Executives Sentenced in Church Fraud
Sunday, October 1, 2006
PHOENIX -- In 1999, Richard Kimsey and his wife, Susan, deposited $100,000 with a Phoenix-based Southern Baptist agency that promised to do the Lord's work. A few days later, the Kimseys' money had all but vanished. And when Richard Kimsey, a Southern Baptist pastor, spoke out against the foundation that had defrauded him, he received death threats, the words "white trash" were painted on his house, and half his congregation abandoned him.
"Money is not the issue," Susan Kimsey said. "This has been a black mark on Christianity as a whole."
The Kimseys were among the approximately 75 fraud victims who testified at the sentencing hearing last week of two Baptist Foundation of Arizona executives accused of fraudulently conducting a mammoth real estate Ponzi scheme while claiming to do God's work.
Maricopa County Superior Court Judge Kenneth L. Fields sentenced William P. Crotts, 61, the former president of the foundation, to eight years in prison Friday and gave six years to Thomas D. Grabinski, 46, the former chief counsel of the foundation. Each was ordered to pay $159 million in restitution after being convicted of one count of fraud and one count of conducting an illegal enterprise.
When the foundation collapsed in 1999, 11,000 victims collectively lost $585 million in one of the largest affinity frauds in the nation. In such frauds, members of a group are defrauded by members of the same group. Church-based affinity fraud, fueled by the last decade's resurgence of interest in Christianity and other faiths, presents a growing crime problem for regulators, said Joseph P. Borg, president of the North American Association of Securities Administrators, an association of state securities regulators.
The Arizona foundation was an official agency of the Arizona Southern Baptist Convention, which is associated with the largest Protestant denomination in the nation, with about 16 million members.
Bible-quoting salesmen recruited investors in Southern Baptist churches, and some pastors talked up the investments from the pulpit. The foundation paid above-market interest rates and promised to use investor funds to support Southern Baptist causes such as mission work and services to children and the elderly. Prosecutors said one key marketing device was the use of the word "stewardship," which to many Southern Baptists invokes a biblically ordained responsibility to turn over their money to do God's work.
Foundation executives used their positions of trust to prey upon victims, who had their guard down because they were in church, said Arizona Attorney General Terry Goddard, whose office secured criminal indictments against eight foundation insiders, including Crotts and Grabinski. Six other men have pleaded guilty to felonies in connection with the foundation's demise.
Neither Crotts nor Grabinski was accused of pocketing the money, but prosecutors said the duo hid mounting losses from investors in a frantic effort to keep the foundation afloat.
At the sentencing hearing, victims said they had saved all their lives for retirement, only to lose everything and return to minimum-wage jobs.
"You have given Southern Baptists a bad name," 80-year-old Darrell Tramel told the executives. Tramel, a retired business manager for an auto dealership in Prescott, sold candy at a mall kiosk and worked as a bookkeeper after losing his life savings, about $1.2 million, to the foundation. His wife, June, became a part-time caregiver and pet-store attendant until she developed leukemia in 2001.
Like most victims, the Tramels eventually had about 68 percent of their investment returned. About half of that payback was due to a 2002 settlement with Arthur Andersen, the foundation's accounting firm.
The Tramels and many other victims at the hearing last week said they were as hurt by the betrayal of trust by fellow Southern Baptists as by the hardships they experienced before their money started trickling back.
The majority of Southern Baptist victims in the courtroom wore white ribbons in support of Crotts and Grabinski, depicting them as humble Christians and excellent family men who would never intentionally break the law. Many blamed the state for their losses, contending that if the state had not "shut down" the foundation, Crotts and Grabinski could have steered it to solvency with lucrative real estate investments.
Gary Vroegh, who lost $600,000, said the foundation did him a favor, and he begged for lenient sentences for the executives. "The money belongs to God anyway," he said.