A New York Times article that financially linked Board of Trustees Chairman James Stern with investor Jacob Ezra Merkin was misleading, according to the Tufts administration.
Meanwhile, Tufts officials continue to defend the procedures that led to the university's ill-fated $20 million investment in Merkin's Ascot Partners, which lost almost all of its holdings in Bernard Madoff's alleged Ponzi scheme.
Last week, a paragraph in the continuation a front-page New York Times article about the scope of Madoff's dealings connected Stern (E '72) with Merkin, a close associate of Madoff and the general partner at Ascot.
"Mr. Merkin had been a major investor in a company whose board included James A. Stern," the article read.
The company in question is the Noel Group, where Stern was previously a director. A 1998 Securities and Exchange Commission (SEC) filing shows Stern and his family in control of 38,334 shares of Noel's stock and Merkin having 1,492,536 shares. Merkin's portion represented 7.3 percent of total Noel stocks, according to the document.
Noel continued to appear on SEC reports of Merkin's holdings through 2005, the year Tufts put $20 million in Ascot, but Stern's involvement in Noel's board ended long before then, according to Director of Public Relations Kim Thurler.
"Mr. Stern resigned from that board at least several years prior to Tufts' investment in Ascot Partners," Thurler said in an e-mail.
Stern did not return repeated requests for comment Monday and Tuesday. Peter Dolan (A '78), the vice chairman of the Board of Trustees and the former chief executive officer of Bristol-Myers Squibb, was also unavailable for comment.
Earlier this week, the university looked to distance itself even further from the New York Times' claim, calling it factually inaccurate.
"The reference to Mr. Stern sitting on the board of a company in which Merkin had a major investment is not only factually untrue so far as we know but erroneously implies that Tufts made this investment decision because of Mr. Stern," Thurler said in an e-mail.
"I feel that the New York Times story was unfortunate and not accurate based on the information that I have right now," she said in a follow-up phone conversation.
After seeing documentation of the shared financial interest, though, Thurler no longer denied the veracity of the article. But she maintained that the piece suggested a misleading conclusion.
"That does not change the fact that readers of the article may erroneously and unfairly infer from the article that there was an inappropriate relationship between Mr. Stern and Mr. Merkin that led Tufts University to invest $20 million in Ascot Partners," she said in an e-mail. "That is not the case."
According to Thurler, Stern had no role in bringing the Ascot deal to the attention of the trustees' Investment Committee. "In fact, no one member of the Investment Committee has the authority or ability to steer an investment," she said.
Instead, the committee considers recommendations made by the university's Investment Office and reaches consensus decisions, according to Thurler.
Meanwhile, Thurler repeated the university's stance that the investment with Ascot met the appropriate due diligence standards.
"The decision to invest in Ascot was made after a full review and recommendation by the Investment Office to the Investment Committee," she said. "We know that there are always risks in any investment. The decision to invest in Ascot Partners was based on the information available at the time."
Thurler also defended the decision to invest the full $20 million with one fund, Ascot, which then turned over the entire amount to Madoff.
"Our Total Return Pool is highly diversified and is invested across dozens of managers," Thurler said. "The investment made in Ascot Partners was in the typical range for an investment position with a single manager … [and] represented a small percentage of our portfolio."
Economics Lecturer Christopher McHugh said that in theory, there is nothing wrong with entrusting large sums to a single investor. "It's not irresponsible if that one person has the right model," he said.
But in this case, the investor's model appears to have turned out to be a $50 billion ruse. As Tufts takes its place on an expanding list of victims, legislators at the national level are looking to pick up the pieces and close the loopholes.
"The fact that he apparently got away with such a massive fraud for so long suggests that we need new leadership at the SEC, so that it can effectively accomplish its mission of serving as our nation's securities' ‘cop on the beat,'" U.S. Rep. Edward Markey (D-Mass.) told the Daily through his press office.
Harvard Law School Professor John Coates said that the Madoff scheme fits into the larger economic landscape, which has turned increasingly bleak as of late.
"I think the Madoff scandal is of a piece with the Bear Stearns and Lehman Brothers failures, and all of them demonstrate that we need a financial regulator who is going to take the job of investigating brokerage dealers and investment advisors seriously," he told the Daily.
This broad-picture situation is likely to have adverse impacts on the Hill, where administrators are bracing themselves for an endowment projected to decline by 25 percent this year and for $36 million in budget cuts next year.
Economics Lecturer John Straub, who specializes in public finance, fundraising and charitable giving, said that he does not expect declines in donations stemming directly from the Madoff fallout. Instead, he said that decreases in charitable giving will likely result from individual donors' shrinking pocketbooks.
Tufts, a nonprofit organization, looks to be on the receiving end of this gloomy climate.
"My guess is that the Madoff scandal is not likely to make potential donors wary of corruption on the part of charitable organizations," Straub said in an e-mail. "I do expect charitable giving to fall, but I think that's because donors have suffered losses in the stock market, not because donors fear corruption or even incompetence on the part of charitable organizations."
