Written by John Face
April 22, 2023
Some of the Players
As Albion College readies itself for the new administration of future President Dr. Wayne Webster, issues still need to be resolved. Webster walks into the mess created by the very people who hired him, the Board of Trustees (BOT) and the leftovers of the Mat Johnson administration, Albion’s former President. This mess includes senior staff appointees whose allegiance still is for Johnson, questionable cooperation of the college that has Gary Black, the Vice-President for Administration and Finance at the college, Jeff Ott, a BOT member, acting as legal counsel for the BOT and college for the Michigan Attorney General’s office investigation. Having these two as lead representatives for the college for the Attorney General investigation is much like the fox guarding the henhouse.
If those at the college have broken any laws, those looking into the college for the Board should have no vested interest in the outcome. Black and Ott both are very vested. Ott, as a very long-term member of the BOT who has been involved in many of the issues they face today, and Black handled the money. There have been multiple accusations of money being moved or missing that he would be aware of. Then we have Joe Calvaruso, who, as a BOT member, has been the college’s Interim President since they ran Johnson out of town. He falls into the “fox” category as well.
Mary Ann Sabo handles press release publications. She works for Catherine Cole, Vice-President of Marketing and Communication, who hired her. Sabo is the wife of BOT member and attorney Jeff Ott. According to insiders, Sabo’s position as the “voice of the college” also controls much of the language Calvaruso shares. So, all narrative to the remaining BOT members, the public, and employees appears to be closely monitored by this small group of “foxes.”.
Where we are Going
As City Watch moves through this series, we will address the multiple emails and other evidence turned over to the Attorney General by the college. We will address what appeared to be pushback by Ott to the Assistant Attorney General’s request for documents that caused the threat of a subpoena by the Assistant Attorney General to get compliance. We will address what everyone thought would be an investigation into the colleges’ finances and endowments from the last two to three years but quickly expanded to span over two decades. We will address money spent on homes and businesses in Albion.
Something is Happening Here
City Watch started receiving calls from sources in early 2022 about an investigation of the school by the Michigan Attorney General’s office. Unfortunately, this writer could not confirm anything other than rumors that this was happening. It would be in early 2022 when we got our first break when City Watch became aware of an active audit of the college’s books. As reported by City Watch months ago (Click here for City Watch Story from November), an active investigation by the Michigan Attorney General’s office started looking into the financial actions of Albion College.
An Investigation Begins
On April 12, 2022, Bill Dobbins and Stephen Greenhalgh emailed the Michigan Attorney General’s office. Their 11-page complaint would eventually land on the desk of Brien Winfield Heckman, Assistant Attorney General Corporate Oversight Division. Dobbins and Greenhalgh are both Alums of Albion College, and Greenhalgh served on the BOT for a few years. Dobbins is a successful businessman in Albion, and Greenhalgh is a retired Attorney for Bodman Law from the state’s east side and now lives in Colorado.
They submitted documents detailing what they felt were inappropriate spending down of Albion Colleges’ endowment funds. A college endowment fund is an investment portfolio a non-profit academic institution holds to generate a permanent stream of capital or money. The fund is comprised of cash or other financial assets that are donated to the college, usually with specific purposes or restrictions.
The fund’s principal balance is supposed to stay invested forever, while the administration and BOT will spend the interest or income to support the college’s missions, such as scholarships, facilities, staff, and research. Spending down an endowment is also allowed, especially if it is earmarked for a project; spending down restricted endowments is illegal, as best we can find.
The big issue with both Greenhalgh and Dobbins is that the college has been raiding endowments at a higher rate than what they feel is allowed to pay their bills, according to emails we received from the Freedom of Information Act (FOIA) by City Watch against the Attorney General. Dobbins and Greenhalghs’ detailed complaint questions the percentage of money used to pay bills and the college’s inability to balance its budget. It does appear that millions have been spent from the endowment over many years, not just during the Johnson administration.
Following is an exact edited copy of the 12-page complaint filed by Greenhalgh and Dobbins. We were unable to attach a chart that Greenhalgh speaks of in a format you would be able to follow. We are working on fixing that. In this complaint, you will see references to exhibits. There are dozens of pages and uploading them at this time would not be prudent. Everything in the complaint has yet to be proven, and these are only allegations, which means until proven one way or another no one has been proven to have broken any laws or rules.
Important for all readers, you can reach us at firstname.lastname@example.org if you wish to contact us with information. All our discussions with you will be confidential.
April 11, 2022
SENT BY EMAIL TO
MIAG@MICHIGAN.GOV AND BY U.S MAIL
Ms. Dana Nessel
Michigan Attorney General
G. Mennen Williams Building
525 West Ottawa Street
P.O. Box 30212
Lansing, Michigan 48909
Re: Albion College; Complaint
Dear Ms. Nessel:
We write to inform you of what we believe are violations of certain Michigan laws by Albion College, and to request that your office investigate the facts and take such enforcement action as it may deem appropriate. We have personal knowledge of all factual statements made in this letter, except where otherwise indicated. This letter is respectfully submitted by William H. Dobbins and Stephen I. Greenhalgh, both of whom graduated from the College in 1974. Mr. Dobbins owns and operates a Caster manufacturing business in Albion, which he founded after practicing family and internal medicine in Albion and Marshall. Mr. Greenhalgh served on the College’s board of trustees (Board) from July, 2008-May, 2019, when he resigned over policy disagreements concerning the matters described below. He practiced law with the Bodman firm in Detroit before retiring in 2018.
I. Relevant Law; Summary of Allegations. Michigan Uniform Prudent Management of Institutional Funds Act, MCL 451.921 et seq. (Endowment Act), and the Michigan Charitable Organizations and Solicitations Act, MCL 400.271 et seq. (Charitable Solicitations Act).
We believe that, over the past decade, spending of the College’s endowment (Endowment) has been so clearly excessive as to violate Section 4 of the Endowment Act, MCL 451.924. We also believe that the College may have misled many prospective Endowment donors by failing to disclose its long history of large budget deficits, and, beginning 2020, the existence of a negative consultant’s report regarding the College’s finances and future. II. The College. The College was founded in 1835 (two years before Michigan achieved statehood) by Methodist settlers in what is now Calhoun County. These settlers led rough lives and understood the importance of education in bettering the lives of their children and their descendants. They endowed the College with the land on which it now sits, and other assets.
The College’s charter was adopted into law by the Legislative Council of the Territory of Michigan and after statehood was embodied in state law (currently MCL 390.701 et seq.). This distinguishes the College as one of only three Michigan private colleges formed in that manner.
The original charter provided for a limited corporate existence as was then customary, but later iterations have provided for a perpetual existence. This is important because all of the College’s recent (for at least the last 50 years) and present administrations and trustees, including all current members of the Board, have understood that both the College and the Endowment are intended to last indefinitely.
Current members of the Board can be found at the College’s website, http://www.albion.edu .
III. The Endowment. The Endowment’s value was $156,465,000 as of June 30, 2020 (the end of the College’s fiscal year and the date of its last generally available audited financial statements). See Exhibit 1, the College’s annual report for that fiscal year, and in particular footnotes 4 and 5 to the financial statements which describe the Endowment.
- Endowments; General. College and university endowments are not just pots of money waiting to be spent. They represent an institution’s equity base and are often called “intergenerational” because they link past, present and future generations of students, alumni, faculty, and other constituencies of the institution. The American Council on Education, a national organization made up of thousands of accredited, degree-granting colleges and universities, has described an endowment this way:
“An endowment is an aggregation of assets invested by a college or university to support its educational and research mission in
perpetuity. It represents a compact between a donor and an institution and links past, current, and future generations. These gifts also allow an institution to make commitments far into the future, knowing that resources to meet those commitments will continue to be available.
Endowments are originated to establish a pact between generations: a promise from past and current donors to future students and faculty that the institution will sustain certain commitments over time.” [Emphasis supplied]
Understanding College and University Endowments, http://www.acenet.edu/documents.
These are familiar concepts, recognizable to anyone who has either attended a higher education institution or donated to one. See also, Why Can’t Colleges Use Endowments to Fill Budget Gaps? http://www.ednc.org/.
- Endowment Spending; UPMIFA. The Uniform Laws Commission drafted and then released in 1972 the Uniform Management of Institutional Funds Act, now known as the Uniform Prudent Management of Institutional Funds Act (Uniform Act). All states except Pennsylvania have adopted the Uniform Act, some with certain revisions described below. The Michigan version of the Uniform Act is the Endowment Act. The Endowment is subject to the Endowment Act.
- Spending by Michigan endowments is governed by Section 4 of the Endowment Act, MCL 451.924, which states in relevant part:
“Endowment fund assets; appropriation or accumulation;
(1) Subject to the intent of a donor expressed in the gift instrument, an institution may appropriate for expenditure or accumulate so much of an endowment fund as the institution determines is prudent for the uses, benefits, purposes, and duration for which the
endowment fund is established. Unless stated otherwise in the gift instrument, the assets in an endowment fund are donor-restricted assets until appropriated for expenditure by the institution. In making a determination to appropriate or accumulate, the institution shall act in good faith, with the care that an ordinarily prudent person in a like position would exercise
under similar circumstances, and shall consider, if relevant, all of the following factors:
(a) The duration and preservation of the endowments fund.
(b) The purposes of the institution and the endowment fund.
(c) General economic conditions.
(d) The possible effect of inflation or deflation.
(e) The expected total return from income and the appreciation
(f) Other resources of the institution.
(g) The investment policy of the institution. 1 [Emphasis
The highlighted language of Section 1 makes clear that endowment spending decisions must be made with due care and must (hence the emphasized word “shall”, above) be based onthe seven listed factors. These factors are designed to (i) hold endowment managers to fiduciary standards, (ii) protect the expectations of past generations of donors, many of whom are deceased, and (iii) protect the institution’s future generations by ensuring they will have adequate resources to carry on its traditions and policies in the manner historically provided. These factors, and indeed the existence of the Endowment Act itself, will come as a surprise to
almost the entire Board because they were never discussed at meetings.
1 The original text of this section of the Uniform Law included an alternative subsection for consideration by the states. The alternative language provides that endowment spending in any year in excess of 7% of the value of an institution’s endowment is presumptively imprudent. New York, California, Texas, Maryland and Rhode Island have adopted this alternative. Maryland also adopted a subsection that requires any institution which exceeds the 7% spending figure to notify the Maryland Attorney General. See Md. Code Ann., Estates & Trusts, Section 15-403(d)(3). While Michigan did not adopt the presumptive 7% imprudence standard, its presence in the alternative language and its acceptance by other states provide guidance as to when Endowment spending becomes excessive. In this case the Board’s spending of greater than 7% per year for over a decade, with one year exceeding 9%, is clearly excessive by this or any other standard.
Actual Spending of the Endowment; The Board Abandons the Historic Spending Policy and Loses All Sense of Restraint. The Endowment Becomes a Piggy Bank.
When the U.S. Marshals finally chased down the bank robber Willy Sutton in 1933, the following colloquy occurred during questioning:
Q. “Why do you rob banks, Willie?”
A. “Because that’s where the money is.”
Same thing here.
The Board has an Endowment distribution policy (Spending Policy) which has existed for many years: distribute to the operating budget in each year an amount equal to 5% (6% after October, 2019) of the Endowment, as determined on a quarterly basis over the past three years. To say the Spending Policy has been honored in the breach would be a gross understatement. It
has been ignored for over a decade.
Set forth below is a chart showing the actual spending of the Endowment for fiscal years 2011-2018 when Greenhalgh quit the Board over this issue: Year 1 Endowment at December 31 of Fiscal
1 Fiscal year begins July 1. All financial information provided by College.
2 Assumes a 30% decline in the Endowment. The purpose of this column is to demonstrate how a “black swan” financial market event, which cannot be predicted and typically happens every ten years (for example, the Standard & Poor’s 500 fell 48% during the Great Recession of 2007-2010) would increase the rate of Endowment spending to dangerous and unacceptably high levels. The Board is playing with fire here. One bad financial market year could drain the Endowment by as much as 13-14%.
3 Projected by College. Total draw and excess draw for FY 2019 reflect a 6% regular draw as approved by the Board in October, 2019 – a 20% increase over the former 5%. As a result, for comparison purposes, the excess draw is understated by the amount of the increase in the regular draw.
While we do not have deficit and excess Endowment distribution information for fiscal years ending after those shown above, we have good reason to believe that the deficits and Endowment reliance rose substantially thereafter. This information will have to be obtained from the College.
To our knowledge, in making its yearly Endowment spending decisions, neither the Board nor anyone on it ever considered the seven statutory spending factors in Section 4 of the Endowment Act. Instead, for each year they just took the budget numbers given to them by the College’s financial office and then raided the Endowment by an amount equal to that year’s deficit. No effort was made to comply with Section 4 of the Endowment Act; and no effort was made to address the underlying causes of the chronic deficits by raising revenue and/or lowering expenses. That would have required hard work. Why do that when it was so easy to drain the College’s precious Endowment and treat it as a piggy bank?
Raiding the Endowment to fund current expenses was so easy that the Board became addicted to it. Thus in the eleven fiscal years beginning in 2010, we believe the Board distributed almost $100 million in excess (i.e., above the usual 5-6% per year Spending Policy distribution) Endowment distributions just to balance the budget. Not a penny of this huge sum was spent on new facilities, enhanced student experiences such as off campus study programs, or anything else that college endowments exist to fund. It seemed so easy – no difficult budget committee meetings. No explaining to students and their families why tuition had to increase. No difficult curriculum and staffing choices to negotiate and explain to the faculty. Board members thought they had come across found money with no strings attached.
Past generations of Endowment donors, many of whom are now deceased, expected their contributions to grow and benefit the College’s future generations. Instead, what they thought were long term gifts are now – and have been for over a decade, with no end in sight – paying for everyday budget expenses such as utilities and marching band uniforms. 2 This is a breach of
2 The College has an Annual Fund that solicits donor contributions each year. Money in this fund is dedicated to the operating budget. If Endowment donors had wanted their money to be spent on everyday items like uniforms and utilities, they would have given to the Annual Fund. trust owed to all prior donors. Moreover, future generations are being robbed of money that is supposed to be there for them. These excess distributions are violations of the Endowment Act. It is past time for a reckoning as the expectations of past generations of donors have been frustrated for far too long, and future generations at the College are being robbed.
- Endowment Spending By Other Institutions.
The following chart depicts the actual endowment spending of other colleges and universities of varying sizes and locations. All information was taken from the websites of the various institutions.
Institution Size of Endowment (Rounded)
University of Michigan $17 billion 4.5%
Michigan State University $3.4 billion 4.4%
Colorado College $953 million 5%
Grinnell College $2.43 billion 4%
Kalamazoo College $311 million 5.53%
Spending discipline and Endowment Act compliance really are possible. The Board never tried it.
5. They Knew: The President of the College and the Leaders of the Board, Including its Chairperson and the Chairpersons of the Finance and Investment Committees, Were Well Aware of the Likely UPMIFA Spending Violations and Chose to Ignore Them.
The Board began its habit of funding large budget deficits with excess Endowment distributions in 2011. This continued throughout the decade (see chart), with only Greenhalgh raising the Endowment Act spending issue, mostly at meetings. Then on November 15, 2017 he raised the issue again, this time in an email to College President Mauri Ditzler and Board members Donald Sheets (Board chair), Thomas Ludington (finance committee chair), and Jeffrey Petherick (investment committee chair). See Exhibit 2. Ditzler responded by email letter that day, saying in relevant part, “Thanks to Steve for reminding us that we should regularly confirm that our endowment policies are aligned with Michigan’s UPMIFA…I also think it would be good to have a current opinion by legal counsel on record in every year that we exceed the 7% [Endowment] draw.” A copy of Ditzler’s email is attached as Exhibit 3.
Nothing happened as a result of Ditzler’s email, so Greenhalgh raised the issue again in an email to Board chair Sheets dated December 20, 2018, stating in relevant part, “I also suggest the Board obtain an opinion as to the legality of recent and expected endowment draws under the [Endowment Act] (Mauri [Ditzler] has proposed this before so it’s not a new idea).” See Exhibit
Still nothing happened. No legal opinion, no discussion at meetings, no required analysis using the spending decision factors in Section 4 of the Endowment Act, no nothing-and all the while, the deficits and excess Endowment draws continued unabated. The Board and its leaders obviously chose to bury the issue, rather than having the smoking gun of a negative legal opinion in its files. This is too clever by half. Greenhalgh finally gave up and resigned from the Board in May, 2019.
6. The Endowment Has Suffered Huge Losses as a Result of the Decade-Long Endowment Act Spending Violations. These Losses Include Not Just the Total Amount of the Excess Distributions, but Also the Investment Returns They Would Have Earned Had They Remained in the Endowment.
In determining the loss to the Endowment caused by the Board’s violations of the Endowment Act, the obvious starting place is the total amount of the excess distributions. But there are additional losses that are important and just as real-the investment returns these distributions would have generated had they remained in the Endowment along with its other assets. This lost investment returns is not difficult to determine and is not at all speculative.
Consider the $5,939,270 excess distribution in FY 2015. Had this distribution not been made, it would have continued to grow that year and each year thereafter, along with the rest of the Endowment. The same is true with respect to every other year’s excess distribution. Calculating the total (aggregate for every year) lost investment returns requires only the amount of each year’s excess distribution and each year’s total investment rate of return, which information the College has. We ask the Attorney General to take these losses into account in determining how to proceed in this matter.
IV. Deceptive Fundraising.
Fundraising and capital campaigns are important functions for every higher education institution, and indeed every charity. But they must be lawful and transparent to the public and prospective donors. This is where the Charitable Solicitations Act comes in (the College is registered under the Solicitations Act.)
Section 18 of the Charitable Solicitations Act, MCL 400.288, states in relevant part:
“(1) A person subject to this Act, or an agent of a person subject to this Act, shall not do any of the following:
(n) Employ any device, scheme, or artifice to defraud or obtain money by means of a false, deceptive or misleading pretense, representation, or promise.”
The budget deficits began in FY 2011-2012 and continued unabated throughout the decade, continuing (we believe) to the present day. By 2019, the College had incurred cumulative deficits during its past seven fiscal years totaling over $56 million, with future deficits virtually guaranteed.
The Board finally woke up to the College’s financial problems in 2019 and engaged EY Parthenon, a prominent higher education consultancy, to review the College’s declining finances and render a report as to the current situation and the college’s future. EY Parthenon submitted its report in March, 2020. A copy is attached as Exhibit 5.
The report is sobering. It zeroed in on the College’s decade of losses and dim future prospects, and concluded that its only chance of long term survival was to conduct a strategic transaction such as a joint venture or a merger with a larger institution such as a state university. See p. 2 of the report: “The combined financial impact of the short and medium opportunities is not sufficient to put Albion on a path to long-term sustainability. There is a set of transformational pathways that the Board and incoming president should consider.”
The College solicited Endowment donations throughout the decade. The donors reasonably believed their gifts would grow over the years and be used to benefit future generations by funding such things as new and improved facilities, long term maintenance,
natural science laboratories, and student learning experiences such as off campus study
programs-but they were not. Instead, they were used to pay ordinary budget expenses.
How many of these donors knew about the ongoing budget deficits? Did the College disclose them (we doubt it)? And after it was received in late 2020, did the College disclose to its donors the existence of the devastating EY Parthenon report which labeled the College’s finances “unsustainable” and recommended a strategic event such as a joint venture or combination with a larger institution? We asked this question of a past chairperson of the Board. He never responded.
Definition of “Cavalier”: “Marked by or given to offhand and often disdainful dismissal of important matters.”
Legal compliance is one of the most important duties of every board. So how could this Board, with so many talented and successful attorneys-including a federal judge who is the chairperson of its finance committee-have been so cavalier with respect to Endowment Act compliance over a ten year period, especially considering that one trustee (Greenhalgh) and the president of the College were raising the issue and asking for legal opinions on it. There are more than one possible explanations for this, given the awkward (at best) facts cited above. We think the most likely explanation is obvious, but we will defer judgment on that to the Attorney General.
Past generations of Endowment donors are often deceased. And those who are notdeceased have no way of knowing that their donations are being misused. Future generations of students, faculty, administrators, etc., do not yet exist and therefore cannot take action to protect their interests. For that, they must rely on the Michigan Attorney General. No one else can do it as there is no private right of action in the Endowment Act.
As for the Charitable Solicitations Act issues, what would the Securities and Exchange Commission do if an investor filed a complaint saying that she purchased stock from a public company that had in its possession a recent, undisclosed report from a reputable consultant calling the company’s finances “unsustainable” and recommending a merger or other strategic event as a survival strategy? To ask the question is to answer it (see Rule 10b-5). Yet this is what we have good reason to believe happened-and is happening now-at the College.
Most donors have no way of knowing about the College’s financial problems and the devastating EY Parthenon report. And even if they did know, many of them gave small amounts and may well consider it not worth their time and money to seek the return of their donations. Again, the Attorney General can do that if she deems it appropriate after review of the facts andthe law.
Thank you for your attention to this matter. We are generally available to discuss this and
answer any questions you or your staff may have. Feel free to contact us at any time.
William H. Dobbins
Stephen I. Greenhalgh
Leave a Reply