While an increasing number of investors speculates that the Baptist Foundation of Arizona will soon file for bankruptcy, outraged Christians who say they got fleeced by BFA are filing more actions against the financially troubled BFA in Maricopa County Superior Court.
James Cook, a former BFA director, filed suit against BFA last month, contending, among other things, that BFA has "unjustly enriched" itself with nearly $2 million that belongs to Cook.
And last week, the Arizona Southern Baptist Convention, which is supposed to oversee and coordinate Southern Baptist agencies in Arizona, was added as a defendant to a fraud lawsuit against BFA filed by local minister Richard Kimsey. Steve Bass, the executive director of the convention, and William Agee, spokesman for the convention and director of evangelism/missions for the Central Association of the Convention, were also added as defendants in the fraud lawsuit.
The latest legal action follows other lawsuits filed against the besieged BFA in recent weeks. A proposed class-action lawsuit was also filed against BFA in mid-August, alleging security fraud ("A Litany of Litigation," September 9).
All three lawsuits were brought against BFA after the foundation froze more than $500 million owed to more than 13,000 investors in early August. The freeze was intended to prevent a "run on the bank" shortly before the Arizona Corporation Commission ordered BFA to stop selling illegal securities, in this case promissory notes to investors. BFA acted like a bank, borrowing money from investors at high rates of interest, then re-lending it, often for speculative real estate deals that enriched insiders. Investors were solicited in Arizona Southern Baptist churches, and were told "profits" would go to Christian causes. In fact, BFA returned only $1.3 million of its own money to Christian causes in 50 years.
Now, plaintiffs and regulators are saying BFA's byzantine finances amounted to a complex Ponzi scheme, in which money borrowed from new investors was used to pay debts to earlier investors.
Ponzi schemes collapse when their sources of new money are shut off.
The Corporation Commission cut off BFA's ability to borrow more money after a yearlong investigation in conjunction with the Arizona Attorney General's Office. The Attorney General's Office is continuing a criminal investigation, and sources say indictments are expected. The Attorney General's Office is also conducting an investigation of Arthur Andersen LLP, a Big Five accounting firm that prepared BFA's audited financial statements that were sent out to investors.
All of the state investigations were initiated in 1998 after New Times began publishing an investigative series on BFA ("The MoneyChangers," April 16, 1998).
James Cook, a former owner of Taco Bell franchises, once enjoyed a close relationship with BFA. He served on the BFA board of directors from 1991 to 1997. After he left the BFA board, Cook even had an office at BFA's headquarters at 1313 East Osborn.
BFA and Cook appear to have done at least one deal together. Records show Cook was associated with a company called Dutch Island LLC, which owned real estate in Savannah, Georgia. A June 1999 BFA circular sent out to investors says a BFA subsidiary now "holds the economic interest" of Dutch Island LLC.
Neither Cook nor his attorney John Politan would comment for this story, so it is unknown whether the nearly $2 million Cook deposited in his "Easy Access Investment" account with BFA had anything to do with the Dutch Island deal.
Now, Cook is alleging breach of contract, conversion and unjust enrichment, and is asking a judge to keep BFA from freezing assets. Or to give him his money back.
Cook's lawsuit, which he filed with his wife, Carolyn, alleges that Cook tried to withdraw some of his money from BFA on August 4 -- eight days before the Corporation Commission issued its cease and desist order. "To his absolute shock," Cook's attorney wrote BFA in an August 16 letter, "he [Cook] was advised that the accounts had been frozen."
"As a panic reflex, BFA has now refused to allow Plaintiffs any access whatsoever to their personal funds. . . . Apparently BFA fears a 'run on the bank' could result in BFA's inability to meet the future demands of anxious investors and/or satisfy future penalties that may be assumed against BFA," Cook says in his lawsuit.
Cook calls BFA's freeze "self-serving hoarding" and says the fact that he can't get his money is jeopardizing the Cooks' personal credit and has caused them "extreme hardship."
BFA has not yet responded to the lawsuit.
The Reverend Richard Kimsey, who already accuses BFA directors, and fired officers Bill Crotts, Thomas Grabinski and Donald Deardoff, of several counts of fraud in his lawsuit, has now named the Arizona Southern Baptist Convention and two officers in his legal complaint.
In papers filed Monday, Kimsey says Steve Bass, executive director of the convention, "solicited" Kimsey to buy the BFA promissory note that has now been frozen.
Kimsey also says William Agee, spokesman for the convention, also "solicited" the promissory note.
Kimsey contends the convention "assists the Baptist Foundation of Arizona in persuading pastors and others to invest with the Foundation."
After Kimsey moved to Arizona, Bass took him on a "new pastors tour" that included a stop at BFA's office, according to the lawsuit.
"During this visit, Foundation staff members used the favorable introduction and recommendations made by Bass and Agee as a springboard to promote the Foundation's investments, Christian integrity and good work," Kimsey's suit says.
The lawsuit says Bass and Agee had been "alerted" in 1998 by New Times articles that four CPAs and an attorney working for the foundation had resigned because they felt BFA was misleading investors.
Kimsey alleges Bass and Agee failed to alert the Kimseys to any possible financial problems, and instead "enthusiastically painted word pictures of the Foundation as a financially stable organization with a long history of good works and integrity."
Kimsey, through his attorney Richard Himelrick, declined to be interviewed for this story.
Bass did not respond to a request for an interview.
Agee says Kimsey's claims against him are false.
He says he never told Kimsey where to invest his personal funds or his church's money. He says he left the investing up to Kimsey. Agee himself had entrusted his personal retirement savings with BFA, and says he had no idea the Foundation was financially troubled.
"To be named in this thing is really upsetting," says Agee.
Investors are waiting for BFA to announce whether it will file for bankruptcy. BFA promised the Corporation Commission it would come up with some sort of a plan to repay investors in the fall.
Lowell Pepper, 73, a retired engineer and Sun City resident who invested "six figures" with BFA, says the wait is trying.
"I'm disappointed and angry about what this has done to the quality of my life," the World War II veteran says. "It's damaging my emotions. I'm preoccupied with thoughts about BFA. . . ."
Pepper says he took a consulting job earlier in the summer. The job entailed long hours and hard work, he says, and he deposited his money with BFA on July 19, shortly before the accounts were frozen.
"Now some SOB swindled me out of that," he says.
"I am 73 years old and I don't know if I've got one year left or 10. . . . I wake up in the middle of the night and BFA comes into my mind. . . . Anybody who's worked all their life and lived frugally to accumulate the money to retire on only to have someone come in and take a big portion of it -- it's got to bother you. . . . I will think of it as long as I live."