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September 15, 1999






Troubled Arizona foundation
had recruited investors in Texas

___By Mark Wingfield
___Managing Editor
___TEMPLE--Texas pastor Sam Callaway first learned about the Baptist Foundation of Arizona while escorting a group of church members to a senior adult Chautauqua at Glorieta Baptist Conference Center.
___He was impressed with the information the foundation representative presented, including the high rates of return and the foundation's emphasis on using its assets to support mission work in Arizona.
___"The big selling point was that it was going to be helping mission churches," said Callaway, pastor of Lakeview Baptist Church in Temple. "I thought it would be a good way to invest money."
___Although the interest rates offered by the foundation were higher than what he could get elsewhere, he saw no reason to question the viability of the foundation, he said, because it was part of the Baptist family--and they were making a presentation to senior adults at the Southern Baptist-owned conference center in New Mexico.
___He trusted the information "because it was at Glorieta," he said. "I didn't think they would allow anyone in there who had a seamy background. Part of the assurance I felt was where we were. And the fact that they were talking to senior adults."
___He admits that Baptist Foundation of Arizona representatives repeatedly said investments with them were not guaranteed. "But with 50 years of experience and with the Baptist name on it, and the seeming integrity, I hadn't worried about it at all," Callaway said.
___Not only did he begin investing with the Arizona foundation, he encouraged others to invest there as well. His own mother invested heavily as a result.
___So did Larry and Sharon Mitcham, members of Lakeview who recently retired and had grown weary of managing their investments in the stock market.
___"We were tired of having to live by the Dow Jones daily report," Mitcham explained. "So we decided to cash it all in and put it someplace we thought would serve the Lord."
___The Mitchams were impressed with the research they did on the foundation and the answers they got from foundation representatives.
___"Everything just looked excellent," said Mitcham, a retired design consultant for office machinery. "They told us they had been in business since 1949 and had not lost a customer a dime.
___"They were paying 11 percent on long-term loans. That sounded real attractive. It sounded like a good way to quit worrying about trying to make 20 percent on the stock market and get back to living life. At the same time, the money was being used, I was told, for the advent of new churches, church expansions, church growth."
___The Mitchams started investing with the Arizona foundation last spring and gradually increased their investments each month. They put a "good part" of their retirement money in the foundation, including funds from their 401(k) and IRAs.
___Then suddenly in July, a check they sent the foundation for $50,000 was returned. About the same time, they received a letter from the foundation's board of directors announcing that most foundation assets had been frozen while the Arizona Corporation Commission investigated potential wrongdoing by foundation executives.
___Exactly what went wrong has not been made clear. But officials with the Arizona Corporation Commission have charged that foundation executives did not fully disclose to investors the foundation's true financial condition. The officials also have suggested the foundation might have been engaged in a Ponzi scheme, whereby new investors must constantly be brought in to pay dividends to previous investors.
___The foundation's three top executives since have been fired by the foundation's board of directors, and an emergency committee is managing the foundation's work while the state continues its investigation. All investments are frozen, with interest continuing to be paid only on Individual Retirement Accounts.
___Callaway and the Mitchams are among an estimated 327 Texans who reportedly have nearly $19 million invested in the Arizona foundation. Those Texans are among 13,000 investors in the foundation nationwide. The foundation's total investment portfolio was reported July 22 to be $483 million.
___The foundation scandal has made national news, including a prominent story in the Wall Street Journal.
___It also has prompted leaders of other state Baptist foundations to loudly declare their distance from the Arizona foundation. No other state Baptist foundation, including the Baptist Foundation of Texas, offers the kind of individual investment services the Arizona foundation was selling.
___Yet those other Baptist foundations--as well as Baptist agencies and churches of all kinds--are getting black eyes from the Arizona scandal, admitted Lynn Craft, president of the Baptist Foundation of Texas.
___While some individual investors may have been surprised by the Arizona foundation's fall, executives of other state Baptist foundations were not. In fact, the aggressive practices of the Arizona foundation had caused a rift within an association of state Baptist foundations, eventually causing the association to dissolve.
___Craft and the Texas Baptist Foundation were the first to leave the national association several years ago in an effort to distance themselves from what they deemed questionable practices by the Arizona foundation. Craft said he personally approached Arizona foundation executives to explain his concerns.
___Apart from such actions, the leaders of other state Baptist foundations were powerless to stop what they perceived was an inevitable disaster.
___"They are an entity in themselves," Craft explained. "They make their own policies and decisions. Their board was the sole oversight of it, and they either did not see or chose not to act. ... Either they didn't understand the financial statements or didn't think there was anything wrong with it."
___For now, the only thing obvious about the Arizona scandal is that it has "caused a big old nasty black eye for the Christian cause," said Mitcham, who noted the Arizona foundation mailed out a new round of investor solicitations the very week they were shut down by the Arizona Corporation Commission.
___While he's angry with those who may have mishandled his investments, Mitcham said he's also "ashamed of my Baptist friends coming out and shooting the wounded."
___Rather than criticizing fellow Christians who invested with the Arizona foundation, Baptists ought to find a way to help repair the loss and restore the good name of Baptists everywhere, Mitcham suggested.
___"That would change the opinion, I think, of how people perceive the Christian community."
___One such step already is under way through the Arizona Southern Baptist Convention Executive Board. The state convention is establishing a Jerusalem Fund, with donations going to aid those hardest-hit by the foundation's frozen assets and likely losses.
___This fund will aid "true hardship cases," such as individuals who derived their entire source of retirement income from investments with the foundation, said Truett Baker, chairman of the Jerusalem Fund. Baker is the recently retired president of Arizona Baptist Children's Services and a respected leader in the state convention.
___Meanwhile, people like Callaway and the Mitchams await news on how much of their investments they'll recoup.
___"This could mean going from retirement back into the workplace," Mitcham said. "This could mean selling our house, a whole lot of bad things."
___Callaway agrees he could suffer a serious loss of money saved for future needs, such as his children's college education. But a series of events that have played out alongside the foundation scandal remind him that all will not be lost even if his money is lost.
___Just days before he received notice of the Arizona foundation's troubles, Callaway's wife was diagnosed with a brain aneurism. She underwent emergency surgery and narrowly escaped death.
___Then two weeks ago, his 9-year-old son was diagnosed with juvenile-onset diabetes and nearly died. Doctors since have stabilized his son, and he is expected to do well with medication.
___Those events put any potential financial losses in perspective, Callaway said.
___"I've still got my son and my wife, and that is far more important than money. I could use that money, but if I don't ever see it, I'll not be bitter. The Lord has helped us through these other situations, and he'll help us through this."
___

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