February 11, 2002
Arizona law firm escrows $21 million for possible settlement in BFA case
___PHOENIX--A Phoenix law firm has escrowed $21 million for a possible settlement of claims related to the bankruptcy of the Baptist Foundation of Arizona.
___The Arizona Republic newspaper reported Jan. 26 that Jennings Strouss and Salmon placed the money with Bank One Trust Co. through Attorneys' Liability Assurance Fund.
___The law firm has not admitted any wrongdoing, and the $21 million is merely set aside for a potential settlement. None of the money is yet slated for distribution to 13,000 investors in the Baptist foundation who lost $590 million.
___The Phoenix law firm provided legal advice to the Baptist foundation, which has been accused of running a Ponzi scheme that covered losses by paying investors with money brought in by a steady stream of new investors. The foundation declared bankruptcy in November 1999, after the state of Arizona ordered it to cease selling investment products.
___Eight people associated with the foundation have been indicted on criminal charges, including three who already have entered guilty pleas. Investors also are seeking to recover their lost money through individual and class-action lawsuits against the foundation, the auditing firm Arthur Andersen and the law firm Jennings Strouss and Salmon.
___The Baptist Foundation of Arizona Liquidating Trust detailed its claims against Arthur Andersen in court papers filed Jan. 30. Those papers paint an "Enron-like picture," reported the Arizona Republic newspaper in its Jan. 31 edition.
___The Arizona attorney general and others prosecuting charges related to the foundation's bankruptcy have accused Arthur Andersen of ignoring warning signs that the foundation was hiding massive losses off the books. Similar accusations have been made against the auditing firm in relation to the bankruptcy of Enron Energy Corp. of Houston.
___Documents filed Jan. 31 allege Andersen ignored signs of possible fraud at the Baptist foundation for as long as four years, the Arizona Republic article said. The liquidating trust also alleges that Andersen falsified work papers, may have destroyed missing records and ignored information provided by whistleblowers.
___The motive, the court papers allege, was financial compensation of top Andersen officials. In the last three years of the foundation's existence, it paid Andersen nearly $2 million for accounting and consulting services. Two Andersen officials who handled the foundation account reportedly earned nearly $1 million apiece annually.
___The court papers further allege that in 1997 Andersen ignored a tip from the foundation's former accounting manager, Karen Paetz, that the foundation was improperly transferring assets to subsidiary corporations to hide losses.
___The documents also allege that Andersen ignored warnings about the foundation operating a Ponzi scheme given by the chief financial officer of another Andersen client in Dallas.
___Andersen officials repeatedly have denied any wrongdoing in the foundation bankruptcy. Ed Novak, a Phoenix attorney representing Andersen, told the Republic the "implications the plaintiffs seek to have drawn from these allegations are not accurate and are meritless."
___The first of the cases against Andersen is scheduled for trial March 4 in Maricopa County Superior Court.
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