May 13, 2002
Arthur Andersen settles, yet again,
with Arizona foundation investors
___By Bob Allen
___Associated Baptist Press
___PHOENIX (ABP)--For a second time, Arthur Andersen has agreed to pay $217 million to defrauded investors in the Baptist Foundation of Arizona.
___Announced May 6 in Phoenix, the agreement settles a lawsuit against the accounting firm brought by the foundation's liquidating trust.
___The settlement, approved by Judge Edward Burke, came a week into a trial in Maricopa County Superior Court. It also came on the same day jury selection began for a criminal case in Houston over Andersen's role in the Enron collapse.
___Andersen had agreed to settle for the same amount in March but reneged on the deal, claiming its wholly owned insurance carrier refused to pay the claim. This time, the accounting giant made an $11.3 million down payment and agreed to pay $10 million a month through October, when the balance is to be paid in full.
___Lawyers would get $41 million, leaving $176 million for investors, according to a report in the New York Times. If the first settlement two months earlier had gone through, averting a trial completely, attorney fees would have been $14 million less.
___Coupled with an earlier settlement with a law firm that once represented the foundation, about 13,000 investors would share $194 million. That is about a third of the $585 million still owed them, not counting interest. After the foundation's assets are liquidated, investors could recover as much as 72 cents on the dollar. So far, investors have been paid about $56 million from a liquidating trust overseeing the sale of former foundation holdings.
___"This is the best deal possible for investors, and it's likely to get money in their pockets," said Arizona Attorney General Janet Napolitano.
___But not everyone is counting the money just yet. "I'll believe it when I have the check in my hand," investor Allene Thompson of Tempe told the Arizona Republic. Attorney Sean Coffey explained that a worst-case scenario would be for Anderson to be convicted in the Enron trial and file for bankruptcy before paying off the Arizona settlement.
___"Investors are relieved that a settlement was reached with Arthur Andersen," said investor Tom Kennedy. "However, we are still on the roller coaster, because if Andersen files bankruptcy we have nothing again."
___As in the earlier settlement, Andersen admits to no wrongdoing. "Arthur Andersen was able to put all of the Baptist Foundation issues behind us," Andersen attorney Don Martin told the Republic. "But I am frustrated we were not able to tell the rest of the story."
___The settlement included revoking certified public accounting licenses for two key auditors who worked on the foundation's books--former Andersen partner Jay Ozer and current accountant Ann McGrath. They may reapply for licensing at any time, however.
___The foundation's bankruptcy is thought to be the largest financial failure of a religious non-profit in history. The Andersen settlement is the second-largest ever paid by a Big Five accounting firm and is more than twice the largest settlement Andersen has paid before.
___Five former BFA officials have been indicted on criminal charges related to the debacle, but their trial dates have not been set. Three others have pleaded guilty to reduced charges, in exchange for cooperating with the investigation.
___In testimony before the trial was halted, a pastor who was chairman of the foundation's board of trustees denied allegations that he and other trustees knew about alleged fraud three years before the foundation's 1999 collapse.
___Berry Norwood, pastor of First Baptist Church in Scottsdale, Ariz., called the charge "absolutely untrue."
___The board of trustees found out about problems through a state investigation a year before the foundation went bankrupt in November 1999, Norwood said.
___Also, Dan Guy, a director of the American Society of Certified Public Accountants, accused Andersen of an "unpardonable" breach of accounting standards. A 1997 audit report of foundation accounts "falls below the minimum accounting standards" and "should never have been released," he testified.
___Guy, who studied Andersen case files in the audit, said an auditing team failed to investigate charges of financial misconduct, issuing a clean bill of health. At the least, he said, auditors should have tested the foundation's ability to operate as a going concern, which likely would have disclosed its shaky finances.
___He said Andersen missed red flags, including warnings by one of its own accountants, an anonymous call to its Chicago office and a series of investigative newspaper articles quoting former foundation employees.
___For its part, Andersen had begun mounting a case in the courtroom that its auditors, along with investors, were duped by foundation executives.
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