- to little avail. The troubled foundation is expected to announce this week that it will file for bankruptcy protection, a legal maneuver that will become the gist of the restructuring plan.
The plan is being overseen by two committees composed of a gaggle of former and current board members, most of whom have clear conflicts of interest. Several of the people overseeing BFA's restructuring are named in lawsuits alleging they breached their fiduciary duty as board members by okaying those risky deals -- or turning a blind eye to them. Others on the oversight teams actually did deals with BFA insiders; at least one former director enriched himself on a stock deal financed by BFA.
Many investors believe that those appointed by the BFA board to oversee its pending bankruptcy might be tempted to protect their own financial and legal interests rather than to work out a plan that would best serve investors.
"I think," says BFA investor Lloyd Pepper, "that we might have a case of the fox watching the henhouse."
Several investors, including Richard Kimsey, a local Southern Baptist minister, have filed fraud lawsuits against BFA in Maricopa County Superior Court.
"They haven't been willing to go outside of the Southern Baptist fold to get hands-on managers," says Phoenix attorney Richard Himelrick, who represents Kimsey.
"BFA can't seem to break away from the pattern Bill Crotts established of dealing with insiders. . . . They are still using all inside people to manage the company instead of bringing in fresh people with no bias and no conflicts," he says.
"If BFA was really interested in doing the right thing, they would have brought in outside people with no connections to previous wrongdoing."
In order to allay investors' fears, BFA also apppointed an "investor committee" to work on the pending bankruptcy, but BFA refuses to release names of committee members, fueling suspicions among investors.
Perhaps the most notable former board member overseeing BFA's pending bankruptcy is Joe Panter. Panter, a former chief financial officer of Main Street and Main, a restaurant company that ran into severe financial problems with Panter at the helm, had been hired by the BFA board and former BFA CEO Bill Crotts about a year ago to "simplify BFA," according to BFA's attorney, Paul Roshka.
Panter, who lives in Paradise Valley, said in August that he and Roberts now work for a company called Whitestone Financial. Corporation Commission records do not reveal who owns Whitestone Financial.
Panter told corporation commissioners that he and Roberts were hired to help BFA with its financial downsizing eight months before the August meeting.
But instead of downsizing and simplifying BFA, Panter and Roberts served as directors of Tradewind Development, a new BFA subsidiary in Hawaii that was created in February 1999 to purchase real estate, records show. Panter also has an interest in 5050 North 40th Street LLC, a company that was partially financed by BFA.
In 1997, Panter used his interest in the LLC to collateralize a loan of an undisclosed amount from a company owned by Jalma Hunsinger, a former BFA director now being investigated by the state for his role in hiding millions of dollars of losses from BFA investors. Panter paid off the Hunsinger loan in 1998.
Another former board member overseeing BFA's pending bankruptcy is Tucson attorney Martin Ryan. Ryan was a director and chairman of The Foundation Companies Inc. [TFCI], a BFA subsidiary that oversaw other BFA companies that conducted numerous risky insider real estate transactions. As chairman of TFCI, Ryan should have known about the risky transactions.
Ryan also benefited financially from his connection with BFA. He became a director and owner of 25,000 shares of New Century Financial, a publicly traded lending company largely financed by the BFA company that Ryan once chaired.
Ryan sold his New Century shares for about $375,000 in January 1999, according to company documents.
Ryan joins longtime BFA cheerleader and board chairman Pastor Berry Norwood on an "Executive Oversight Committee." That committee supervises the management committee that includes Panter and Roberts.
Norwood, a former Prescott pastor, moved to Scottsdale in 1998. He replaced a dissident pastor who did not support BFA.
Now, Norwood is named in several investor lawsuits alleging fraud and breach of fiduciary duty.
The intricate past relationships Panter, Ryan and Norwood shared with BFA were not disclosed at the August meeting with Commissioners William Mundell and Jim Irvin. Last week, Mundell told New Times that those who profited from BFA should not participate in its "restructuring."
Neither Norwood, the BFA board nor BFA's spokesperson answered detailed questions faxed to BFA last week seeking comment on possible conflicts of interest that might arise as former directors connected to the investment schemes tried to sort things out in a bankruptcy plan.
In an October 15 faxed response to New Times, BFA would only say: "With the exception of questions answered on our Web site, www.bfaz.org, BFA will not be releasing additional information to the media until after the restructuring plan is communicated to our investors."
Unlike BFA's former Web site, which exhorted investors to earn high interest rates with financially sound Christian companies affiliated with BFA, the current site offers vague and carefully guarded answers to questions posed by anxious investors.
To see an archive of the previously published "MoneyChangers" series, visit the New Times Web site at http://www.phoenixnewtimes.com/1998/121098/baptist.html
Contact Terry Greene Sterling at 602-229-8437, or online at firstname.lastname@example.org
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