The 10 Biggest College Endowment Scandals of All Time

Over the course of the past century, many colleges have accrued huge endowments, bolstered by generous alumni and savvy investments, with some sitting on portfolios worth billions of dollars. These endowments have given many schools financial security and allowed them to dole out scholarships, build new facilities, and even lure top teaching talent. Yet like many aspects of higher education, endowments have encountered their share of scandal and negative publicity, either through mismanagement, fraud, huge losses, lack of transparency, or even their relationships with particularly unsavory investments. Here we explore some of the biggest controversies surrounding college endowments over the past few decades, some of which even draw in the most prestigious colleges in the U.S.

1. Dartmouth endowment mismanagement:

   Dartmouth is at the center of the most recent college endowment scandal. In May of 2012, the New Hampshire attorney general’s office received an anonymous letter claiming that several wealthy alumni of Dartmouth College had mismanaged the school’s $3.4 billion endowment. Dartmouth is claiming that there is no wrongdoing at all, stating that the letter is riddled with inaccuracies and that investments they made in companies managed by alumni are perfectly legal. Still, the letter’s allegations are scathing, with the author claiming that the endowment managers were borrowing heavily from the tax-exempt funds, paying themselves large management fees, abusing the school’s nonprofit status. It also calls on the governor to investigate the allegation that more than 50% of the endowment is investing with trustees, committee members, or their friends, an issue that could constitute a serious conflict of interest. Nothing has been decided yet, but if any of the allegations are proven to be true, Dartmouth could be in hot water.

2. Apartheid divestment protests:

   Schools are generally free to invest their endowments in whatever they choose, but sometimes students don’t find those investments to their liking, especially when they involve key social justice issues. During the 1970s and ’80s, students held numerous protests at Columbia to encourage the school to divest from South Africa, an action they hoped would put economic pressure on the government there to end the practice of apartheid. In 1978, students and faculty expressed their dislike of investments being made in South Africa through sit-ins, teach-ins, and other protests. They were successful in getting the school to divest from stocks and bonds directly associated with the South African government but not a full pull-out from investments in the country. Protests didn’t end and actually escalated. In 1985, the students took over Hamilton Hall and set up a tent city, actions that inspired similar protests at schools all over the nation. Students had to be forcibly removed from campus and the school promised full divestment. It did not do so until 1991, when apartheid was already ending in the nation anyway.

3. Major financial losses in endowments during the economic downturn.

   One of the most talked-about issues in endowments in recent years hasn’t really been a scandal per se but has raised some eyebrows and drawn plenty of criticism. Many schools suffered financially due to a poorly performing market. One of the hardest hit was also the richest: Harvard. With an endowment in the billions the school definitely has some wiggle room, but in 2009 it found itself with an $11 billion loss, more than most schools have in their entire endowment. Why does that matter? Many were critical of the school, saying it mismanaged funds and ignored warnings that it was being too aggressive in the way it was investing billions of dollars worth of cash. But don’t you worry about Harvard. More careful investments in recent years have helped it to recoup most of those losses, bringing its endowment up to a whopping $32 billion in 2011. Of course, all that money has brought about other criticisms, as many believe that the school should be spending the money, not sitting on it.

4. Bernie Madoff ponzi scheme.

   Celebrities and the super rich weren’t the only ones who got duped by fraudster Bernie Madoff. Many schools also took a hit after investing endowment money with Madoff, who made off with more than $50 billion, tens of millions of it belonging to universities and colleges. One of the hardest hit was Yeshiva University, where Madoff held two leadership positions and invested $110 million in his private firms. Also hit were New York University, with losses of $24 million; Tufts University, with losses of $20 million; and Bard College, with losses of $3 million. The schools have taken action against Madoff and the hedge fund manager who invested their funds with him, J. Ezra Merkin. In June of 2012, they and other non-profit and educational organizations were awarded $405 million in a settlement.

5. Boston University, Seragen investment debacle:

   Boston University may want to reconsider who it puts in charge of its investments. Former university president John Silber invested more than $85 million (which at the time was one fifth of the school’s entire endowment) in Seragen, a biotechnology company. This would have been a risky investment under the best of circumstances, but Silber made it in spite of rebukes from state regulators about the serious risks involved. He invested millions of his own in the company as well and encouraged others, family, friends, and colleagues to do the same. He may have been motivated by love for his son, who was dying of AIDS and was being treated with the company’s experimental drugs. Yet his faith in the company and the promise of the drugs they wanted to produce would be misplaced. The company would declare bankruptcy just before getting FDA approval for that very AIDS treatment Silber’s son was taking, causing Silber, his friends, and the university to take on heavy losses. In the end, Silber lost almost all of the $85 million gamble he made with university money. The school has since recovered, but it was a painful and financially hard lesson to learn.

6. Raising tuition while sitting on huge endowments:

   Tuition has been steadily rising at colleges all over the nation, outpacing inflation, and moving beyond the means of most middle class families to afford. The Senate Finance Committee sees this as a major concern and in 2008 demanded financial information, tuition records, and endowment spending reports from 136 of the wealthiest colleges in the U.S. With nearly 80 colleges in the U.S. sitting on endowments of more than $1 billion, the committee thinks it’s time for colleges to start spending their own money instead of requiring students and their families to pony up for operating costs, building, and research projects. They’ve even considered requiring universities to spend 5% of their endowments each year, just as foundations must. While most universities have balked at the idea of being told how to spend their endowments, some are becoming more willing to offer greater financial assistance, even big names like Harvard and Yale who’ve both upped financial aid. There is no easy solution, and the unwillingness of many schools to spend, especially when times are tough for students, will likely be a contentious issue for years to come.

7. Texas Southern University mismanagement:

   According to a state audit in 2006, Texas Southern University was doing an incredibly poor job of managing the school’s endowment. The audit found that the school had mismanaged endowment funds, put its financial future in jeopardy, and kept inaccurate records. This was in the wake of a spending scandal involving the school’s former president Priscilla Slade that forced the school to cut jobs and raise tuition. According to the report, the school lacks a well diversified portfolio, which could be risky, and has been spending the principal of the endowments rather than relying on interest, which while not illegal isn’t a financially sound practice. Luckily, the school believes the problems are fixable and plans to pull itself into better financial shape in the coming years.

8. Philanthropic funds from unsavory sources:

   Gifts to a school’s endowment are generally always welcome, but sometimes the source of that gifted money isn’t exactly legal. That’s just what happened to Washington and Jefferson College. A deep-pocketed alum, Alberto Vilar, pledged $18.1 million to the school for the construction of the Vilar Technology Center. Unfortunately, it was revealed this year that Vilar may have been coming by his money illegally, as he has been accused of defrauding an investor of $5 million, diverting at least $540,000 of that to Washington and Jefferson. The school is hardly alone in getting endowment funds from unsavory sources. The University of Oregon Foundation actually repaid a gift given by alumnus Jeff Grayson after Grayson’s investment firm was brought up on criminal charges.

9. University of Virginia firing scandal:

   It’s understandable that a school would want to fire a president who was being too wild with endowment funds, but it’s less clear why a president would be fired for not being aggressive enough with those funds. That’s just what many suspect happened at the University of Virginia, which is in the middle of a scandal involving the Board of Visitors decision to sack university president Teresa Sullivan only two years into her tenure. The school justified the hiring by saying they need “bold and proactive leadership” and a “faster pace of change.” With an endowment of $5 billion, the U of Virginia is the wealthiest public university per capita in the U.S., so it’s not really hurting for funds and the decision has been met with an almost uniformly negative reaction from students, faculty, and community members. So what gives? Some suspect that the board, made up entirely of wealthy businesspeople in finance and investment management simply saw Sullivan as an obstacle in their grand plan for the university, which by eliminating “useless” majors and focusing on competing with big name schools like Harvard, would help draw in more endowment funding and more prestige. In the wake of one of the biggest PR disasters in higher education history, they may have just made a serious misstep that could be costly to both of those goals.

10. Lack of transparency in investments:

    One of the biggest controversies in college endowments has to do with the lack of transparency in how the funds are spent and invested. Even donors themselves often aren’t allowed access to information on where their money goes, and students know even less. Often, when they do find out, they don’t like what they see, with Colorado College being one recent example. Students at the eco-friendly school were dismayed to see how much of the school’s endowment was being invested in less-than-environmentally-friendly ventures. Currently, only senior administrators and trustees know where endowment dollars go and more than 66% of the schools in the U.S. Many are calling them on it, demanding to know where money is being spent and how it’s being invested. Some schools have complied, but not without controversy. Students at the University of California-Los Angeles recently pressured the Board of Regents to divest from companies with business interests in Sudan after finding out where investments were made.