Ponzi Payback: Treachery of the Highest Order
The giant accounting firm Andersen has backed out of an out-of-court settlement of $217 million with the Baptist Foundation of Arizona (BFA).
Attorneys for investors who lost $570 million in the church-sponsored real estate scam claim they were double-crossed and are scrambling to respond.
Sean Coffey, a former federal prosecutor who negotiated the settlement, told The Arizona Republic, "We view this as treachery of the highest order. It's unbelievable! … They just said the goals of their partners were to restore the trust in Andersen. Nice going on restoring the trust."
The Arizona Southern Baptist Convention created the BFA in 1948 to raise funds for church-related charities. Over the years, however, it mushroomed into a real estate-based Ponzi scheme that used pastors as salesmen and bilked 13,000 investors out of their savings (CT, June 11, 2001, p. 18).
"These investors, many of whom are elderly, trusted the misleading financial statements audited by Andersen," Arizona Attorney General Janet Napolitano told reporters.
Links with Enron scandal
Until its collapse in the fall of 1999, BFA hid its growing losses in dozens of shell corporations while obtaining regular favorable audit reports from Andersen. Observers have noted the similarities between this case and the fate of the Enron Corporation, another Andersen client.
In fact, Andersen was pressured to settle with BFA because of the Enron scandal. In both cases, Andersen is accused of not warning investors of corrupt accounting practices in the firms it was hired to audit.
Andersen's insurance carrier, Hamilton, Bermuda-based Professional Services Insurance Co., used a clause in the settlement agreement to void the deal.
Andersen attorney Ed Novak said conditions at Andersen ...