A Maricopa County judge on Thursday threw out criminal indictments against five ex-officials of the Baptist Foundation of Arizona who were accused of masterminding the state's most infamous charitable fraud scheme.
Superior Court Judge Frank Galati ruled that some evidence presented by the state Attorney General's Office in obtaining a grand jury indictment was improper and prejudicial. The five were indicted on a combined 32 criminal charges of theft, fraud and racketeering.
The case, involving the country's largest fraud ever by a religious trust, is being sent back to a new grand jury, and the state said it will seek new charges. The decision also does not affect a $217 million civil suit for investors who lost money in the foundation. "We will go back to the grand jury next month," said Dennis Burke, chief deputy attorney general.
"It's not an issue of a lack of evidence." A grand jury spent six months reviewing evidence before handing up charges in May 2001 against former foundation Chief Executive William Pierre Crotts, general counsel Thomas Dale Grabinski, directors Lawrence Dwain Hoover and Harold DeWayne Friend, and consultant Richard Lee Rolfes. All have pleaded innocent. Three other ex-foundation officials, Donald Dale Deardoff, Jalma W. Hunsinger and Edgar Alan Kuhn, have pleaded guilty as part of a plea bargain with the state.
The foundation collapsed in 1999 amid accusations it was running a financial scheme with the help of former auditor Arthur Andersen. Nearly 11,000 investors lost $590 million. Defense attorneys said at a hearing before Galati on Monday that a letter from Andersen blaming foundation officials for the collapse, which prosecutors submitted to the grand jury, was unfair to their clients. The judge agreed, and in his ruling said the letter was "irrelevant, immaterial and grossly prejudicial" against the defendants.
"Fairly construed, the letter - in guise of evidence - says to the grand jury, 'Arthur Andersen agrees with the attorney general that these BFA officials are crooks,' " the judge wrote. Andersen submitted the letter during a state inquiry of its alleged role in the collapse. The state later sued Andersen, which has gone out of business, and the auditor agreed to give investors $217 million as part of a settlement.
Andersen admitted no wrongdoing. In a related matter, a hearing on the settlement will be today before Judge Edward Burke on when to disburse that money.