Shakedown in Show Low
Allegations of fraud swirl around a White Mountain RV resort, and the Baptist Foundation of Arizona is right in the middle of it
Phoenix New Times, July 2, 1998
By Terry Greene Sterling
On a summer day in 1988, Tucson retirees Nita and Chuck Pratt visited an RV resort near Show Low.
Juniper Ridge RV Resort sat atop an isolated ridge studded by fragrant juniper trees, a setting that seemed idyllic to the Pratts. They were also impressed by the resort's country-club-style amenities -- a large swimming pool, hot tubs, exercise rooms, saunas, a nine-hole golf course and pro shop, shuffleboard courts, a log-cabin-style lodge with an immense dance floor and a stage for shows, arts-and-crafts rooms, pool hall, game room, library.
At the time, the Pratts were both 67 years old and in good health. They purchased a small lot in the park for $25,750 and outfitted it with a "Park Model" mobile home. The couple ended up spending about $70,000 of their retirement savings on their Show Low getaway. They figured if they ever got too sick or too poor to spend summers at Juniper Ridge, they'd sell out and make a profit on their investment.
They figured wrong.
Now 77, Chuck Pratt recently suffered a near fatal bout of congestive heart failure. Hospital bills are due. To add to the stress, Chuck Pratt can't exert himself at the Show Low altitude anymore. He can't golf. He can't play pool. He can't swim.
At a time of sickness and financial need, Chuck Pratt worries that he stands to lose tens of thousands of dollars if he sells his Juniper Ridge property.
At a stage of their lives that they had long planned and saved for so that it would be secure and worry-free, the Pratts and many other elderly owners of the 173 developed lots in the now shabby -- and bankrupt -- Juniper Ridge RV Resort see themselves as victims of legal disputes they neither condone nor understand.
Their future at Juniper Ridge depends on resolution of a bitter fight over ownership of the park.
Embroiled in the legal melee are the Baptist Foundation of Arizona (BFA) and two of its former board members, who are accused in a Superior Court lawsuit of participating in a 1997 scheme to defraud three Phoenix developers of their right to purchase Juniper Ridge. The alleged scam included a questionable loan of BFA dollars to East Valley Investment Group (EVIG), a company controlled by a former BFA director and managed by BFA's staff attorney.
A memo written by an accountant who worked for BFA in 1996 raises questions about BFA's plan to lend EVIG money to purchase Juniper Ridge. The accountant claimed BFA was using the virtually valueless company in a shell game to hide some nonperforming debts from board members and auditors.
BFA later lent EVIG $1.7 million to buy Juniper Ridge.
The fight over ownership of Juniper Ridge is being waged in Maricopa County Superior Court and in federal bankruptcy court in Phoenix.
The litigation is intense because, despite its current state of disrepair, Juniper Ridge holds hidden treasure.
With more than 800 lots in the resort yet to be developed and sold, one developer estimated the resort would "conservatively" reap a $15 million profit, according to court records.
On one side of the litigation are Phoenix developers John Holmes, Hamilton McRae III and Jay Stuckey. They say their companies, Republic Holding Company and Holmes Development Group, had formed a partnership in 1996 with Phoenix RV park developer Steven Northroup to develop and market Juniper Ridge.
On the other side are Harold Friend, a former director of the non-profit Baptist Foundation of Arizona, Friend's attorneys, former BFA board member Edgar Kuhn and Northroup, a former RV park operator and a former partner of McRae, Stuckey and Holmes. The plaintiffs have filed a motion asking that BFA and its staff attorney, Thomas Grabinski, be added as defendants.
New Times reported in April that BFA has funneled nearly $140 million of the $265 million it has borrowed from Christian investors and the general public into real estate companies controlled by insiders, including Harold Friend. (See related story.)
New Times' investigation, based on public records gathered in several states, revealed how BFA's managers appeared to have gone to great lengths to disguise the insider transactions, creating a labyrinth of corporations that raises questions about whether insiders broke the law by "self-dealing" -- conducting transactions to their benefit at BFA's expense. Self-dealing violates state and common law regarding fiduciary duty and can render corporate directors vulnerable to civil -- and in some cases criminal -- liabilities.
Although BFA has lent tens of millions of dollars to companies controlled by insiders, BFA itself has given only about $1.3 million to the Southern Baptist community in the past 50 years, according to a letter BFA wrote the newspaper in March.
BFA officials denied in March that any self-dealing has occurred.
One of the insiders named in the New Times investigation was former BFA director Friend, who is a prominent player in the current litigation. Another insider, former BFA director Jalma Hunsinger, who engages in real estate transactions with Friend and BFA (and whose companies in March owed BFA more than $120 million), is not mentioned in the current litigation. However, former BFA director Edgar Kuhn, the sole co-director of many of Hunsinger's companies, is a key figure in the Juniper Ridge litigation. Kuhn co-directs ALO, a Hunsinger company whose subsidiaries have engaged in real estate transactions with Friend. (Friend, however, claims in a recent deposition that he's never met Kuhn.)
Now, in the Juniper Ridge case, BFA and its chief counsel, Thomas Grabinski, stand accused of fraud.
Companies controlled by McRae, Stuckey and Holmes contend they lost their right to buy Juniper Ridge through an illegal scheme "masterminded" by BFA, Grabinski and Friend. The reason, according to the lawsuit: to enrich Friend, whose companies eventually reaped $4 million worth of contracts to manage and market the RV resort. There is no indication Friend was able to collect any of that money before litigation paralyzed Juniper Ridge.
"The catacomb of entities controlled by BFA and Grabinski is a never ending maze, an artifice which enables inside benefactors, such as Defendant Friend, to reap enormous personal gain while victimizing innocent parties . . . all under the self-serving banner of charity and religion," the lawsuit says.
"Plaintiffs' continued investigation into Defendant's culpability is essential to expose the myth behind the BFA, whose professed charitable objectives mask the true purpose of its existence, which is to provide a gold mine of wealth for key insiders who use their position as a vehicle to scam innocent third parties, such as Plaintiffs," the lawsuit says.
The document, filed June 19, seeks to add BFA and Grabinski as defendants in a lawsuit filed in 1997 by companies owned by McRae, Stuckey and Holmes against Friend, Kuhn, their companies and attorneys.
Friend has countersued, and three of his companies have filed separate lawsuits against the three developers, contending they've "intentionally interfered" with his lucrative contracts to run Juniper Ridge.
All the defendants in all the lawsuits have denied wrongdoing. All the litigants and their attorneys declined to be interviewed for this story.
BFA and Grabinski have yet to file court papers responding to the fraud allegations.
The $1.7 million that funded EVIG's purchase of Juniper Ridge came from BFA's investors. BFA has solicited funds in Southern Baptist churches and over the Internet. Investors are told their money will be reinvested prudently.
But a bankruptcy dispute over a scheduled July 13 sale of Juniper Ridge places at risk the $1.7 million BFA lent EVIG so it could buy Juniper Ridge late last year.
In a deposition last month, Kuhn, the sole director of EVIG, knew little about EVIG or its business dealings. Kuhn did not even know where EVIG did its banking, and knew little about the Juniper Ridge deal.
Kuhn said in a deposition he relied heavily on the advice of BFA's chief counsel Tom Grabinski, EVIG's "portfolio manager."But a document dated May 9, 1996, and obtained by New Times raises questions about why BFA lent EVIG the money in the first place. The memo detailed how BFA had used EVIG to conceal some of BFA's nonperforming loans.
The "For the File" memo was written by Rich Polley, a certified public accountant who was then BFA's trust accounting manager. According to his memo, Polley believed a company called "East Valley Investment Group," or "EVIG," was being used in 1996 by BFA as an "off-balance sheet company" to hide millions of dollars in bad debts from BFA's auditors and BFA board members.
This would have the effect of secreting the bad loans in EVIG.
"Not only do our board members have potential liability for such decisions (i.e. savings and loan examples), but our constituents believe, and have every reason to, that our Board is providing just this kind of oversight," the memo says.
"I believe that Christ demands and expects more from those that carry His name," the memo says. "II Corinthians 4:1-2 says 'Therefore, since through God's mercy we have this ministry, we do not lose heart. Rather, we have renounced secret and shameful ways, we do not use deception, nor do we distort the word of God. On the contrary, by setting forth the truth plainly we commend ourselves to every man's conscience in the sight of God.' It is my opinion that the continuance of transactions such as the one outlined above fail to show the kind of turning away from sin required of true repentance. Proverbs 28:13 is quite clear, 'He who covers his sins will not prosper, but whoever confesses and forsakes them will have mercy.' I firmly believe that so long as the Foundation continues to do transactions such as the one listed above, that God will not be able to bless us as He wishes to. It is my sincere hope and prayer that God might use this conversation to persuade you of the need to make deep and lasting changes in the way we do Christ's business."
When asked about the memo, BFA's Grabinski wrote to New Times saying he had no knowledge of it. After New Times provided a copy of it to BFA, Grabinski wrote on June 30, "The East Valley Investment Group transaction described in the memo you provided has worked out as expected by all parties. The concerns in the May 9, 1996, Memorandum were unfounded."Grabinski did not explain how the transaction "worked out as expected."
Polley resigned from BFA in August 1996.
Reached at his Phoenix residence, Polley declined to elaborate.
"I don't see anything good that could come out of bringing the foundation down," Polley said last month.
"Then everybody loses their money."
"What happened as far as I'm concerned is between me and the Foundation and I'm not going to feel comfortable talking to you," he said.
Marie Barclay, a retired administrative assistant who winters in Mesa, bought her lot in Juniper Ridge in 1987 for $23,750. Like the Pratts, Barclay was impressed by the landscape, the cool climate and the brand-new facilities. "For a while, it was just like Shangri-la," says Barclay.There were potlucks and happy hours. Las Vegas Night at the lodge. Golf games. Bridge tournaments.
Then Merabank, the savings and loan that financed the resort, was taken over by the federal Resolution Trust Corporation. WCLF Juniper Ridge, a Delaware limited partnership, bought the Juniper Ridge note from the RTC in the early 1990s.
The responsibility for maintaining the country-club-like "amenities" fell on the owners of Juniper Ridge's 173 developed lots. But the homeowners didn't have sufficient cash to maintain facilities designed to accommodate more than 1,000 residents.
"It was discouraging to watch it deteriorate," Barclay says. "You feel powerless to be able to do anything.
"From my point of view, you don't know who the bad guys are and who the good guys are. You just sort of have a feeling of being jerked around."
The elderly residents gained hope in 1995, when Pinal Vestings Inc., a company owned by Phoenix RV park developer Steven Northroup, signed an option to buy Juniper Ridge from WCLF, for $1.5 million.
Northroup figured Juniper Ridge, once it was up and running and the lots were sold, could make him a millionaire. But he needed expertise and financing, so he sought help from companies owned by Phoenix developers McRae, Stuckey and Holmes.
But Juniper Ridge was no sweet deal, after all. During escrow, the Phoenix developers discovered problems they claim they weren't told about by WCLF, the seller. For instance, they claim in court documents that WCLF actually didn't own the roads in the RV park. The lodge and the crafts building were condemned as unsafe by the Navajo County building inspector -- one expert estimated that repairs to the grounds would cost $500,000. And there was -- still is -- a nasty fee dispute with the sewer company.
Northroup's company sued WCLF in 1996 in federal court, claiming fraud. WCLF countersued, denying wrongdoing and saying Northroup had breached a sales agreement.
McRae, Stuckey and Holmes claim they were partners of Northroup at the time of the federal lawsuit, had kicked in $50,000 to lock in the option, even helped pay legal fees for the federal lawsuit. As Northroup's partners, they say, they had controlling interest in the partnership.
Bottom line: The three Phoenix developers say they were entitled to buy Juniper Ridge once the problems between Northroup and WCLF were ironed out in federal court.
As the federal case dragged on, Juniper Ridge remained in escrow. The delays in closing the deal put Northroup in desperate financial straits. He'd relied on his only other RV park to finance him until he made his millions on Juniper Ridge. By 1996, his other facility filed for bankruptcy. Northroup was broke.
"Even though I knew I didn't have the necessary capital to fund the purchase of Juniper Ridge, I was certain that with it being one of the last great RTC deals, I could raise the capital or sell my position early, realizing substantial profit to me of no less than several million dollars net," he wrote in a desperate letter to his partners in July 1996.
"I am at a crossroads in what I should do at this point," Northroup continued. "On one hand I feel a responsibility to my other park and of course my family, then I also feel morally duty bound to you, my partners."
Unlike Northroup, Hamilton McRae, John Holmes and Jay Stuckey were not destitute. In fact, they traveled -- and still travel -- in the patrician circles of Phoenix society. McRae, for instance, was recently elected president of the prestigious Frank Lloyd Wright Foundation. Stuckey is a member of the Phoenix Thunderbirds. Holmes is an intellectual with a taste for the opera.Harold Friend also did not seem to be hurting for cash. He owns a tire company that reportedly does business in Guam, among other places. Public records show he has been involved in numerous real estate transactions with BFA. Friend lives in Paradise Valley and keeps an office at the Camelback Esplanade. He claims in a deposition that his companies employ 25 lawyers across the nation to work on "various projects."
"I am doing deals every day long [sic]," he said in a recent deposition.
"I don't buy anything I don't expect to sell," he said. ". . . I buy and I sell. I buy real estate. I sell companies. I sell rugs. I sell furniture. I sell jewelry. And I sell things I buy . . .
"Of course, I am not rich like everybody else, you know, that I deal with. I am just a poor merchant, and I buy and I sell. . . ."
In 1997, Harold Friend wanted to buy Juniper Ridge.
In May 1997, Friend "offered a ridiculously low price" to companies owned by McRae, Stuckey and Holmes to purchase their interest in Juniper Ridge, their lawsuit says. But the Phoenix developers had no intention of selling their interest in buying the RV resort.
According to their lawsuit, Friend and BFA then concocted a plan to defraud them.
First, Northroup sold an option to buy his interests in the Juniper Ridge deal to H and S, a Friend company, for $200,000.
Next, Friend sold all his stock in H and S, and the Northroup option, to EVIG, whose portfolio manager was BFA attorney Grabinski.
Then, the three developers say, Northroup went behind their backs and secretly withdrew the federal lawsuit against WCLF, the partnership that then owned Juniper Ridge. The dismissal of the lawsuit freed up Juniper Ridge for sale. In September, EVIG then borrowed $1.7 million from BFA to buy the property. The sales price was $1.42 million; records do not say what EVIG did with the remaining $280,000 it had borrowed.
Once EVIG owned the RV resort, it transferred it to a wholly owned subsidiary, Juniper Ridge Management Inc., also managed by Grabinski.
Friend scored big. Three of his companies got $4 million worth of contracts to manage and market Juniper Ridge, court documents say.
McRae, Stuckey and Holmes sued Northroup for breach of fiduciary duty to the partnership because he dropped the lawsuit without telling them.
Northroup answered in court that he did nothing wrong because McRae, Stuckey and Holmes weren't really his partners. What's more, his company had a legal right to drop the federal lawsuit, he said.In December 1997, the three developers sued Friend, Kuhn, their companies and their lawyers for fraudulent transfer of property, among other things. (Now they seek to add Grabinski and BFA to that case.)
"This is crazy," Friend said in a recent deposition.
"All of this is insane."
In court records, Friend says McRae, Stuckey and Holmes are engaging in a "hodgepodge of baseless allegations."
"Plaintiffs allege some fraudulent transfer or some conspiracy to commit a fraudulent transfer, but fail to set forth exactly what transfer they refer to," Friend says in court records ". . . The property was not transferred to Friend, nor was it transferred by Friend. Friend never had any interest in the real property at issue."
Which is true.
But the former BFA director ended up reaping multimillion-dollar contracts on a transaction financed by BFA.
Barbara and Ed Gritsko bought into Juniper Ridge RV resort in 1989, when they were still in their 50s. The Gritskos retired from Los Alamos lab in New Mexico, bought a winter place in Tucson and a summer idyll at Juniper Ridge.The Gritskos have become somewhat cynical, after living through the RTC, the WCLF period, and now the litigation and bankruptcy.
When Juniper Ridge Marketing bought the place in late 1997, most homeowners were delighted, says Ed Gritsko. Like others interviewed for this story, however, Gritsko seems confused over who, exactly, owns the resort.
Mostly, residents say, they've been communicating with representatives of Friend's companies.
Earlier this year, the new owners gave the swimming pool a face-lift and fixed the dance floor in the lodge. The folks at Juniper Ridge thought their troubles were finally over.
But in April, Juniper Ridge Marketing filed for Chapter 11 bankruptcy in Phoenix. The same company that promised the homeowners the resort would be developed and fixed up now can't pay a penny of June's maintenance expenses, which are $25,000 to $30,000, according to Gritsko.
"What now? Will they shut the place down?" Ed Gritsko asks.
Gritsko says the new owners have explained that the bankruptcy was filed "in order to get rid of lawsuits."
(In bankruptcy papers, Juniper Ridge claimed assets of $1.7 million and liabilities of $3.2 million. It owes more than $1.7 million to BFA, plus an additional $50,000 in accrued interest. BFA holds the first deed of trust on the property.)
A bankruptcy judge has scheduled a sale of Juniper Ridge on July 13. If the sale takes place, it is likely that BFA will gain control of the property.
But the proposed sale is being vigorously contested.
McRae, Stuckey and Holmes have asked the judge to halt the sale and appoint a trustee to look into irregularities in bankruptcy. Among other things, the three developers claim in June 19 filings that Juniper Ridge Marketing has concocted a bogus plan that would allow BFA to whisk the RV resort into a brand-new BFA company, to "render the estate with no property and no funds for its creditors."
Judge George Neilson, the same judge presiding over the bankruptcy of convicted felon J. Fife Symington III, has yet to say whether he will halt the proposed sale.
"The stress," says Gritsko, "is not knowing what happens next. And wondering if our investment is protected."
The Gritskos plan to tough it out at Juniper Ridge.
"Each year we say we're going to put blinders on and we're not going to listen," Gritsko says. "But it's pretty difficult not to talk about it."
