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Fraud History: The $500 Million Pyramid — How William Crotts Bankrupted the Baptist Foundation of Arizona

By   /   April 18, 2014  /   No Comments

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Modern American journalism has been deservedly criticized in recent years for its generally shallow, beside-the-point reporting.

But that was not the case in Maricopa County, Arizona, in the late 1990s.

In a brilliant series of investigative reports, Terry Greene Sterling, an award-winning Phoenix New Times reporter, exposed the BFA scam in all its sordid glory.

It was Greene Sterling who dug up the letters from the former staffers. And from that point, she spent about a year investigating and reporting about the scandal.

The first Greene Sterling article appeared on May 22nd, 1997. In this installment, “In the Name of the Father, The Son and the Wholly Owned Subsidiary,” Greene Sterling examined a BFA-affiliated Christian retirement community.

In the investigation,Greene Sterling interviewed an “owner” of one of the units of “Paradise Valley Estates.” It seemed the woman, an Italian-American widow, was “sold” her unit by a Baptist pastor affiliated with Hunsinger’s EVIG. Greene Sterling confirmed that the woman was never actually “sold” the property. She was essentially leasing the building, and was prohibited from selling it. The widow had been misled by the salesman associated with the BFA.

The Phoenix New Times article that caught the attention of the entire state of Arizona was published on April 16th, 1998, almost a year after the first article.

Titled, “The Money Changers,” Greene Sterling, in damning detail, described Crotts’ entire Baptist Foundation of Arizona ponzi scheme.

Here is how “The Money Changers” began:

“While giving a pittance in philanthropic donations to Southern Baptist causes, the Baptist Foundation of Arizona loaned companies controlled by one sitting director and two former directors nearly $140 million, which the insiders plowed into real estate.
“BFA records are clouded by a complex web of 63 interlocking companies, a maze that allowed BFA to insulate the transactions even from members of its own board of directors.

“ A New Times investigation the past six months shows that BFA ledgers have been inflated by improbable stock transactions and blue-sky real-estate appraisals.

“While BFA claims it has never missed a payment to its religious investors, its current liabilities suggest a day of reckoning is at hand.”

From there, Greene Sterling detailed the intricate “self-dealing” of Crotts and his cohorts, noting that the transactions violated the Internal Revenue Code.

“The Money Changers” laid bare the insider dealings between Crotts and the shell companies headed by Hunsinger, Grabinski, Hoover, and the others. Hunsinger was named as owing BFA $124.8 million in the article. This, pointed out Greene Sterling, amounted to more than one-third of the foundation’s stated assets.

Greene Sterling revealed that many of the shell companies shared their Phoenix addresses with the BFA at 1313 Osborn Road.

The article disclosed that current BFA board member L. Dwain Hoover owed the foundation $11.8 million as of December 1996. Greene Sterling noted that Arizona state law prohibited directors from borrowing from non-profit corporations.

Greene Sterling also reported that, despite Crotts’ claims of BFA’s charitable generosity, in its 50- year history, the BFA had given only a paltry $1.3 million to the Arizona Southern Baptist community, mostly for new church construction.

BFA expenses were high, extremely high, Greene Sterling reported. The Foundation spent $16 million on staff salaries in 1996. In 1995, the BFA spent $329,000 on staff automobiles. This money came from BFA investors.

The Phoenix New Times series continued a week later, on April 23rd, with another Greene Sterling installment, “A Shaky Foundation.”

“A Shaky Foundation” delved deeper into some of the specific BFA scams. In one, Greene Sterling described a complicated transaction where Grabinski, the BFA attorney, signed off on the value of a single piece of property at $3.3 million and $960,00 . . . on the same day!
It was a mess, and Terry Greene Sterling laid it out for the whole world to see.

The Phoenix New Times series caught the attention of Arizona authorities. In the first week of December, 1998, the New Times reported that three separate state agencies were investigating the BFA.

The Organized Crime and Fraud Section of the Arizona Attorney General’s Office and the Securities Division of the Arizona Corporation Commission launched criminal investigations of the BFA.

Additionally, the Arizona Board of Accountancy began investigating Arthur Andersen, LLP to determine if the firm followed acceptable accounting standards and principles when preparing BFA’s audited financial statements.

The New Times series even got Bill Crotts’ attention. In an October 30th, 1998, letter to the newspaper, Crotts confirmed the Attorney General’s investigation.

“The Baptist Foundation of Arizona welcomes investigation by the State. We have pledged our full cooperation to the State and, indeed, have already provided thousands of pages of documents. We welcome every opportunity to share with the state our 50-year history of growing an endowment that helps house, clothe, educate and feed children, the elderly and the needy.”

In November, Crotts sent two letters to BFA investors commenting on the Phoenix New Times’ series. In the letters, Crotts continued to maintain BFA’s innocence, blaming the “poorly written and poorly reported” and “anti-Christian” New Times reports.

In one letter, Crotts wrote:

“We have carefully examined the New Times articles about BFA. They are vague and full of innuendoes. They clearly indicate that the reporter has an agenda to make the Baptist Foundation, certain benefactors and directors, our General Counsel Tom Grabinski and me look bad.

“We expected that state governmental authorities would, sooner or later, examine the articles. That day has come. The Office of the Arizona State Attorney General has begun an inquiry that is based on the information reported in the New Times articles.

“You should be aware that when we learned the State was asking questions about us, we asked our attorneys to initiate contact with them. We told the State we would be happy to supply all of the information they wish and are now doing so.

“We welcome this inquiry because we want to set the record straight. The New Times has tried to damage our reputation and impede the Foundation’s mission. This inquiry will finally bring this matter to a favorable end.”

In the other letter to BFA investors in November, 1998, Crotts leveraged his religious affinity with the investors:

“Our investment results this year have been outstanding. These are wonderful days of blessing, but they have not come without attacks from Satan, our spiritual enemy. I trust you will join me in seeing this as an assault on our common faith and begin to pray earnestly with me about it. Not only is this an assault on the values we as Christians hold dear, but I am also personally insulted because it totally mischaracterizes my 16 years of committed hard work at the Baptist Foundation of Arizona and BFA’s 50 years of service to Arizona Southern Baptists.”

Also in November, 1998, Bill Crotts addressed the annual convention of Arizona’s Southern Baptists. In his remarks, Crotts said the past year had been BFA’s “very best year.” Crotts said that BFA held investments of $448 million. He mentioned that BFA had $34 million in cash.

On August 12th, 1999, the Arizona Corporation Commission ordered the Baptist Foundation of Arizona and affiliated companies to “cease offering and selling securities in violation of the Securities Act of Arizona.”

“It’s a complex Ponzi scheme, that’s my statement,” commented Arizona Corporation Commissioner, Bill Mundell, at the announcement of the cease-and-desist order.

Before the Arizona Corporation Commission’s statement, BFA boardchairman, Rev. W. Berry Norwood, signed a consent order promising that the BFA companies would not sell securities in violation of the Arizona Securities Act.

Except for interest payments and payments on IRA accounts, BFA had frozen investor assets.

Norwood promised to update investors every 45 days.

In an August 7th letter to BFA investors, Norwood informed them of the state investigation. He also said that BFA president Bill Crotts, general counsel Tom Grabinski and controller Don Deardoff had “relinquished their BFA responsibilities.”

Norwood wrote ominously to investors:

“If we fail to satisfy the state, which is currently working closely with our committees and counsel in an attempt to protect investors, the State may pursue a receivership.

“Also, if we cannot protect BFA and its constituency under current financial conditions, we may have to pursue restructuring alternatives such as bankruptcy. Please understand that it does not appear either condition is imminent, but we know that you would not want us to gloss over the reality of this situation.”

In an August 21st letter to investors, BFA chairman Norwood wrote:

“We know you’d like us to tell you when you can get some or all of your funds and we’d like to be able to answer that today. We hope you understand that we don’t have quite enough information to be that specific yet.”

For the 13,000 BFA investors, the news was frightening. The specter of bankruptcy imperiled more than $500 million of investors’ money, most of it the retirement savings of elderly Christian Americans.

BFA salesmen had gone into nursing homes, into churches, persuading elderly Southern Baptists to trust the foundation with the money they spent their entire lives earning.

On August 28th, 1999, the BFA board of directors fired President Bill Crotts, chief counsel Thomas Grabinski, and comptroller Donald Deardoff.

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