A Black Canyon City woman says the Baptist Foundation of Arizona (BFA) is refusing to return her life savings, even though she needs the money to pay mounting medical bills.
Annette Earl, 60, claims that a BFA representative "misled" her in April 1997 when she invested $99,000 with the Arizona Southern Baptist charitable foundation. She claims she was told the note she was about to purchase from BFA was "like a certificate of deposit" and that the principal could be returned to her at any time as long as she paid a penalty.
Then in July, doctors told Earl she was dying from cancer. She asked BFA for all her money, but says she was told by BFA officials that she couldn't get her principal back until April 2002 -- even though BFA could legally return the money to her at any time if it chose to.
In a July 30 letter to New Times, BFA Chief Counsel Thomas Grabinski confirms that BFA will not return Annette Earl's principal until the note comes due in four years, but denies that anyone from BFA misled Annette Earl when she purchased the note.
Annette Earl is unemployed because of her illness. Her husband, Bill, a Southern Baptist, is an electrical engineer. Both attend a nondenominational Christian church in Black Canyon City.
Aside from the $99,000 invested with BFA, the Earls have sunk their remaining savings into eight acres in Black Canyon City, where they plan to build their solar-powered dream home. So far, they've managed to build a garage, which is where they live. They have no running water, no refrigerator, no stove, no plumbing. They use an outhouse.
They figured they'd add the amenities bit by bit, with their own labor, as they could afford them.
Annette Earl says she decided to invest their remaining savings with BFA because she was led to believe money BFA made on their investment would benefit Christian causes. The Earls did not know that BFA, which claims assets of $368 million, has in 50 years actually donated only $1.3 million of its own funds to Southern Baptist causes.
Using its position of trust in the Christian community, BFA has borrowed more than $265 million from church treasuries, church members and devout Christians like Annette Earl. That money is then reinvested, often in real estate projects. As of March 1998, companies controlled by BFA insiders -- a current BFA director and two former directors -- had received nearly $140 million in loans from BFA.
Annette Earl essentially lent BFA $99,000 when she invested in a "Maximum Value Performance Note." According to the terms of the note, she was to receive monthly interest payments (at an annual rate of 8.25 percent) until April 3, 2002, when the note would come due and Annette Earl would get her principal back. According to the document, she cannot get her principal unless BFA chooses to "prepay," or return the money to her.
And BFA has chosen not to "prepay."
"I remember asking the representative about that [getting the money out before the note is due]," Annette Earl says, "and he said, 'Oh, it's like any other CD' -- that's what that silver-tongued fellow told me. . . . I've had certificates of deposit for probably the last 35 years, and I know what questions to ask."
In his July 30 letter, Grabinski denies any BFA representative misled the Earls.
"The Baptist Foundation of Arizona's Financial Service Representatives clearly advise our clients as to the future availability of their funds before they are deposited with BFA," the letter says. "Each investment product has different provisions, some with early withdrawal subject to potential penalty, others without.
"Mrs. Earl had first expressed an interest in all investment products. However, because of the higher interest rates and the specific collateral that secured the account, she chose the Maximum Value Performance Note (MVPN), which prohibits early withdrawal under any circumstances. Our files clearly show that the BFA Representative advised the Earls of the differences between the products and of the non-withdrawal provision of a MVPN, and that the Earls were comfortable with the MVPN and its specific collateral. Further, both the Offering Circular and the Note make this provision clear and were given to Mrs. Earl. Mr. and Mrs. Earl admit receipt of these documents," Grabinski wrote.
"So it's my word against theirs," Annette Earl says.
She trusted BFA's Christian integrity, trusted that she could get her money back, and signed investment documents without carefully reading the prospectus, she says.
Then, in early July, she sought medical treatment for a simple skin rash. Her doctor detected an abnormality in her lung and ordered expensive tests. The first diagnosis was terrifying: Doctors at Arrowhead Hospital said they found lesions that appeared cancerous in her lung and in her liver.
They told Annette Earl she was dying.
Subsequent tests showed that the mass on Earl's lung is probably caused by valley fever -- but the lesion on the liver has yet to be adequately diagnosed, and Earl still faces liver biopsies.
So far, the Earls owe $8,000 in medical bills -- the amount not covered by their insurance company, which pays only 70 percent of their medical expenses.
But the Earls can't pay those bills -- and the bills to come -- unless BFA releases their life savings.
The Earls say they contacted BFA officials, explained the unexpected hardship Annette's medical conditions had caused, and asked BFA to return the $99,000 nest egg -- after all, BFA could legally do so according to the terms of the note.
According to the Earls, BFA executive vice president Carroll Burdick explained that BFA never prepays notes for hardship cases because it doesn't want to set a "precedent."
BFA gave the Earls a list of 25 people who might buy their note at a "discount" -- which means the Earls would lose a negotiated percentage of their principal in the deal. But Annette Earl says she was unsuccessful in finding a buyer.
Bill Earl says Burdick also refused the Earls' request that they be allowed to borrow money from BFA using Annette's $99,000 note as collateral, refused to consider lending the Earls money using the Black Canyon City land as collateral, refused to refer their case to BFA's board of directors, which Bill Earl had hoped might decide to break precedent and return the money.
Burdick did not respond to a New Times letter seeking comment on the Earl matter. The letter was addressed jointly to Burdick and Grabinski.
In his letter, Grabinski says, "It is not the policy of the BFA Board to deal with individual investors, and as such, they will not be making a decision on the Earl matter."
When asked whether BFA's refusal to lend money to the Earls, with the Black Canyon City property as collateral, did not conflict with BFA's "asset based loans" to a current and former director, Grabinski wrote: "BFA is not in the business of making loans and did not make any of the loans referred to in your letter. These loans were commercial loans and not consumer loans and were made by either a direct or indirect subsidiary of BFA to a 'business' entity in which the individuals were involved. We suggested to Mr. Earl that they contact their bank or credit union."
As for the Earls' request to borrow from BFA using their own note as collateral, Grabinski claims it is not BFA's policy to make such loans. "Based upon statements by a representative of the State Banking Department, it is the policy of BFA not to make loans to clients against instruments issued by BFA," Grabinski wrote.
In response to New Times' query about why BFA didn't pay the Earls their money, Grabinski wrote: "BFA clearly informs all of its investors of the future availability of their funds prior to investment. BFA can only pay the high returns on the MVPN [Maximum Value Performance Notes] if indeed we know we have the money to invest and earn returns for a specified number of years. This is a trade-off the investor makes for the higher rate of return. If an investor wants the availability of their funds prior to maturity, they should select an instrument with more flexibility, but which comes at a lower rate of return."
All of this leaves the Earls angry, frustrated and disillusioned.
"BFA has an un-Christian attitude," says Bill Earl.
"You couldn't print what's going through my head," Annette Earl says. "I am so totally stressed out, so disillusioned, so mad. . . . Truthfully, I can't imagine that a Christian [organization] would take someone's money and not return it and take away from someone's quality of life."