August 18, 1999
Arizona foundation in turmoil
___PHOENIX, Ariz.--Three top officials of the Baptist Foundation of Arizona have resigned in light of charges the agency violated state law by inadequately disclosing its financial condition to potential investors.
___According to state investigators, 13,000 individuals and an unknown number of churches have invested $483 million in the Foundation or its affiliates. State investigators say the investments haven't made money, and in fact there isn't enough money in the Foundation's accounts to cover people's investments, according to a report in the Arizona Republic newspaper last week.
___The Baptist Foundation of Arizona has been known in financial circles as highly aggressive in its approach to investments and in its recruiting of investors. No other state Baptist foundation has operated in the same manner.
___"It's a totally different method of operating than we've ever done or would ever do," said Jim Herod, senior vice president of the Baptist Foundation of Texas. "We're two very different institutions."
___Although the Baptist Foundation of Arizona reportedly served a large number of Texas investors, the Arizona crisis will not impact the Baptist Foundation of Texas and its constituents. The two foundations have no legal or organizational links.
___The Baptist Foundation of Texas does not engage in the kinds of practices that have caused problems for the Arizona foundation, Herod said.
___"They would sell notes. Investors would give the Baptist Foundation of Arizona money, and the Baptist Foundation of Arizona would agree to repay that with certain amounts of interest," he explained. "We just don't do anything like that."
___For now, trustees of the Baptist Foundation of Arizona have placed a temporary freeze on the withdrawal of invested funds, continuing to pay only interest and distribution of Individual Retirement Accounts. State officials accepted an offer by the Phoenix-based Foundation to stop selling investment products.
___The Arizona Corporation Commission, the state agency which oversees public utilities and securities, issued an order Aug. 10 requiring the Foundation and two subsidiary corporations to "cease and desist" from offering or selling investment products in violation of the Arizona Securities Act.
___The order said a year-long investigation by the commission and the Arizona Attorney General's Office found the foundation did not disclose its "true financial condition" to the investing public. The commission concluded the three corporations "offered and sold securities within or from Arizona through material misrepresentations and omissions of material fact."
___Foundation President Bill Crotts, General Counsel Tom Grabinski and Controller Don Deardoff stepped down from their jobs voluntarily July 22, according to a trustee letter sent to clients Aug. 7.
___While emphasizing neither condition is "imminent," the trustees warned that if they are unable to satisfy Arizona officials, the state may pursue a receivership, and the Foundation may have to pursue restructuring alternatives, such as bankruptcy, if trustees are unable to protect funds under current conditions.
___The troubles of the Arizona Baptist Foundation could have a negative impact on the Arizona Southern Baptist Convention as well. Organized in 1928, the state convention includes about 400 churches.
___But those who are most worried now are the individual investors, many of whom apparently are retirees living off their investment income.
___In an Aug. 10 hearing of the Arizona Corporation Commission, about 50 investors packed the room and asked the commission to quickly conclude its investigation so they could regain access to their money, according to the Arizona Republic.
___Investors questioned the foundation's credibility and ability to restructure the company, the newspaper reported. One, a certified public accountant and a friend to some investors, said he does not trust foundation officials and that the problem could have been stopped a year ago if anyone on the BFA board of directors had cared.
___The commission said investors could expect to begin receiving reports every 45 days outlining steps the foundation management is taking to shore up the company. Investigators were said to be sifting through 2 million documents.
___Following the resignations of the three executives, the foundation board created an "executive oversight committee" of five people, including board chairman Berry Norwood, pastor of First Southern Baptist Church of Scottsdale, Ariz.; Dan Stringer of Phoenix, a retired state convention executive director; and three local businessmen.
___Compiled from reports of Associated Baptist Press, Baptist Press and Baptist Standard staff
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