Andersen's Baptist Foundation Trial Begins | AccountingWEB

Andersen's Baptist Foundation Trial Begins

A jury was selected on Monday and on Tuesday opening arguments were presented in a trial that is expected to last two to three months.

Arthur Andersen LLP is being sued by a trust for the Baptist Foundation of Arizona after the Big Five firm signed off on audits of the organization for 15 years. The Baptist Foundation filed for bankruptcy in 1999, the largest bankruptcy ever of a non-for-profit organization.

Nearly 13,000 investors in the Baptist Foundation lost almost $570 million in what has been described as a "Ponzi scheme" whereby money from new investors is used to pay off old investors.

In March, Andersen agreed to settle the case out of court with an offer to pay $217 million to investors who had filed a class action lawsuit. The settlement was also to cover lawsuits filed by the Arizona Board of Accountancy and the Arizona Corporation Commission. Andersen missed a $100 million premium payment to its Bermuda-based insurance company, Professional Services Insurance Company Limited (owned by Andersen partnerships), and the insurance company refused to pay the settlement. When Andersen backed out of the settlement, the lawsuit was reignited.

More than 40 regular and alternate jurors heard opening arguments on Tuesday. The final jury selection includes seven women and five men.

Andersen is taking the position that it was duped along with the investors and claims that the plaintiffs are going after the wrong defendants. "Why didn't they go after the people who committed the fraud?" suggested Andersen attorney, Don Martin. "The Baptist Foundation through its senior management conceived of this fraud and perpetuated this fraud without our knowledge and assistance," said Ed Novak, another Andersen attorney.

An attorney for the investors claimed that Andersen perpetrated the fraud on the investors by issuing unqualified opinions on its audit statements and by ignoring signs and hints of the fraud. "Our case is about how Andersen failed to fulfill its professional obligations…even as a chain of whistle-blowers began to tap them on the shoulder and say look at the problems here," said Sean Coffey, lead attorney for the trust. The lawsuit alleges that Andersen falsified workpapers and ignored advice that would have led to the discovery of the fraudulent scheme.

The trial is being held before Judge Edward Burke in the Maricopa County, Arizona, Superior Court, located in Phoenix.

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