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Half-Baked Bean Counters

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Last March, in a written response to New Times questions regarding the Paetz-McGrath luncheon, Arthur Andersen said Paetz "sounded confused and uncertain to Ms. McGrath. . . . Without specifics, further action by Arthur Andersen was not practical."

By 1997, the accounting firm was also altering its work papers on BFA, the state says, to "cover up" the fraud.

Also in 1997, the state says, Arthur Andersen's world headquarters in Chicago was tipped off to the "alleged Ponzi scheme and illegal sale of securities" at BFA. Yet when Jay Ozer met with BFA officials, he discounted the tip from national headquarters, the state says.

New Times' 1998 award-winning investigative series on BFA, "The MoneyChangers," is repeatedly cited in the Securities Division's charges against the accounting firm.

"The New Times articles contained serious allegations of fraud and insider dealings, mentioned specific questionable transactions and implied misdealing by Grabinski, Crotts, Hunsinger, Friend and Hoover," the state documents say.

"Regarding one high profile transaction described in New Times involving the Simms Tower in Albuquerque, New Mexico, Arthur Andersen had evidence that the New Times allegations were true, and yet Arthur Andersen failed to address that evidence."

The state says Arthur Andersen "failed to address in a serious and meaningful way allegations of fraud raised in the series. . . . Instead Arthur Andersen ignored direct evidence that certain New Times allegations were correct and accepted the word of [BFA staff attorney] Grabinski that the allegations were without merit and relied on its previously flawed audit work."

The state also cites a December 1998 New Times article detailing for the first time the 1996 resignations of a BFA staff attorney and several staff accountants. The article quoted several resignation letters that contained serious allegations of financial fraud at BFA.

Audit rules "required that Arthur Andersen make a thorough investigation of the allegations being made by the former BFA employees to determine whether they were reliable. . . . Instead Arthur Andersen continued to ignore the evidence and dismissed [the accountants' and attorney's] serious allegations as being not applicable to its audit responsibilities," the state says.

Although the main thrust of the Securities Division's action is to get money for the Dawsons and other investors, forcing Arthur Andersen to pay money isn't enough for Janyce Dawson.

She'd like to see all the alleged perpetrators of the BFA scam -- including officers, insiders and accountants -- have their day in court and, if found guilty, go to prison.

"I do believe in righteous indignation," she says. "These people should get what's coming to them."

An archive of Terry Greene Sterling's reporting on the Baptist Foundation of Arizona can be viewed at www.phoenixnewtimes.com/specialprojects/bfa

View Arizona Corporation documents at http://www.ccsd.cc.state.az.us/Enforcement/Actions/sep27-00.pdf

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