Corporate Scandals Tainting Donations
By Ariana Eunjung Cha
Washington Post Staff Writer
Sunday, September 15, 2002;
Page A01
The recent investigations of
some of America's richest
corporate executives have
created a moral dilemma
for universities, museums,
charities and politicians
wondering whether they
have been the inadvertent
beneficiaries of ill-gotten
dollars.
Across the country, there
are a half-dozen Kenneth
L. Lay endowed chairs,
about 40 Arthur Andersen
professors of accounting and several Enron centers of
education. Prominent charities and many of America's
cultural icons, including the Whitney Museum and the
Museum of Modern Art, received gifts of $1 million or more
from scandal-tainted executives and their companies.
Political campaigns have collected more than $15.3 million
this election cycle and $32.8 million in 1999 and 2000
from about 30 firms that have acknowledged they are
under investigation by the Justice Department or
Securities and Exchange Commission, according to an
analysis by the Center for Responsive Politics.
"It's not quite blood money, but it may not have been
honestly earned, either. . . . There's no black-and-white
answer, no established etiquette for dealing with this," said
Brad Agle, director of the Center for Ethics and Leadership
at the University of Pittsburgh.
The National Cable Television Center and Museum once
considered John and Michael Rigas heroes. They pledged
$2 million to the organization. John was given a lifetime
achievement award, and his son Michael was invited to sit
on the board of directors. A theater was named in their
honor.
That was before the Rigases were arrested in July for
allegedly bilking billions of dollars from their cable
company, Adelphia Communications Corp. Now their
contributions are viewed in a different light by the
Denver-based nonprofit organization.
"Are we the recipient of stolen goods?" "Are we guilty by
extension?" Those are among the questions weighing on
cable center board member Paul S. Maxwell over the past
few weeks.
"For charities to say it's okay to take this money just
because they are doing good, I don't think that's an
adequate answer," said Maxwell, chief executive of
BigPipe.com LLC, which provides research on the cable
television industry.
Someone Else's Money
Under law, gifts traceable to the proceeds of a crime are in
most cases subject to forfeiture. Though government and
shareholders rarely go after such donations, it's not
unheard of. In 2000, for instance, the SEC asked for and
received money donated to a homeless shelter, a church
and a politician by a hedge-fund manager convicted of
fraud.
Once the SEC concludes its current investigations, agency
officials said, they are likely to demand the return of at
least some of the money donated to charities and political
campaigns.
"When it's someone else's money, it's very easy to be
generous," said David L. Kornblau, chief litigation counsel
of the SEC's enforcement division. "The victims did not
make the choice about where the funds went."
Audrey R. Alvarado, executive director of the National
Council of Nonprofit Associations, which represents 21,000
small to mid-size organizations, said it would do more
harm than good for the SEC to go after such charitable
donations.
Some of the same nonprofits "are on the front lines
helping those company employees most affected by the
corporate scandals," Alvarado said.
In the absence of requests from the government or
shareholders, it is the recipients themselves who must
decide what's right or wrong.
Rep. James P. Moran Jr. (D-Va.) is keeping the
contributions he got from WorldCom Inc., but Rep. Frank
R. Wolf (R-Va.) is not. The New York Council for the
Humanities has prodded former ImClone Systems Inc.
chief executive Samuel Waksal to take a leave of absence
as chairman of its board -- but it is keeping his money.
Meanwhile, the administrations and students at some
schools that have accepted large donations from alleged
corporate crooks have been at odds over whether to return
the money.
In the past, many organizations kept donations from
controversial figures, hoping no one would notice. But
now, with campaign and charitable contribution disclosure
forms widely available on the Internet, the issue is hard to
ignore.
Harvard University last year caused a furor when it decided
to donate only $1 million of the $2 million it received from
Saudi Arabia's bin Laden family to scholarships for the
families of 9/11 victims; the school argued that the money
had no ties to terrorism but rather came from profits from
the family's legitimate construction business.
During the Enron Corp. scandal this year, many politicians
gave back the contributions they had received from the
company or its executives. At the time, Enron's alleged
transgressions seemed to be an isolated incident.
But as the campaign season kicks in, politicians have
begun to bicker about taking money from companies with
any hint of scandal.
Drawing Distinctions
Many recipients draw a distinction between companies
whose executives have admitted guilt, have been arrested
or indicted (Enron, Adelphia, Tyco International Ltd.,
ImClone, WorldCom) and those that simply have become
subjects of federal investigations (Global Crossing Ltd.,
Computer Associates International Inc., AOL Time Warner
Inc.). They said it may not be acceptable to take money
from the former group but it would be from the latter.
Some said they will keep money from a political action
committee financed mostly by rank-and-file employees but
not from the corporate officials named in the
investigations. Others said the donations they received are
proper as long as the money was earned before or after any
time under investigation.
The latest campaign contribution debate to hit Capitol Hill
involves WorldCom.
A few weeks ago, the newly created Ex-WorldCom
Employee Assistance Fund began calling and sending
letters and e-mail to every politician who has received
money from the company's political action committee.
"It's ridiculous for a politician to say this is money he can
keep in good conscience when WorldCom employees who
were let go by no fault of their own can't pay their
mortgage or feed their kids," said Kate Lee, 44, a former
internal communications manager for the company who
was laid off this summer and now chairs the assistance
fund.
Next on Lee's list: some of the charities and educational
institutions that received money from WorldCom and its
executives.
WorldCom's internal auditors uncovered more than $7.6
billion in improper accounting over the past two years. The
company's former chief financial officer, Scott D. Sullivan,
and former controller, David F. Myers, are accused of
hiding the transactions. Federal prosecutors indicted
Sullivan and a company accounting official last week.
Moran and Wolf disagree on how to deal with the money
they received from WorldCom.
Moran's office said the decision to keep the $10,000 he
received from WorldCom was based partially on the fact
that the contribution came from employees and not the
executives accused of wrongdoing. Still, Moran is waiting to
learn what the federal investigations turn up. If the
executives accused are found guilty, the money might be
given to an employee assistance program, spokesman
Daniel Drummond said.
Wolf, on the other hand, is one of 10 members of Congress
so far who have donated their WorldCom campaign
contributions to the Ex-WorldCom Employee Assistance
Fund. A Wolf staffer, Dan Scandling, said the lawmaker's
decision to give up the $2,000 was not based on his
assessment of the possible guilt or innocence of company
executives.
"It has nothing to do with right or wrong or indifferent,"
Scandling said. "It has to do with the fact that a number of
WorldCom employees have been laid off and are hurting."
Educational institutions face similar questions, but in
many cases the money has already been spent or at least
budgeted. For instance, Bernard J. Ebbers, the ousted
chief executive of WorldCom, donated tens of millions of
dollars for building improvements at his alma mater,
Mississippi College. He was well known on campus, always
friendly as he roamed in jeans and boots.
"We never knew him as a bad guy," said Grace Thornton,
21, editor of the Mississippi Collegian.
Three schools -- Harvard, the University of Michigan and
Brown University -- have buildings that bear the name of
A. Alfred Taubman, the former chairman of Sotheby's
Holdings Inc., who was convicted this year of conspiring
with his counterpart at Christie's International PLC to fix
commissions that their clients paid to have artworks
auctioned. All are keeping his money and Taubman's
name on the buildings.
At Brown, Taubman's conviction led to some
soul-searching among leaders of the Taubman Center for
Public Policy. The school concluded that it could keep the
money because the donations were given to the school
between 1980 and 1994, while Taubman's crimes occurred
between 1993 and 1999, said Darrell West, the center's
director.
At Michigan, which has declined to talk about its
decision-making process, editors of the campus newspaper
protested.
"In respect to honesty and civility, Taubman has
abandoned the University's standards and his name
should no longer grace the University's property and
institutions," the student editors of the Michigan Daily
wrote. "Graduates of the College of Architecture and Urban
Planning now have a felon's name on their degrees.
Professors and medical researchers now work for
institutions that bear the surname of a criminal."
The Rigas family was a supporter of Rensselaer Polytechnic
Institute. It named John Rigas, who graduated from the
school in 1950, as Entrepreneur of the Year four years ago.
Federal officials alleged this summer that the Rigases used
Adelphia as their "personal piggy bank," paying for
Manhattan apartments and using company aircraft for a
family African safari and other trips. As recently as a few
weeks ago, RPI's Web site included John Rigas's biography
and his award announcement, prompting at least one
complaint from an alumnus.
The details have since been removed.
The Greater Good
Charities tend to take a more practical approach to the
problem. For many, ends justify means. But they, too, can
be sensitive to appearances.
At the Museum of Modern Art and the Whitney Museum,
directors said they plan to keep the $4 million they got
from former Tyco chief executive L. Dennis Kozlowski and
the $5 million donated by Global Crossing Chairman Gary
Winnick even as some of the organizations' trustees push
to have the two men ousted from their boards.
Kozlowski has been accused of being a tax cheat and
making personal use of company money, art and property.
Global Crossing is under investigation for allegedly
"swapping" network usage rights with other companies to
artificially inflate revenue.
At the New York Council for the Humanities, several
trustees were shocked at the news of Waksal's arrest and
suggested that he take a leave of absence as chairman of
the board. The charity's Web designer then quickly moved
him from the top of the organizational chart to the bottom,
where he was listed as "Former President and CEO,
ImClone Systems, Inc."
The council has received at least $10,000 from Waksal and
Martha Stewart Omnimedia Inc. each. Questions have
been raised about Martha Stewart, a friend of Waksal, and
her sale of 4,000 shares of ImClone stock the day before it
plummeted, after the Food and Drug Administration
rejected the company's application for permission to
market a cancer drug.
Junior Achievement, a national nonprofit organization that
educates youth in business and economics, took $130,000
from Global Crossing and Winnick, $65,000 from Arthur
Andersen and $10,000 from Tyco during the 1999, 2000
and 2001 fiscal years. The tax returns for the Jeffrey
Skilling Foundation show that the Enron executive also
gave about $86,000 to Junior Achievement's Houston
chapter. But Jerry V. Mutchler, president of that office,
said his records show only a $2,000 donation.
"My position on this whole thing is we used the money to
the benefit of the kids," Mutchler said. "When we received
the money from Mr. Skilling, there was nothing
inappropriate about receiving money from him."
Peter Frumkin, an associate professor with Harvard
University's Hauser Center for Nonprofit Organizations,
said Junior Achievement has found itself in a hypocritical
position given that the business leaders who support it are
supposed to role models for the children.
"Should an opera company lose sleep from taking
contributions from these companies?" Frumkin asked. "I
would say no. . . . Now when you talk about Junior
Achievement, then you have this question of: 'Is the
mission being undermined?' "
Junior Achievement officials said they are doing all they
can to teach children about insider trading, accounting
fraud and such so they can understand that they are not
acceptable.
As for the Cable Center, Michael Rigas was urged to resign
as a director, and he did. Some board members want to
take down the Rigas family plaque before the center's
grand opening this fall. The staff debated whether to erase
references to the Rigases on the Web site and other
promotional materials; in the end, they decided to keep
things as is because the family was such a big part of cable
TV industry history.
It's less clear what will happen with their donations.
John Rigas and his wife, Doris, have already paid $1.5
million of the $2 million the family promised the center.
The nonprofit has raised a total of $75 million. Peter
Fleming, an lawyer for John Rigas, declined to comment
about his client's charitable contributions.
The skeleton of the building that Rigas contributed to is
already finished, and the wiring should be done in time for
the planned Oct. 29 opening party. In front of the 200-seat
theater, which is on the edge of the University of Denver
campus, a sign bearing the Rigas name has been
tentatively put up next to a short biography of the family's
contribution to the cable industry. Several trustees hope
the Rigases default on their remaining payments so they
can justify taking down the plaque.
James O'Brien, chief executive of the Cable Center, said it
is too early to talk about returning the donations.
"My thinking of this situation is that it's a tragedy on many
levels -- for the employees, the stockholders, the Rigases
themselves, as well as for nonprofits," said James O'Brien,
chief executive of the Cable Center.
© 2002 The Washington Post Company
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