PHOENIX (ABP) — One of the most egregious cases of fraud in non-profit history came to a close Feb. 2, when the former treasurer of the Baptist Foundation of Arizona was sentenced.
Donald Deardoff, 49, was ordered to serve four years in prison and pay $159 million to victims of an investment scam. He received the sentence after pleading guilty in 2001 to two counts of fraud.
Four other former foundation employees were also sentenced to lesser punishments Feb. 2.
The decision for jail time came as a surprise from Judge Kenneth Fields, who could have classified the crimes as misdemeanors. Prosecutors had recommended only one year of time in the county jail.
Former foundation president William Crotts and general counsel Thomas Grabinski were sentenced in September 2006 to eight and six years in prison, respectively, on fraud and racketeering charges. Both must pay $159 million in restitution to investors, although it's unlikely they'll be able to repay the full amount. They each earn 35 cents an hour working as a clerk and an aide in prison.
The foundation collapsed in 1999 after state regulators ordered it to stop selling securities. Controlled by the Arizona Southern Baptist Convention, it had generated money by soliciting funds from clients — mainly elderly Baptists — ostensibly to build churches and retirement homes.
Instead, courts found, foundation leaders used the funds for a classic pyramid scheme. The foundation shuffled bad debt and overvalued property between phony companies, paying high profits to backers from the money paid in by subsequent investors.
About 11,000 investors lost more than $550 million in the foundation's collapse.
In a Feb. 6 editorial, the Tucson Citizen called the case a “sordid story” and predicted that investors wouldn't get back nearly the amount of money they had entrusted to the foundation.
“It is a sad story of greed perpetrated in the name of a church,” the editors wrote.
The other four former foundation employees sentenced Feb. 2 were Harold Friend, 73; Richard Rolfes, 50; Edgar Kuhn, 62; and Jalma Hunsinger, 69. They received supervised probation terms and were ordered to pay thousands of dollars in restitution.
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Former Arizona foundation execs sentenced to prison, restitution