May 6, 2002

Andersen goes on trial for BFA fraud
___By Craig Harris
___Arizona Republic
___PHOENIX (ABP)--After agreeing--and then reneging--on a $217 million settlement for its role in the Baptist Foundation of Arizona scandal, accounting giant Arthur Andersen went on trial April 29 telling jurors that it, too, was duped, preventing it from uncovering the scam.
___But an attorney for investors, who lost $570 million in the failed foundation, said the firm's Phoenix office perpetuated the fraud by issuing clean audits for 14 years while ignoring its own red flags and a handful of whistleblowers.
___A pool of more than 40 jurors heard brief opening statements before Judge Edward Burke. By the end of the day, seven women and five men, including two postal workers and a Maricopa County sheriff's sergeant, were selected for a trial that could last into mid-July.
___Andersen backed out of the settlement March 29, when its Bermuda-based insurance carrier, Professional Services Insurance Co., said it wouldn't pay.
___Richard Himelrick, an attorney for investors, said the foundation crumbled in 1999 after it overpriced and overvalued assets by at least $300 million. He said Andersen knew about the problems but "chose to stay silent."
___Investors' attorneys have said the pattern was similar to another Andersen client, Houston-based energy trader Enron, which hid losses with off-the-book transactions. Andersen, whose employees shredded Enron documents, is facing a federal criminal charge for its role auditing that company.
___Don Martin, an attorney for Andersen, told the jury pool the wrong defendant was on trial.
___"Why didn't they go after the people who committed the fraud?" he said. "Arthur Andersen was not committing the fraud."
___The state is pursuing criminal charges against five former foundation executives, including Bill Crotts, former chief executive officer. Crotts is among the 80 or so witnesses expected to testify in the civil trial. Others expected to be called include Jay Ozer, a former Andersen partner who was in charge of the foundation audits and is the target of a criminal probe.
___In addition to overstating land values, which were used as collateral for the high-yield investments, the foundation has been accused of running a Ponzi scheme, in which new money was used to pay off old investments.
___About 11,000 investors, many elderly, lost $570 million, when the foundation filed for bankruptcy protection in November 1999. The Arizona foundation operated in a fashion not accepted by other state Baptist foundations.
___Martin, the Andersen attorney, said the fraud began in the 1980s, and state officials were tipped off about the problems but ignored complaints. He also said the foundation's board of directors was aware of the fraud in 1986 but did nothing.
___"As Paul Harvey likes to say, 'There is the rest of the story,'" he said. "In the remaining weeks of the trial, we will let you know the rest of the story."

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