GCU has always touted its affiliation with its parent, the Arizona Southern Baptist Convention. The convention, the umbrella organization that connects all Southern Baptist institutions in Arizona, was so intimately involved with the school that it appointed the university's board of trustees.
But on January 13, GCU's board of trustees voted to sever the university's legal ties with the convention, fueling speculation among local Southern Baptists that the trustees had tired of the convention's ongoing legal and public relations problems stemming from the recent bankruptcy of another offshoot, the Baptist Foundation of Arizona.
The same day GCU trustees voted to split from the convention, the Tribune newspaper reported that the IRS had a $175 million claim against BFA. The article said the IRS claim had been raised by investors at two public meetings. However, New Times was unable to substantiate that such a claim had been filed by the IRS in Arizona or elsewhere. IRS officials won't comment, and key bankruptcy attorneys for both creditors and BFA itself say they know nothing of such a claim.
University officials say the decision to break from the convention had nothing to do with the Tribune story or with any link the convention might have to the ongoing BFA scandal.
But the convention has plenty of public relations problems these days. It has been sued in Maricopa County Superior Court by angry BFA investors. In the ongoing court cases, investors charge the convention with aiding and abetting an illegal Ponzi scheme by promoting BFA's fraudulent investments to Southern Baptist churches and ministers.
These days, many of BFA's 13,000 mostly elderly Christian investors, citing the convention's link to BFA, are publicly clamoring for the state convention to reimburse them for their lost life savings.
BFA filed Chapter 11 bankruptcy in November, claiming $640 million in liabilities and from $160 million to $200 million in assets. The foundation's crash is thought to be the largest collapse of a religious financial institution in the nation's history. State criminal investigations of BFA officers and BFA's auditor, Arthur Andersen LLP, are ongoing.
Grand Canyon University itself lost its endowment, more than $2 million, in the BFA debacle. It also lost about $175,000 in cash that had been "invested" with BFA.
In a February 1998 interview with New Times, then-GCU president Bill Williams said the university's endowment was "secure."
"I'm very trusting," Williams said when asked in 1998 about BFA's finances. "I figure the foundation [BFA] . . . is fulfilling its fiduciary responsibility in the highest way. . . . BFA could not have been more forthright or more helpful in terms of how they handle our endowment fund. I personally have a great deal of respect for how they do it [invest] and how they treated us."
Williams characterized former GCU board member Jalma Hunsinger as a "friend" and "business adviser" to the university. In 1998, companies controlled by Hunsinger owed BFA at least $120 million. A key player in numerous BFA real estate transactions, Hunsinger is currently being investigated by the Arizona Attorney General's Office for his role in BFA's collapse.
Williams stepped down from the GCU presidency in December, and current president Gil Stafford says Williams' decision to "retire" was not linked to the BFA scandal. Stafford says Williams, a mathematician, still offices at GCU. Among other things, Williams is attempting to solve a mathematical problem that has eluded mathematicians for hundreds of years, says Stafford.
As for GCU's break from the convention, Stafford says it was simply a move recommended by GCU's accountants, KPMG Peat Marwick. According to Stafford, the accountants advised the board that because the convention had selected GCU's board of trustees, GCU must technically file a joint financial statement with the convention. Stafford says such joint filing would make it difficult for GCU students to get federal loans.
When asked if filing a joint financial statement would also make GCU liable for investor lawsuits filed against the convention, Stafford answered: "That would be speculation. In today's world, it is probably not wise to make speculative statements."
A January 14 statement by GCU's board of trustees is equally cautious. The release says the board, "after much prayer and deliberation voted to re-organize the University's corporate ownership and control so as to redefine its relationship with the Arizona Southern Baptist Convention."
The release went on to say that GCU will "continue its close, cooperative relationship with the Arizona Southern Baptist Convention."
"We pray for our family and friends and ask for your prayers during this time of reorganization," the release says.
News of GCU's vote to break from the convention shocked many in the state's Southern Baptist community.
Steve Bass, executive director of the convention, says the GCU board "voted unilaterally, which means on their own," to "basically sever their formal -- and that's an important word, formal -- ties with the Arizona Southern Baptist Convention."
But does the convention itself consider its legal ties with GCU severed?
"We have to respond to that," Bass says. ". . . It's going to take a while."
The executive director says GCU voted to create a new corporate entity and transfer all assets to the new company.
The reorganized university will pick its own trustees.
"The reasons why they did that and their motivation at this point in the game I can't speak to, because I'm not real certain," says Bass, adding that convention "auditors and bookkeepers" were not consulted, either.
So was the split friendly?
"There are a lot of emotions on either side," Bass answers.
He notes that GCU is following a national trend of denominational schools that are splitting from conventions for financial reasons.
GCU, for instance, which operates on a $24 million annual budget, got only $275,000 per year from the convention.
"I think everything related to the Baptist Foundation and plus this issue of the auditing concerns really heightened [the move to sever legal ties] at this time," says Bass.
Asked if he suspects GCU wanted to bolt from the convention because of the BFA scandal, Bass says: "I don't know. . . . I don't know what all went into their decision."
Bass says he's aware of the investors clamoring for both the state and national Southern Baptist conventions to pay them their money, but he says the clamor is misguided. The convention simply doesn't have the money to make the investors whole.
"There is no glass jar in the backyard of the Arizona Southern Baptist Convention where I can go dig up these assets," says Bass. "That's the same truth with the national convention. . . . There are some people who maybe misunderstand . . . [and think] we're like Roman Catholics who have all these assets in our offices. . . . Well, that's not true."
Bass says he supports a group called "Restoring Our Integrity," composed of local pastors who are attempting to raise money in Arizona and elsewhere for BFA investors.
In addition, Bass has written articles for the national Baptist Press, explaining the Arizona BFA calamity, hoping to get Southern Baptists to send aid to oldsters who lost their life savings.
"I try to get the word out [nationally] to Southern Baptists that we are hurting in Arizona; we have a major crisis on our hands," says Bass.
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 [email protected]