Harvard University and five other leading higher education institutions are under fire for supporting a money-lending company that allegedly charged developer Fred Fahey more than twice the legal limit of interest on a $6.7 million loan.
The schools invested in Realty Financial Partners (RFP), the firm that was allegedly charging Fahey's company, Meadow Creek LLC, a 42-percent interest rate on a loan. The maximum legal interest rate under Massachusetts law is 20 percent in most circumstances.
Fahey is now suing RFP, the six schools, and two philanthropic foundations that also invested in the firm for violating the Criminal Usury Act. He is claiming that they had knowledge of the loan rate and failed to notify the state's attorney general.
Attorney Richard Briansky, of Prince, Lobel, Glovsky and Tye LLP, is representing Fahey. "This act imposes liability on all parties involved in a limited partnership and not just the partnership itself," he told the Daily.
Harvard, Princeton and Yale Universities, all accused by Fahey in the case, were limited partners with RFP.
But these schools have claimed that a different law, the Massachusetts Uniform Limited Partnership, absolves so-called third-party defendants.
"At bottom, Meadow Creek claims only that Harvard, Princeton and Yale had knowledge of the allegedly usurious loans, and that some of the money used to fund the loans can be traced back several steps to the money the universities invested with RFP ... pursuant to the limited partnership agreement," they said in a joint statement filed in court on Nov. 2. "Such allegations, even if taken as true, do not entitle Meadow Creek to any relief [from] Harvard, Princeton or Yale."
Joe Wrinn, Harvard's director of news and public affairs, would not comment on the specifics of the case, noting that he could not provide information that is not in the court document.
According to the law, these universities are referencing legislation that takes "a limited partner is not liable for the obligations of a limited partnership unless he is also a general partner or, in addition to the exercise of his rights and powers as a limited partner, he participates in the control of the business. ..." Harvard and the additional universities maintain that they were not part of RFP's decision-making process.
Meadow Creek was seeking to build a 186-home community and a golf course in Dracut, Mass. in 2001 when it took out the loan with RFP.
RFP's 42-percent rate allegedly violated state-regulated policies regarding usury, or the lending of money at an unfairly high interest rate. If lenders charge more than 20 percent in interest, the law requires that they file a notice every two years with the state's attorney general.
RFP, based in Wellesley, Mass., is a limited partner in LR5-A LP, the lender that actually provided the money for the questionable loan, according to Bloomberg News. LR5-A LP did file notice twice of its intent to charge more, but Fahey argues that these announcements were mistimed.
In addition to Harvard, Princeton and Yale, the lawsuit accuses the University of Notre Dame, Oberlin College, Spelman College, the Carnegie Corporation of New York and the John D. and Catherine T. MacArthur Foundation of Chicago as third-party defendants. All the defendants are being represented by lawyer David Rich.
Briansky said that Fahey is seeking approximately $20 million in damages. Fahey claims he would have made this much money on his development project, had it been successful. According to Briansky, the hearing should appear in a Massachusetts state court by Jan. 2008.
