c. 1999 Religion News Service

UNDATED _ The Baptist Foundation of Arizona, a key fund-raising organization for Southern Baptists in that state, has been ordered to stop selling investment products after the Arizona Corporation Commission found it was violating state securities law.

The cease-and-desist order, announced Tuesday (Aug. 10), affects the foundation and two related corporations, Arizona Southern Baptist New Church Ventures and Christian Financial Partners.

The foundation was founded in 1948 and is an agency of the Arizona Southern Baptist Convention. In addition to the financial services that are now in question, the foundation offers estate planning and trust management services.”They haven’t been disclosing their actual lack of profitability and have been covering that up through … transactions that were being created by the people in charge of the foundation,”Mark Sendrow, director of the commission’s securities division, told Religion News Service.

Sendrow said these”transactions,”which he believes were created by foundation officers and not board members,”didn’t seem to have any kind of substance.” Asked if he believed the transactions were a Ponzi scheme, in which new investors are brought in to pay off old ones, Sendrow said,”It appears that way to us.” The investigation by the securities division and the state attorney general’s office is continuing and could lead to further action, including another administrative order, civil court action or criminal prosecutions, he said.”We don’t know what the extent of the deficit is,”Sendrow said,”whether it’s something that can be remedied through their restructuring, their investments and selling off some things … or whether there’s going to be a hole … there that won’t be filled.” A commission news release said the agency concluded the three corporations”offered and sold securities within or from Arizona through material misrepresentations and omissions of material fact.””Anybody selling securities investment opportunities to the public has to fully disclose their financial condition,”Sendrow said.

The corporations have consented to the order without admitting or denying the findings.”We’re doing everything we can to find a solution to this situation and plan to keep investors informed very regularly, while continuing to cooperate with the state investigation,”Berry Norwood, chairman of the foundation’s board, said in a statement.

The Arizona foundation is”one of the most aggressive”fund-raising groups of its type in Southern Baptist Convention circles, said Herb Hollinger, vice president for convention news of the SBC, the nation’s largest Protestant denomination.

It is unusual because most Baptist foundations, which handle investments of Baptist state convention agencies, do not offer services for individual investors.”It has in years gone by elected to also solicit individual investors as well as local churches to take discretionary money and invest it with them”instead of financial services companies such as Morgan Stanley Dean Witter, Hollinger said.

The regulatory commission said the three corporations have sold more than $483 million in investment products to more than 13,000 investors. The products include various types of promissory notes.

On Aug. 7, the foundation sent a letter to its investors saying the board was”shocked and concerned by the state’s allegations.” In response, it created an executive oversight committee and a management committee, which is providing day-to-day management of business. The committees have been asked to”determine the exact nature of any potential financial irregularities and to develop solutions to any financial problems.” The foundation also informed investors it is not cashing client checks until its board learns more about the state probe and has decided to”suspend redemption of all investment products at this time.” President Bill Crotts, General Counsel Tom Grabinski and Controller Don Deardoff are on administrative leave after voluntarily removing themselves from their duties, said Lorri Paetz, director of public relations and communications for the foundation.

The foundation is continuing to make interest payments and IRA distributions, Paetz said.

In addition to selling its own investments, the foundation is the custodian of IRA investments sold by the other two corporations.

The letter, signed by members of the executive oversight committee, also warned investors of other possible results of the investigation, which began in August 1998. If their reorganization does not satisfy officials, the state might consider receivership. If the committee believes it cannot protect the foundation and its clients, bankruptcy might be an option, they said.”It grieves us beyond our ability to express the situation in which we now find BFA, CFP and NCV,”the committee members wrote.

BFA employees and subsidiary and affiliate board members have more than $12.5 million invested in the three corporations, they added. Churches have about $22 million invested in their products.”This was a soul-wrenching letter for us to write,”Norwood, the board chairman, said in a statement.”Our investors are also our friends, our family, BFA employees, board members _ we are all affected. We pray for a successful resolution to this situation.”

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