Baptist Deal Collapses in Arizona

The Arthur Andersen accounting company has reneged on a deal to pay $217-million to settle lawsuits arising from its role as auditor of the Baptist Foundation of Arizona, which collapsed in 1999 owing $750-million to more than 11,000 people who had bought securities from the nonprofit group.

The company told state regulators and a bankruptcy trust representing investors in the failed nonprofit organization that its insurance carrier, Professional Services Insurance Company, declined to pay the settlement.

The agreement was to resolve a case brought by the bankruptcy trust, a class-action lawsuit, and disciplinary proceedings by state regulators. Now those actions are moving forward, including the trust’s lawsuit, set for trial this month, which accuses Andersen of ignoring or inadequately investigating potential fraud on the part of Baptist Foundation officials.

The foundation, formed in 1948 as the fund-raising and endowment arm of the Arizona Southern Baptist Convention, sold investments to church members, who were told that the foundation’s profits would benefit Christian causes.

The group filed for protection from creditors under federal bankruptcy laws following allegations that foundation officials had turned what were legitimate investments into a Ponzi scheme, in which money from new investors was used to pay earlier ones.

Three former foundation officials have pleaded guilty to fraud charges. Five others await trial.