January 25, 2001 | Read Time: 1 minute
By DEBRA E. BLUM
The failed Baptist Foundation of Arizona has accused the accounting company Arthur Andersen of helping to cover up a fraudulent scheme that cost foundation investors hundreds of millions of dollars.
The latest claims are in an amendment to a lawsuit filed last summer in state court that accused Arthur Andersen of negligence that contributed to the foundation’s collapse. The new accusations say that the accounting company helped to cover up the fraud “by doctoring audit work papers” and ignoring “glaring red flags’” that would have pointed to wrongdoing.
Arthur Andersen said in a statement that the latest allegation “appears to be one more piece of misinformation which we are anxious to correct in a court of law.” The company has denied any wrongdoing.
The foundation, which was formed in 1948 as the fund-raising and endowment arm of the state Southern Baptist Convention, sold investment vehicles to church members who were told that the foundation’s profits would benefit Christian causes. It filed for protection from creditors under federal bankruptcy laws in 1999, 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 off old ones. The foundation, which had sold more than $600-million in financial products to 13,000 investors — mostly elderly Southern Baptists — allegedly hid the scheme and its monetary losses through a series of transactions among nonprofit and for-profit entities.
In addition to the foundation’s lawsuit, the State of Arizona is seeking at least $800-million from Arthur Andersen in two separate suits for its alleged role in the fund’s failure. A lawsuit filed against the company by foundation investors is also pending.
