Charity Governance

MEMO TO STATE CHARITY REGULATORS: WILL CHANGES IN CPA REVIEW STANDARDS HAVE A POSITIVE OR NEGATIVE EFFECT ON CPA REVIEWS OF NONPROFIT FINANCIAL STATEMENTS?

DATELINE:  May 12, 2009, Chicago

The AICPA’s Accounting and Review Services Committee (ARSC) has issued an exposure draft that would liberalize the independence standards applicable to CPAs performing review and compilation services for clients, including nonprofits.  AICPA president and CEO Barry Melancon calls the revision the biggest change in reviews and compilations standards since the standards were first issued in 1978.  Some state charitable solicitation statutes permit charities required to register with the state and file annual reports to file...

THEY ARE COMING TO GET YOU: THE PRESS, THE NEW FORM 990, AND BARRELS OF INK

DATELINE:  May 4, 2009, Chicago

Our mother-in-law once reminded us:  “Never pick a fight with someone who buys ink by the barrel.”  The recent goings on at the Hackensack University Medical Center (HUMC) certainly prove her to be an insightful observer of the human affairs.

On April 26, 2009, the North New Jersey Reporter published a lengthy article entitled Tangled Web of Power: Hospital’s Influence Reaches Far.  In the story, Mary Jo Layton describes in great detail a series of...

YESHIVA UNIVERSITY GETS RELIGION

DATELINE: April 14, 2009, Chicago

On January 1, 2009, Janet Frankston Lorin of Bloomberg reported that Ira M. Millstein, the corporate governance guru from Weil, Gotshal, advised Yeshiva University with respect to conflicts of interest and investing with members of the university’s board of trustees.  Millstein Letter Helped Keep Yeshiva Money on Path to Madoff.  Bloombergclaimed to have seen a letter from Millstein in which he said that Yeshiva had “followed procedures adequate to prevent either the appearance or the reality of a conflict of interest.”  According to Bloomberg, this cleared the way for the fateful investment in J. Ezra Merkin’s fund that invested its funds with Bernie Madoff.  Merkin served on Yeshiva’s investment committee.  In his letter, Millstein reportedly said, “There is no reason why the board or its committees should institute a blanket rule prohibiting members (or major donors) from doing business with Yeshiva.”  We previously pointed out that there are plenty of reasons for a blanket prohibition.

Another Wall Street corporate law firm, Sullivan & Cromwell, have now given their own verdict on Millstein’s advice.  As is typical, Sullivan & Cromwell was retained following the revelation that Yeshiva University lost somewhere around $110 million in the Madoff scandal—cash-out-of-pocket was somewhere around $14 million.  There charge was to develop governance policies that met the gold standard.  Sometime around the end of March, the Yeshiva board of trustees adopted a new conflicts-of-interest policy which was developed with the assistance of Sullivan & Cromwell.  Noach Lerman, Board of Trustees Adopts New Rules to Limit Conflict of Interests, Yeshiva Commentator (April 1, 2009).  The policy...

IS IT TIME TO REREAD THE DECISION IN STERN V. LUCY WEBB HAYES?

DATELINE: April 1, 2009, Chicago

We can’t wait to attend a game at the new Yankee Stadium.  Our nephew owns an apartment just three blocks from the stadium, meaning that we can go a game together, and then spend the night in his guestroom.  As part of an agreement that paved the way for the new stadium, the Yankees agreed to contribute $800,000 per year in cash and $450,000 of in-kind items like game tickets to a charity that would benefit members of the community.  

According to Fernanda Santos of the N.Y. Times, a lawyer hired by the Yankees has filed a lawsuit alleging what amounts to breach of fiduciary duty against the chairman of New Yankee Stadium Community Benefits Fund, the charity established by the Yankees.  Lawyer Who Has Hired by Yankees Sues the Team's Bronx Community Charity (Mar. 31, 2009). If the allegations are true, this looks to us like...

TIME FOR SENATOR GRASSLEY TO SEND FORMER SENATOR TOM DASCHLE PACKING

DATELINE: February 2, 2009, Chicago

We’ve been following former Senate Majority Leader Senator Daschle’s tax problems closely.  We don’t want to be too pious, but we are sick and tired of the lax compliance effort undertaken by our public official wannabes.  First there was Timothy Geitner and the employment taxes.  Now it is Daschle, who is President Obama's nominee to head up the Department of Health and Human Services.  Daschle failed to report $225,256 in income attributable to the use of a car and driver provided by a private-equity firm that Daschle apparently provided services to.  What has been less publicized is Daschle's failure to report $83,333 in consulting services income.  That one is...

NEW YORK ATTORNEY GENERAL FILLS THE VACUUM CREATED BY YESHIVA UNIVERSITY’S APPARENT FAILURE TO ACT

DATELINE: January 15, 2009, Chicago

Try to be pure at heart, they arrest you for robbery
      Bob Dylan, Groom’s Still Standing at the Altar (unreleased)

Sexy Sadie oooh you'll get yours yet
We gave her everything we owned just to sit at her table
Just a smile would lighten everything
Sexy Sadie she's the latest and the greatest of them all
She made a fool of everyone
Sexy Sadie  
       Beatles, Sexy Sadie from the White Album

[Update:  During an interview on CNBC today at noon CST, we thought we heard one person say that Yeshiva University had filed suit against Ezra Merkin.  We have reviewed the electronic databases for the New York and federal court systems.  We find no evidence of any lawsuit.  No other references in the media to such a lawsuit are known to exist.  If Yeshiva University has filed a lawsuit against Merkin, they can notify us and we will post that fact--please e-mail us the complaint.  We suspect that the commentator misspoke.]

New York Attorney General Andrew Cuomo decided to enter the Madoff fray today.  Cuomo issued subpoenas to J. Ezra Merkin, three of his funds, and 15 nonprofits.  The focus of the investigation is on charities affected by the Madoff scandal.  According to an article in the New York Daily News, the 15 nonprofits are not the target of the probe, just sources for information.  That suggests that Merkin...

MADOFF TOOK ADVANTAGE OF INVESTORS; MADOFF’S AUDITORS TOOK ADVANTAGE OF EXCEPTIONS

DATELINE: January 11, 2009, Chicago

Figuring out to how to regulate is always difficult.  The regulation needs to be targeted and specific, but the costs of complying with the resulting details should be weighed against the potential benefits before the regulations are put into effect.  A short blurb by Floyd Norris of the New York Times makes this point nicely.  Oversight for Auditor of Madoff (Jan. 8, 2008).

As is well known by now, Madoff’s securities brokerage firm was audited by Friehling & Horowitz, a largely unknown firm with three employees.  According to the verfieid complaint filed by New York University against J. Ezra Merkin and others, the firm was controlled by...

MADOFF REPERCUSSIONS: A DONOR SPEAKS TO YESHIVA UNIVERSITY

DATELINE: January 8, 2008, Chicago

The Madoff scandal will have many repercussions.  One is reflected in the letter reproduced below from Andrew L. Sole,  a managing member of Esopus Creek Advisers, a hedge fund.  Mr. Sole is an alum of Benjamin N. Cardozo School of Law.  Cardozo is part of Yeshiva University.  

In his letter, Sole calls for the resignation of Yeshiva's board of trustee. Sole is not your ordinary alum.  According to the letter he made a multi-year...

THE CURIOUS CASE OF IRA MILLSTEIN AND RUMPELSTILTSKIN

Of all the gin joints in all the towns in all the world, she walks into mine. 
    Humphrey Bogart (Rick) from CASABLANCA (1943)

DATELINE:  January 2, 2009, Chicago

Bloomberg reported yesterday that noted corporate-governance lawyer, Ira M. Millstein, of the Weil, Gotshal & Manages law firm issued an opinion stating that J. Ezra Merkin could continue accepting funds from Yeshiva University as long as Merkin disclosed his role.  Janet Frankston Lorin, Millstein Letter Helped Keep Yeshiva Money on Path to Madoff.  The article suggests that the opinion was issued to Yeshiva.  The article doesn't indicate whether Millstein was aware of an intention to invest all the funds with Madoff, who was another trustee.  As we have pointed out before, that results in what looks to us like redundant fees, which we believe is hard to justfiy. 

We have several reactions to the revelations about Millstein and the board's reliance on his opinion.  Our basic one is the simplest and most...

POOR GOVERNANCE MAY AFFECT YESHIVA UNIVERSITY'S BOND RATING

DATELINE: December 18, 2008, Chicago

An article in today’s Chronicle of Higher Education reports that Moody’s Investor Services has placed Yeshiva University on credit watch as a consequence of the fallout from the Madoff scandal.  Scott Carlson, What College Trustees Could Learn From the Madoff Scandal.  Moody’s issued...