- The Washington Times - Tuesday, April 30, 2002

PHOENIX (AP) Embattled accounting firm Arthur Andersen LLP went to court yesterday to dispute charges that it could have helped prevent the largest nonprofit bankruptcy in U.S. history.
Jury selection began in the morning in a case focusing on Andersen's role and whether it contributed to the bankruptcy of the Baptist Foundation of Arizona.
About 13,000 mostly elderly investors lost $570 million when the foundation filed for bankruptcy in 1999. Andersen was the foundation's auditor.
Opening arguments could be heard today, and lawyers said the case is expected to last three months.
Arizona's attorney general claims Andersen concealed huge losses from financial statements that would have alerted investors to the foundation's troubles.
Andersen lawyer Ed Novak said the company is looking forward to presenting its case, but he declined further comment.
In a motion to dismiss state charges filed last year, Andersen's attorneys argued that Arizona officials knew as early as 1992 of possible fraud at the foundation but took no action.
Andersen reached a $217 million settlement in March with the foundation's investors. But the settlement fell through four weeks later when Andersen said its insurance carrier was unable to pay.
"It's been brutally hard for all sides involved," said Sean Coffey, one of the lawyers for investors. "We look forward to bringing justice to the innocent BFA investors who have certainly found themselves on a roller-coaster ride these last few months."
The March settlement also would have resolved a class-action lawsuit by former foundation investors, a civil suit by state regulators and disciplinary proceedings brought by the Arizona Board of Accountancy. Because the settlement fell through, lawyers say those cases will also be heard in court.
When the foundation collapsed, 73-year-old Forrest Bomar and his wife, Thelma Lee, lost $236,000. That wiped out almost all of the Palestine, Texas, couple's savings.
"On the one hand, we were rejoicing if [the settlement] was going to happen, but of course it didn't," said Mr. Bomar. "It started my depression and anger and feeling of betrayal all over again."
The Baptist Foundation was created in 1948 as a nonprofit religious group to raise money for Southern Baptist causes.
During the 1980s, the foundation and its related companies began aggressively raising money through the sale of securities and the management of individual retirement accounts.
The foundation used a web of related companies to siphon off hundreds of millions of dollars in investment funds before filing for bankruptcy, Arizona officials claim.
Five former foundation officials have been indicted by an Arizona grand jury on fraud, racketeering and theft. Three others have pleaded guilty to fraud charges and have agreed to cooperate in the ongoing investigation and testify against the others if necessary, officials said.
The lawsuit claims Andersen ignored warning signs of foundation fraud, including reports by whistle-blowers and a series of newspaper articles that appeared as early as four years before the foundation filed for Chapter 11 bankruptcy in November 1999.
The suit also claims that Andersen destroyed missing records relating to the foundation and ignored advice that it should investigate companies that were controlled by the foundation but not listed on its balance sheets.
Court records show that from 1984 to 1997, Andersen approved audits on Baptist Foundation financial statements.

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