The Trustees of Dartmouth College have been accused of corruption by a whistle-blower group of college insiders.  The charge is a failure to supervise themselves and the endowment investment committee while they have taken close to $100 million in endowment manager fees.  These alums are accused of making donations to the College in exchange for $600 million in business for the financial companies they run.  And they are charged with directing $1 billion in endowment funds to their business friends, including to other school endowments on whose boards they sit.

The letter states:

The pattern that the Dartmouth trustees and members of the Endowment/Investment committee have engaged in for decades is clear.  That pattern is that a donor / investment manager's pledge to support Dartmouth is reciprocated with an investment of ever increasing proportions in the donor's firm, lending the credibility of an Ivy League institution to the firm.  The investment returns are of little import; most of these alum/donor/investment manager returns are average to poor.

Ten individuals are cited, along with the specifics of their money deals, including Leon Black, head of one of the best known buy-out shops, Apollo Management.  Nine of the alums have taken an average of $9.7 million in fees, while the tenth is an investment "finder" and chair of the Dartmouth Investment Committee who directed endowment funds to Black and others.

The whistle-blowers ask, "Who really runs Dartmouth College and for whose benefit?"  The answer is a tight group of finance men and women run Dartmouth for their own financial gain.

Universities with large endowments have been criticized since the 2008 Crash for their risky "Yale model" investment strategies.  Many university endowments bought leveraged "alternative investments" in the 1990s and 2000s, which performed well during the leveraging years, and poorly in the current deleveraging era.  And schools with multi-billion dollar endowments have maintained their reliance on these strategies.  In Dartmouth's case, the result is a 9% decrease in the size of the endowment over the past four years.

These new accusations, with the naming of names and dollar figures for each, take this discussion to a higher level.  Previously, the debate was over the willful disregarding of the Prudent Man Rule, a code of conduct for non-profits to follow with roots in a 19th century court case.  The increased risk-taking was justified by the outsized returns, pre-Lehman, and by the shiny new buildings and hiring sprees so necessary to keep up with the Joneses, post-Lehman.

Now we have allegations of corruption added to the mix.  This may no longer be about the inappropriateness of volatile investments.  Those entrusted to direct the endowment's policy are accused of paying themselves or their firms with the funds they are administering.  The Tellus Institute made this general accusation of Dartmouth two years ago, but now we have is in chapter and verse.

The whistle-blowers conclude:

For over a decade we have been witnessing the quiet takeover of this great College by a cabal of external, wealthy alumni/ae of the college.  They have mortgaged the College's future through borrowing heavily in the tax exempt marketplace ... They have simultaneously directed the College's three billion dollar endowment to themselves, their firms, and their friends.

Two issues need to be addressed at the major colleges and universities.  The boards of trustees need adult supervision sitting on those boards to eliminate the self-serving types.  And institutions need to define the investment term "prudent."  If the faculty control the president, who in turn controls the trustees, "prudent" will mean whatever it takes to get more computers, labs, staff, and salary.  But a way must be found to introduce the notion -- actually, it's already a legal requirement -- that fiduciary responsibility means weighing the pros and cons of risk, getting the necessary information to make informed decisions, and, in the end, preserving the corpus of the fund. 

That's what is needed, but it is a long way from the alleged cronyism we see today.