Andersen Settles Baptist Foundation Civil Cases for $217 Million

Arthur Andersen LLP reached a new $217 million agreement Monday to settle civil cases stemming from the collapse of the Baptist Foundation of Arizona, which lost $570 million belonging to 13,000 mostly elderly investors.

Superior Court Judge Edward Burke accepted the settlement, which came one week into a trial where the foundation's trust was seeking $150 million in compensatory damages and more in punitive damages relating to Andersen's audit work for the foundation.

The settlement resolves the trust case as well as a class-action lawsuit and pending cases brought by state regulators and the Arizona attorney general's office.

"Andersen is willing to accept its shared responsibility and has done so with this settlement. We hope other responsible parties also act accordingly. This puts all of these cases behind us and allows the firm to move forward. We think this is fair to the investors," said Andersen attorney Ed Novak.

On March 29, the accounting firm backed out of another $217 million settlement after saying its insurance carrier, Hamilton, Bermuda-based Professional Services Insurance Co., was unable to pay it.

Afterward, attorneys said all the pending cases would be resolved in court. The bankruptcy trust's lawsuit went on trial April 29.

A spokeswoman for the Arizona Corporation Commission, which regulates securities, said that "based on what happened last time it may be premature to hold a tickertape parade."

"Once all those payments are made there will be cause for celebration," spokeswoman Heather Murphy said.

Investors will get back about $175 million from the settlement, said foundation lawyer Sean Coffey. Another $220 million remains in trust assets.

Under the new settlement, Andersen must make an initial payment of $11 million by June 4 then pay off the rest in installments by Oct. 25.

Ted Kelly, 67, who lost $300,000 in the foundation collapse, said he and his wife think of the case as a roller coaster.

"We were at the bottom of the roller coaster. Now we're back at the top," he said.

The Baptist foundation was created in 1948 as a nonprofit religious entity to raise money for Southern Baptist causes.

During the 1980s, the foundation and its related companies began aggressively raising money through the sale of securities and the management of individual retirement accounts.

But Arizona officials said the foundation used a web of related companies to siphon off hundreds of millions of dollars in investment funds before its 1999 bankruptcy.

The liquidation trust said Andersen ignored warnings signs of foundation fraud, including whistle-blowers and a series of newspaper articles. It also alleged Andersen concealed huge losses on financial statements that would have alerted investors to the foundation's troubles.

The state's lawsuit alleged that Andersen prepared financial statements that concealed huge losses that should have been red-flagged to alert investors. As has also been alleged in Enron-related lawsuits against Andersen, the lawsuits said the firm ignored or inadequately investigated warnings of potential trouble.

The state said that situation allowed senior managers of the foundation to mislead the board of directors and to engage in fraud at the expense of investors, drawing in money from new investors to pay inflated returns to past investors.

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