Case 11.2 : The Baptist Foundation : Funds of The Faithful
The Baptist Fondation of Arizona (BFA), begun in 1984, was a real estate investment nonprofit that did quite well at its beginning stages. The BFA had a psychology going with its fund and with recruiting investors. Each year, at its annual convention, the BFA distributed its "Book of Reports" could be given to others as a means of recruiting new investors.
however, by 1988 both the Arizona economy and its real setate market were sinking fast. rather than disclose that the downturn had affected its holdings, BFA opted not to write down its properties. The management team's campensation was tied to the perfomance of the fund. Arthur Andersen, the Auditor of BFA, noted the presence of specific revenus targets set by manangement for each quarter with compensation packages tied to those targets.
in this case, there is an unethical issue, the BFA try to manipulate their financial report. They try to show that although in bad condition of Arizona economy, they can survive and have a good perfomance among others.
Because BFA's financial statements looked phenomenal, more investors joined, and the fraud lasted until 1999. In 1999, s tate officials issued a cease and desist order to stop the BFA from soliciting and bringing in new investors.
Andersen was charged with violations of Arizona securities laws for its failure to issue a qualified opinion on BFA when it became aware of the failure to write down properties as well as the eranings management strategies. Andersen settled with Arizona officials, but, by the time of the settlement, Andersen was embroiled in the Enron and WorldCom settlement. Eight former BFA employees were indicted. Six entered guilty pleas and agreed to testify against Thomas Grabinski, the BFA's former general counsel, and William Crottts, the former BFA president. Following a trial that lasted 10 months, the two former BFA officials were sentenced to 5-8 year sentences for convictions on fraud and racketeering. They are also required to pay $159 million in restitution. The sentences were not imposed until September 2006, and their cases are on appeal.
however, by 1988 both the Arizona economy and its real setate market were sinking fast. rather than disclose that the downturn had affected its holdings, BFA opted not to write down its properties. The management team's campensation was tied to the perfomance of the fund. Arthur Andersen, the Auditor of BFA, noted the presence of specific revenus targets set by manangement for each quarter with compensation packages tied to those targets.
in this case, there is an unethical issue, the BFA try to manipulate their financial report. They try to show that although in bad condition of Arizona economy, they can survive and have a good perfomance among others.
Because BFA's financial statements looked phenomenal, more investors joined, and the fraud lasted until 1999. In 1999, s tate officials issued a cease and desist order to stop the BFA from soliciting and bringing in new investors.
Andersen was charged with violations of Arizona securities laws for its failure to issue a qualified opinion on BFA when it became aware of the failure to write down properties as well as the eranings management strategies. Andersen settled with Arizona officials, but, by the time of the settlement, Andersen was embroiled in the Enron and WorldCom settlement. Eight former BFA employees were indicted. Six entered guilty pleas and agreed to testify against Thomas Grabinski, the BFA's former general counsel, and William Crottts, the former BFA president. Following a trial that lasted 10 months, the two former BFA officials were sentenced to 5-8 year sentences for convictions on fraud and racketeering. They are also required to pay $159 million in restitution. The sentences were not imposed until September 2006, and their cases are on appeal.
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