BFA May Join Plaintiffs In Class-Action Lawsuit
The Arizona Republic, Feb. 18, 2000
By Max Jarman
Baptist Foundation of Arizona investors seeking to recover $400 million in losses are expected to file a lawsuit today against the worldwide accounting firm Arthur Andersen & Co., which audited the foundation's books for at least 10 years.
Lawyers for the investors said a similar action is being prepared against Jennings, Strouss & Salmon, the prominent Phoenix law firm that approved BFA's solicitations for investors.
The new legal offensive is part of a larger move that would add BFA itself to the two existing investor lawsuits, creating a united front to pursue those thought to be responsible for the fund's collapse.
"By combining with the class action, we'll have one big piece of artillery, instead of a dozen rifles," said Jock Patton, chairman of the BFA restructuring committee.
But the move could be blocked by a committee of BFA's creditors, which would prefer to file its own suit against the reported culprits.
The investors' lawyers are expected to file the amended lawsuit against Arthur Andersen today in Superior Court in Phoenix. The BFA's restructuring committee will seek Bankruptcy Court approval to retain the investors' lawyers.
Arthur Andersen, which repeatedly gave BFA a clean bill of financial health, issued a statement Thursday saying it sympathizes with the BFA investors but stands by the accuracy of its audits.
Gary Lassen, Jennings, Strouss' managing attorney, said the firm was very concerned about the situation but was comfortable with the quality of its services for BFA.
Arthur Andersen, whose Chicago-based parent, Andersen Worldwide, had revenue of $16.3 billion last year, has the deepest pockets of any of the parties being pursued.
"They're certainly capable of responding to a substantial judgment," said Andrew Friedman, an attorney with one of the five law firms representing the 13,000 BFA investors.
The investors' lawyers are confident they will soon have the documentation they need to add Jennings, Strouss to the suit. The law firm has claimed attorney-client privilege and is blocking discovery efforts. The privilege prevents a law firm from testifying about a client.
Friedman is working on getting BFA to waive the privilege and will challenge it on the grounds that former BFA executives used the firm's advice to perpetrate fraud.
The heart of the alleged fraud was the generation of bogus profits by
selling real estate to phony buyers at inflated prices. The phony deals, which occurred from 1986 until last year, led to a mismatch of assets where there wasn't enough money coming in to cover obligations to investors. To bridge the gap, BFA resorted to a classic Ponzi scheme where it was taking money from new investors to pay off existing ones.
The Arizona Corporation Commission, which oversees the securities industry, has already launched a criminal investigation into the BFA case.
Cathy Reese, a lawyer for the secured creditors' committee, said the committee supports litigation by BFA but is concerned about a conflict of interest if the same lawyers are used who are handling the investor class-action suit.
Reese said committee members are concerned about how any settlement would be allocated, something that should be decided upfront. She said there also is concern that the defendants could file counterclaims against the foundation.
"These types of conflicts have to be resolved first," she said.
Meanwhile, BFA obtained a restraining order Thursday against former director L. Dwaine Hoover, freezing a $15 million settlement he was scheduled to receive from non-BFA sources. BFA said it intends to file suit today against another former director, Harold Friend, seeking an accounting of his numerous transactions with BFA.
Existing suits already target the following people:
