As extensive and as thorough of a breakdown between the two lawsuits between the Attorney General and Stevens Institute of Technology as you’ll find anywhere courtesy of Professor Wharton as he published earlier, hope he doesn’t mind be re-publishing his stuff here.
I haven’t read both the suits yet but I figure if Wharton has summarized it this well, there is very little chance that I’ll have more to add on it. Read this well and educate yourself.
The sources can be found at the bottom of the post.
Executive Summary
The State of NJ through the Attorney General is charging that Hal and Babbio acted outside of their responsibilities as president and Board members (Babbio being chair and Hal serving on the Board as well). The AG questions the legality of the BoT creating selective, if not secretive committees under the BoT and they’re not complying to inform the full BoT of the financial issues of the college and the compensations and benefits package packages of Hal Reveche. These benefits include an excessive salary for Hal (done under illegal practices, through a special committee and against the college’s bylaws) and low interest loans, car allowances and other benefits. In addition, that the Endowment, scholarships and other funds were misused and misapplied for unrelated finances and that the accounting books were “mismanaged.”
Synopsis:
-That Hal has expansive powers as president and voting member of the Board of Trustees (conflict of interests concerns), but this was due to the BoT agreeing to expand his powers and that he’s served as member of financially related committees for the college and that he exercised further control over subcommittees related to employee related matters, including professors (ah, somewhat unusual for a college prez btw)
-That Babbio as chairman of the BoT allowed under his watch for the BoT and its committees to engage in misconduct, including their failing to inform and disclose to the Board his and the president’s actions. Among these actions included “aggressively” expanding and modifying the college’s research activities, curricula and interfere in student body and faculty concerns. Among these, the Stevens Growth Plan which the president and the chairman “violated” donors and the Board’s spending restrictions. This was, against the “scope” of their powers.
-Other actions included their allowing Stevens to operate with “grossly-negligent internal controls and accounting practices” that raised cause for concern by the college’s independent auditor to find that the college had “below acceptable” fiscal controls. They also “misrepresented and inadequately” disclosed information to the Board about spending and borrowing practices and did not implement in adequate fashion the Growth Plan since Hal and Babbio offered “misleading and incomplete” information. But this is mostly due to the Board having “oversight failures” because of “poor corporate governance practices and policies.” An example included specific committees with only specific individuals (among them Hal and Babbio).
-That Babbio, among others on the Board, controlled Hal’s compensation through a special committee, which “was created in an unlawful matter” and they had conflicts of interest since the same members of this committee also served on the Audit or Investment Committees.
-That over a number of years, most Board committees failed to disclose to the full Board of their actions, including providing and maintaining minutes and withheld material information from the full Board (including Hal’s compensation, failed to report the Stevens Administration’s “mismanagement and misappropriation of charitable trusts”). In other words, the financially related committees of the BoT did not fully disclose information to the full Board.
-That the Compensation Committee “buried an independent compensation consultant’s analysis demonstrating that Defendant Raveche’s total compensation was excessive.” Among them, allowing loans to Hal without the full BoT’s approval required by Stevens’ bylaws. And that the full BoT was not informed that the financial committees “altered” spending, investing and accounting practices for charitable trust related to the university endowment. Thus, the BoT’s “dysfunction has permitted the ongoing misconduct of Defendant Raveche and the Stevens Administration…Due to the Stevens Administration’s financial mismanagement, Stevens’ financial disclosures remain inaccurate and unreliable.” The IRS “has been auditing Stevens” and that the Administration’s “mismanagement causes waste.”
-In 2000, the Endowment was $157 million, whereas today it is worth less than $115 million and that credit agencies have “downgraded Stevens due to its financial and economic problems.”
-Among Hal’s expenses and “excessive compensation” and benefits – $100,000 in 2007 for “expenses” in addition to loans that were “below-market interest rates,” housing benefits, tuition and auto subsidies as well as his “over and above” $1 million salary. Thus, the State seeks “compensatory damages for harm caused to Stevens” and to “compel Defendants’ breach for certain charitable trusts, restricted assets and harmed caused to the Endowment…
Based on the following allegations:
1) Hal and the administration “breached their fiduciary duties” by “grossly negligent” spending and borrowing practices”
2) Hal and the administration “misrepresented information to the Board regarding their spending and borrowing practices”
3) Hal and the administration’s Growth Plan and financial management has been “grossly-negligent”
4) Hal and the administration “mismanaged charitable trusts and restricted assets of the Endowment” (a couple of scholarships are mentioned in this section, among them the Clement M. Bonnell scholarship where Stevens violated Mr. Bonnell’s restrictions by tapping into funds early before maturity and giving the scholarship to a computer engineering freshman and not a senior Mech E major, which was the intention of the gift; in years following 2001, other Mech E majors were recipients of the scholarship, but the scholarship was not supposed to be a part of an aid package along with loans and other awards, but students “received no additional monetary award at all” which was not the intention of the family’s donation).
5) “Stevens’ violation of the donor’s intent and mistreatment of the Taylor Trust” (which gets messy here, but basically they allege that the college violated trust laws).
6) “The Board failed to monitor and diversify the Endowment portfolio in violation of it’s fiduciary duties and UMIFA” (which means that the BoT should exercise diligence in making and deciding investments (mentioned earlier with the BoT versus special committees and that the BoT could not make sound judgments with little information being passed down from committee to the full BoT)
7) Babbio and other BoT members “excessively compensated” Hal “beyond it’s powers” with bonuses, loans, and benefits (the BoT is “prohibited from loaning funds that is both an officer and a trustee, like Defendant Raveche” because of it’s nonprofit status and bylaws and if it did allow it, “it could only do so if two-thirds of the entire Board voted in favor of the loan”
Thus the following are the Counts:
Count 1) “Failure to maintain books, records, and accounts” against Hal and Babbio
Count 2) “Grossly-Negligent Spending and Borrowing” against Hal
Count 3) “Grossly-Negligent Financial Management of Stevens” against Hal
Count 4) “Mismanagement of Charitable Trusts and Restricted Assets” against Babbio and Hal
Count 5) “Misuse of Charitable Trusts and Restricted Assets” against Hal and Stevens
Count 6) “Misuse of Endowment Assets” (under NJSA 15A:6-12) against Babbio
Count 7) “Breach of Fiduciary Duty of Obedience” against Hal, Babbio, Stevens
Count 8 ) “Breach of Duty of Candor, Loyalty, and Good Faith” among certain BoT members
Count 9) “Failure to Monitor” against Babbio
Count 10) “Breach of Fiduciary Duties of UMIFA” against BoT, Stevens
Count 11) “Breach of Fiduciary Duties and Awarding Excessive Compensation” against Babbio
Count 12) “Awarding Ultra Vires [beyond the scope] Loans” against Babbio
Count 13) “Enjoinment of Forgiveness of Ultra Vires Loans” against Stevens (that the college “may not loan Defendant Revache funds)
Count 14) “Breach of Fiduciary Duties for Receipt of Excessive and Unlawful Compensation” against Hal (that he received an excessive salary that was done by the BoT under false pretenses)
Count 15) “Declaratory Judgment Regarding Taylor Trust” against Stevens
Count 16) Aiding and Abetting Breach of Fiduciary Duty” against certain BoT members
Lawsuit LINK: http://www.nj.gov/oag/newsreleases09/pr20090917a-complaint.pdf
Countersuit by Stevens against the AG – easier to read and 30 pages (arguing that the AG has overstepped her bounds with the lawsuit):
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