Taking the Baptist Foundation of Arizona Case To Trial

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Taking the Baptist Foundation of Arizona Case To
Trial ACFE Arizona (October 15, 2008)
John P. (Sean) Coffey
Co-Managing Partner
Bernstein Litowitz Berger Grossmann LLP
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Baptist Foundation of Arizona (July 1999)

• quasi-bank with charitable aims
• Founded in 1948
• No investor had ever lost a dime
• Audited by Arthur Andersen LLP for 17 years
• July 1999 570 million in deposits

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Baptist Foundation of Arizona (November 1999)

• Largest non-profit bankruptcy in history
• Assets 220 million
• Liabilities gt600 million
• CEO, CFO, General counsel, plus 5 others indicted
• 11,000 investors (many retired) hold virtually
  worthless securities

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BFA The Scam

• Real Estate
• Good Bank Bad Bank
• Ponzi Scheme
• The Collapse

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BFA The Ensuing Litigations

• Criminal Investigation
• BFA Liquidation Trust
• Investor Class Action
• Arizona Corporation Commission
• Arizona Board of Accountancy

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BFA The Case Against Andersen

• Years of Blown Audits
• Crossing the Line From Negligence to Complicity
  Ignoring The Whistleblowers
• February 1997 - former BFA accountant
• June 1997 - two CFO clients
• April 1998 - New Times articles
• October 1998 - CPA warnings

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BFA The Strategy

• Coordinate with State
• Get a Case to Trial ASAP
• Hag versus Thoroughbred
• Hardship case
• Give AA no traction for delay tactics
• Get early trial date and keep it
• Limited number of depositions

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BFA Trial Chronology

• 8/00 - Amended Complaint
• 4/01 - Trial Date set for 3/4/02
• 2/02 - Mediation
• 3/1/02 - 217 mil. Settlement
• 3/14/02 - Andersen indicted in Enron
• 3/28/02 - Andersen cant pay
• 3/29/02 - Obtain new trial date
• 4/29/02 - Trial begins

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BFA Trial Themes

• The Trust
• Auditor responsibility
• Incentive to ignore whistleblowers
• Cover-up
• Andersen
• Conspiracy of silence
• Many others to blame
• Cloak AA as victim too

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Defendants Theme
DILBERT reprinted by permission of United Feature
Syndicate, Inc.
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Plaintiffs Exhibit 1
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Plaintiffs Exhibit 2
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Plaintiffs Exhibit 3
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Week 2 of Trial Settlement

• 217 Million again
• Additional requirements
• Certified check
• Corporate resolutions
• Pay-out schedule
• Letter to surrender AAs license
• Two auditors surrender licenses
• Oversight of AA in Arizona

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Seven weeks later . . .

• WorldCom announces the largest restatement in
  history
• Is long-time auditor Arthur Andersen

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WorldCom Trial Themes

• Investors
• Reckless / non-audits
• Lack of independence
• Incentive to ignore red flags
• Andersen
• conspiracy of silence
• Many others to blame
• AA was a victim too

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Opening Sentence for each trial
This is a case about the terrible things that
can happen when auditors dont do what we count
on them to do.