Did We Learn Anything from the Baptist Foundation of Arizona Scandal?
Next year will mark the tenth anniversary since the Baptist Foundation of Arizona scandal broke. Although the collapse occurred nearly ten years ago, the trial only ended in 2007. It was the longest criminal trial in the history of the state of Arizona. The accounting firm which contributed to the fraudulent activity was fined more money than any accounting firm, ever. Who'd have thought that a bunch of Baptists could raise such a fuss? Over the weekend CNBC broadcast a television documentary about the whole thing. It was a very interesting program, and in the end, it made me wonder if we really learned anything as a result. For a condensed version of the story, check out this site.
The biggest question may be, "should any church or church entity be involved in the investment business?" I have asked that question on this forum on a few occasions, with no real resolution. It is no secret that I am not a fan of socially or morally conscious investments.
But go beyond the issue of socially conscious investing. Let's talk about the appropriateness of denominational agencies acting as investment consultants. The Baptist Foundation of Arizona is but one example. I'm not familiar with the people who were running things out there, other than what I have read in the news. I'm just barely more familiar with the Baptist Foundation of Oklahoma. The people who are out front in these organizations tend to be former pastors, with little or no background in finance or investments. They may be good at fund raising. And they may be really good at convincing old people to sign over their money. But professional investment consultants, they are not. Its one thing to visit an elderly person in the hospital, or a recently widowed senior adult. It is another thing altogether to take their life savings and invest it, promising a lifetime of income. Especially when you are unable to deliver, as was the case with the Baptist Foundation of Arizona. 11,000 investors lost $550 million. These were regular folks who worked hard their entire lives and saved their money, only to have it lost at the hands of people who did not know what they were doing. The BFA promoted itself using a video commercial which boldly stated, "Not one investor ever lost a penny investing with the Baptist Foundation of Arizona." Technically, that's still true, they didn't lose a penny. They lost hundreds of millions of dollars, but not a penny.
The two main players in the scandal were not bad men. They were decent people with good hearts. But they were not wired up to manage a trust. As Christians, maybe they were used to putting the best possible spin on things. That is what they did with the BFA. They sent reports that showed glowing reports of how the investments were doing. You can be falsely optimistic about most things, but when you do that with investors' money, it is crossing the line, and it is illegal. They were not convicted of stealing, because they did not steal. They were convicted of defrauding investors, even though they did not personally profit from their crime, other than drawing a nice salary during their tenure. Dozens of people testified on their behalf, asking for leniency. When you hear their testimonies, you realize that these were not people who intended to be crooks. They were just in over their heads. And now they're in prison for the next fifteen years or so.
Arizona television news stations covered the sentencing. You can check it out, if you're interested, here and here.
The Baptist Foundation of Arizona debacle was a good example of the worst thing that can happen when denominational entities get into the business of investing. But for every example of illegal activity by a church entity, there are dozens of examples of lawsuits, foreclosures, and other court activity that denominations are forced into because of the nature of the business. Sure, it is the nature of the business. If you are managing assets, you're going to have to sue people sometimes. But is that really the business churches and denominations are supposed to be about?
My fear is that we have not learned our lesson from the BFA scandal. You can still invest your money with Baptist Foundations all over the place. They are still run by people who have ministry backgrounds, but not necessarily professional investment backgrounds. As a response to the scandal in Arizona, many such foundations have scaled back their investments to be so overly conservative, that an investor may have trouble getting a decent return. Can the investor not do better in a guaranteed, insured municipal bond, and then making the denomination the beneficiary?
As further proof that we haven't learned our lesson, one key player in the scandal said that if the government had not interfered, the investments would have eventually paid off, and everyone would have gotten their money back. That reveals a lot of ignorance on part of the people involved, and it indicates that at least some of these people still don't get it. The end cannot justify the means, especially in the investment business. If an investment professional lies about the financial stability of an entity, even if he means well, it doesn't matter that the entity eventually pays off. They have still violated their fiduciary responsibility, and broken the law. From what I saw in the documentary, many people in Arizona have yet to learn that.
Maybe the biggest crime in all of this is that when churches and denominational entities get involved in the investment business, the Gospel is potentially corrupted. When pastors leave their pulpit and are given the title of "president" or "vice president" of a Baptist Foundation, then they take the life savings of senior adults "in the name of God," and then lose it because they don't know what they're doing, the Gospel is corrupted. One lady interviewed in the television program said that she would never attend a Southern Baptist church again. She is convinced that no Southern Baptist can ever be trusted. Another man, who lost a quarter of a million dollars with the BFA, said that he is trying to get his relationship with Christ back on track, but he is having a hard time doing it, because he has a hard time trusting leadership in the church and in the denomination.
My question is, why take the risk? Why not leave investments to the professional trust companies, who know what they're doing? That way, you completely avoid taking the risk of corrupting the Gospel, and alienating people from the message the church is supposed to be delivering. A denominational agency should be sending its supporters letters that reflect the numbers of people it is reaching with its message, or the number of poor and homeless people it has helped. Instead, BFA investors are getting letters like this.
What are your thoughts on the Arizona scandal? Should denominational entities be in the trust and investment business?
I don't think you can use the ABF debacle as a reason to suggest that all such foundations are a problem. I would guess there are hundreds of these kind of foundations, big and small, across all denominational lines, and yet this is the only one where there has been this kind of problem. You seem to suggest that these organizations are full of Elmer Gantry types running around trying to bilk vulnerable senior citizens out of their money. That seems to be a caricature and not a fair representation of what is going on.
Did the men who were running the BFA blow it big time - absolutely and it really cost a lot of people. Is that happening on a large scale among religious foundations, not that I can tell.
Saying that it is wrong for religious organizations to have these type of foundations because of the BFA incident is akin to saying no one should ever have a television ministry because of the Jim Bakker scandal....
Well, then again maybe you do have a point.
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Thanks for your comment Steve. If you look again, you will not see anywhere that I said all charitable foundations are bad. Certainly there are many thousands of charitable foundations that are good and decent, and which will never run into issues like the ones which plagued the BFA.
What I did question was the appropriateness of church and denominational agencies getting involved in this business. Whereas it is true that the BFA debacle received the most press because of its size and scope, a search of court dockets shows that operating a foundation puts churches and denominations in an awkward position. Not so much from the standpoint of its employees breaking the law, but from issues that may be strictly forbidden by Scripture. Do you know how many times the Baptist Foundation of Oklahoma has sued people? You might be surprised. The BFO was sued a few years ago by a family that contended the BFO coerced their father into signing over his estate to Baptist causes in Oklahoma. I'm not saying that the family's lawsuit had merit, but it puts the denomination in a precarious place, having to defend itself against such accusations in a courtroom. When a church has to sue an individual or another church for any reason, or gets sued for any reason, it is a distraction from the cause of Christ. My point is, why not let professional trust companies manage these assets. The results are basically the same, but the legal issues are deflected off of the church and denominations, and the more complex issues that brought down the BFA are dealt with by people who know what they are doing.
Had Southern Baptists of Arizona hired a professional trust company to manage their clients' assets rather than trying to do it themselves, this problem would likely never have occurred.
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I see your point but I don't see how having a professional trust company will keep things like the lawsuit you mentioned from happening. Sometimes people want to leave their estate to a charitable cause and the kids get ticked off about it and decide someone must have hoodwinked dad into leaving the out of the loop and out of the will.
I do think that BFA issue had a positive impact in that the BFO has moved away from hiring former pastors and are actually bringing in people with experience in financial management.
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I think that the BFA situation has had an impact on the Oklahoma Foundation, whether or not it is positive remains to be seen. There are still former pastors at the helm, which is not necessarily a bad thing, but it can be. As I said earlier, one of the negative things can be that the BFO scales back on risk, and as a result, lose potential growth.
The reason I think a non-religious trust management company would be better is even though you can never avoid lawsuits and accusations of wrongdoing, it would be better if the church and denomination was left out of that. I have a family member who went to work for a state Baptist organization, and she says that the tactics they were told to use, and the expectations for the number of dollars raised, violated her conscience, and she eventually stepped down. I think it would be better if a secular trust management company was accused of such tactics, not the BGCO, or any other Christian organization.
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Jason,
I still don't know all of the details about the situation in Arizona. I'm a little more familiar with the BFO. While I only know three staffers personally, one happens to be the President, Robert Kellogg and the other is a Vice President, Dan Allen. Neither come from a pastoral background, unless you count that Robert's father was a pastor. Both have business degrees and are well qualified. Another feature of the BFO is that, built in to the requirements for the Board of Directors is a stipulation that the overwhelming majority (like all but three or four, I think) who sit on that board must come from a business background, not from the ministry.
As to your larger question, I don't know the answer to it. I do, however, think it is a viable opportunity for the church to demonstrate the proper use of funds in a world where they are so often improperly used.
I also think that one of the assumptions underlying this whole issue is that money is so important that it can ruin (or at least heavily impact in the negative) a person's walk with Christ. In that case I can only say that Jesus words keep ringing in my ears: "You cannot serve both God and Mammon." I don't think Christians should be bilked out of their life's savings either intentionally or unintentionally, but I do think that this situation is a stark demonstration of why Jesus said that it is so difficult to hold both our money and God tightly to us. I really think it is a shame that in too many cases like this that God always ends up being the loser in that face-off, and it shouldn't be.
We don't need a God who can keep our investments secure, but we need confidence in one who can keep us secure even when our investments are not. It just seems like that too many people have a view that if I can't have both then I'll have neither, and that's an indictment against our faith, not the church, the BFO or the BFA.
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The Baptist Foundation of Arizona had two very distinct personal notes for me. I knew everyone who worked for them personally, went to college with two of the accountants and to high school and college with a third, and was a fellow member of the same church that the executive director and two staff members attended. I'm not aware that any of them came from a pastoral background, though the executive director's father, who had also been executive director at one time, was a pastor before becoming exec.
My Dad lost a portion of his retirement and life savings because they were invested with the BFA. My home church lost a sizeable portion of a building fund saved up over a period of 20 years. My alma mater, Grand Canyon University, which was growing and on solid financial footing and which was the leading Southern Baptist educational institution in the West lost its endowment and had to be sold to settle debt. It was a shocking, stunning disappointment to say the least.
Compared to state conventions like Oklahoma, Texas, or others in the deep South, the Arizona Southern Baptist Convention is small, less than 500 churches and about 150,000 total members, in the most rapidly growing state in the country, and one of the most secular and unchurched. I don't know if we will ever know what motivated them to do what they did. Southern Baptists had a golden future in Arizona, and this did what is now appearing to be irreparable damage.
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Lee, I'm so sorry that you and your family experienced such a personal loss related to this story. We hear the story, but sometimes forget the actual individuals whose lives are forever changed because of what happened.
Your comments speak directly to what Paul had to say about loving God and Mammon, so I think I will leave it at that.
You are so right about the collateral damage done to the cause of Christ in the state of Arizona. It will be more than a generation before people forget what the Southern Baptists did to them, and that is the real tragedy, the corruption of the Gospel.
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I attended NPBC ( North Phoenix Baptist Church) for many years. I was very familiar with the BFA Scandal. I discussed it with John McCain who attended with his wife as well. He told me and others it was a sound investment with high returns. I had serious doubts why would a Church get into a investment scheme ? Later a fellow Member who was a CPA with The BFA informed me and other it was a big Ponzi Con. I spoke to both Pastor Dan Yeary and John McCain they insisted it was a " Good Solid " investment. I was shocked to get request to invest in the mail wondering how they got my PRIVATE address. I am a retired Federal Investigator and my address was always confidential. I called BFA who informed me my church NPBC has a deal with BFA to sell them names and addresses of it's members. I quit going to NPBC once i learned of this and knew many who lost. I have been a Christian for over 30 years still am and was ashamed to learn how NPBC and McCain duped us all in this scandal. I later while on official duty in DC again saw McCain he admitted some of the monies from his supporting BFA did go to finance his political fund. Wrong it was and still is all wrong. God is still a loving God and those at NPBC should be ashamed of what let did and allowed to happen to hundreds of it's members knowing it was all a PONZI SCAM.
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Thanks for your comment. I'm sorry about the experience that you had. Unfortunately, it happens a lot, especially when people make the mistake of assuming that just because it is a Christian organization that is sponsoring the investment plan, it must be a good thing. Christians need to be a lot less naive and trusting when it comes to their investments.
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