LADNER IN THE DARK
But here’s some light, from a letter an attorney with experience in matters like these just sent to AU’s law faculty:
The pattern of Mr. Ladner’s expenditures of University money is far outside what is normal and acceptable in a university community. Even casual research into academic compensation patterns will show this to be so. Indeed, the evidence shows a disregard of accountability that would require a responsible board of directors of a public company to act if the individual were one of its officers.
…Mr. Ladner’s defenders are excoriating and seeking to identify the whistleblower.
…One meaning of academic freedom is independence from outside control. That independence rests upon the assumption that the institution will govern itself responsibly and in accordance with traditions of open debate. I believe that all elements of campus life should take an active interest in the issues now being debated.
Here is the attorney’s direct advice to President Ladner:
· You can’t hide from this.
· Bluster and blanket denial will not work. You cannot “deny the allegations and despise the allegators.”
· You have significant amounts of what lawyers euphemistically call “exposure,” which means risk to your finances and even your liberty.
· The institution you serve may be able to help you – and itself – if you and it take decisive and visible steps to remedy past wrongs and install controls for the future.
Furthermore…
The audits …have shown a pattern of excess that falls into two categories: excess compensation and unauthorized expenditure. The auditors have, I am told, been generous in allocating items to compensation, which has reduced the amount that they allege Mr. Ladner should reimburse the University. This accounting treatment is, however, irrelevant to the central issues.
A finding of “excess compensation” means that the University should have reported expenses as income to Mr. Ladner, in its books and records and to the IRS, and that Mr. Ladner should have recognized these funds as ordinary income to himself.
Thus, we have a situation in which the university has made incorrect statements to the IRS. Even if these expenses were in some manner authorized by the trustees, that would not cure the problem. Just as a board of directors cannot authorize irresponsible use of the shareholder’s money, the board of a nonprofit corporation owes a fiduciary duty to preserve institutional assets.
The unauthorized expenditures raise a more serious problem, for they are both income to Mr. Ladner and reimbursable to the University. In obtaining University payment for these items, Mr. Ladner inevitably represented that there were business purposes that in fact did not exist.
I am not going to use loaded words here, and I have cautioned in my writings and law practice against a too-easy elision between corporate misconduct and actionable fraud. However, precisely because there is today a heightened regulatory concern with executive behavior, it was irresponsible for Mr. Ladner to expose himself and the University to liability.
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