PHOENIX (ABP) — The Arizona Court of Appeals has upheld convictions of two former Baptist Foundation of Arizona officials sentenced to prison in 2006 for defrauding more than 11,000 investors in a Ponzi scheme.
William Pierre Crotts, 64, the foundation's former president, and Thomas Grabinski, 49, the foundation's former legal counsel, were convicted by a jury in August 2006 of fraud and illegally conducting an enterprise. Crotts was sentenced to eight years in prison and Grabinski to six. Both were ordered to pay $159 million in restitution.
The 10-month trial, the longest in state history, involved one of the largest cases in American history of affinity fraud, a crime that targets victims because they are part of a group, such as a race or religion.
Formed in 1948 to manage investment funds for Southern Baptist ministries in the state, the Arizona Baptist Foundation began offering individual investments after Crotts took over as president in 1982. Believing they were helping to do the Lord's work and promised high returns, some devout investors, many of them elderly, moved their life savings into the Foundation's care.
Foundation managers invested heavily in Arizona's then-booming real-estate market, which cooled in the 1990s. Rather than reporting losses, the jury found, BFA officials hid them in a web of subsidiaries and bad-bank loans, all the while soliciting new investors.
After whistleblowers went to the press, Arizona ordered the BFA to stop selling investments in 1999. Six months later the Foundation folded, at the time the largest bankruptcy of a non-profit in the state's history.
In 2001 a grand jury charged five key players in the case with defrauding investors of about $460 million over a five-year period. Three accepted plea bargains, and two of them turned state's evidence.
During the trial one of the two — Donald Deardoff, former vice president and treasurer — said he was lying when he testified in a separate civil trial that he believed the organization's financial statements were true and fair.
Defense attorneys moved for a mistrial, claiming the testimony violated disclosure rules. The trial judge agreed the prosecution should have informed the defense that they knew what the witness was going to say, but said it was remedied by a four-day recess allowing defense attorneys to re-interview the witness.
After their convictions, Crotts and Grabinski appealed, citing disclosure and other procedural grounds.
The appellate court heard oral arguments April 8 and issued separate rulings June 10 upholding both men's convictions and sentences. In Grabinski's case, however, the court did temporarily set aside the restitution order, finding he was entitled to hearing to determine if it was fair.
The appeals court found that no violation of due process occurs if previously unknown exculpatory information is revealed during a trial. It also ruled that the duo, who were acquitted of 27 counts of theft, did not benefit directly by pocketing investors' funds, but could not have continued to receive a salary and benefits without committing fraud.
The men also claimed their convictions were different than allegations in the original indictments against them and alleged errors in instruction to the jury. The appeals court rejected both of those claims.
Some of the defrauded BFA investors died during the five years that lapsed between the indictment and trial. Most, however, over time recovered a majority of their original investments through sale of assets by liquidating a trust and legal settlements — including one for $217 million with Arthur Andersen, the "Big Five" accounting firm that audited the Foundation. Arthur Andersen also audited Enron, the Houston energy company that went bankrupt in a corporate scandal in 2001.
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Bob Allen is senior writer for Associated Baptist Press.
Previous related ABP stories:
Former Arizona foundation executives convicted of fraud, await sentencing (7/25/2006)
Former Arizona foundation execs sentenced to prison, restitution (10/3/2006)
Last of Arizona Baptist fraud convicts sentenced to prison (2/6/2007)