Corporate Scandals Tainting Donations
By Ariana Eunjung Cha--Washington Post Staff Writer--Sunday, September 15, 2002; Page A01
The recent investigations of some of America's richest corporate executives have created a moral dilemma for
universities, museums, charities and politicians wondering whether they have been the inadvertent beneficiaries
of ill-gotten dollars.
Across the country, there are a half-dozen Kenneth L. Lay endowed chairs, about 40 Arthur Andersen
professors of accounting and several Enron centers of education. Prominent charities and many of America's
cultural icons, including the Whitney Museum and the Museum of Modern Art, received gifts of $1 million or
more from scandal-tainted executives and their companies.
Political campaigns have collected more than $15.3 million this election cycle and $32.8 million in 1999 and
2000 from about 30 firms that have acknowledged they are under investigation by the Justice Department or
Securities and Exchange Commission, according to an analysis by the Center for Responsive Politics.
"It's not quite blood money, but it may not have been honestly earned, either. . . . There's no black-and-white
answer, no established etiquette for dealing with this," said Brad Agle, director of the Center for Ethics and
Leadership at the University of Pittsburgh.
The National Cable Television Center and Museum once considered John and Michael Rigas heroes. They
pledged $2 million to the organization. John was given a lifetime achievement award, and his son Michael was
invited to sit on the board of directors. A theater was named in their honor.
That was before the Rigases were arrested in July for allegedly bilking billions of dollars from their cable
company, Adelphia Communications Corp. Now their contributions are viewed in a different light by the
Denver-based nonprofit organization.
"Are we the recipient of stolen goods?" "Are we guilty by extension?" Those are among the questions weighing
on cable center board member Paul S. Maxwell over the past few weeks.
"For charities to say it's okay to take this money just because they are doing good, I don't think that's an
adequate answer," said Maxwell, chief executive of BigPipe.com LLC, which provides research on the cable
television industry.
Someone Else's Money
Under law, gifts traceable to the proceeds of a crime are in most cases subject to forfeiture. Though government
and shareholders rarely go after such donations, it's not unheard of. In 2000, for instance, the SEC asked for and
received money donated to a homeless shelter, a church and a politician by a hedge-fund manager convicted of
fraud.
Once the SEC concludes its current investigations, agency officials said, they are likely to demand the return of
at least some of the money donated to charities and political campaigns.
"When it's someone else's money, it's very easy to be generous," said David L. Kornblau, chief litigation
counsel of the SEC's enforcement division. "The victims did not make the choice about where the funds went."
Audrey R. Alvarado, executive director of the National Council of Nonprofit Associations, which represents
21,000 small to mid-size organizations, said it would do more harm than good for the SEC to go after such
charitable donations.
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Some of the same nonprofits "are on the front lines helping those company employees most affected by the
corporate scandals," Alvarado said.
In the absence of requests from the government or shareholders, it is the recipients themselves who must decide
what's right or wrong.
Rep. James P. Moran Jr. (D-Va.) is keeping the contributions he got from WorldCom Inc., but Rep. Frank R.
Wolf (R-Va.) is not. The New York Council for the Humanities has prodded former ImClone Systems Inc. chief
executive Samuel Waksal to take a leave of absence as chairman of its board -- but it is keeping his money.
Meanwhile, the administrations and students at some schools that have accepted large donations from alleged
corporate crooks have been at odds over whether to return the money.
In the past, many organizations kept donations from controversial figures, hoping no one would notice. But
now, with campaign and charitable contribution disclosure forms widely available on the Internet, the issue is
hard to ignore.
Harvard University last year caused a furor when it decided to donate only $1 million of the $2 million it
received from Saudi Arabia's bin Laden family to scholarships for the families of 9/11 victims; the school
argued that the money had no ties to terrorism but rather came from profits from the family's legitimate
construction business.
During the Enron Corp. scandal this year, many politicians gave back the contributions they had received from
the company or its executives. At the time, Enron's alleged transgressions seemed to be an isolated incident.
But as the campaign season kicks in, politicians have begun to bicker about taking money from companies with
any hint of scandal.
Drawing Distinctions
Many recipients draw a distinction between companies whose executives have admitted guilt, have been
arrested or indicted (Enron, Adelphia, Tyco International Ltd., ImClone, WorldCom) and those that simply have
become subjects of federal investigations (Global Crossing Ltd., Computer Associates International Inc., AOL
Time Warner Inc.). They said it may not be acceptable to take money from the former group but it would be
from the latter.
Some said they will keep money from a political action committee financed mostly by rank-and-file employees
but not from the corporate officials named in the investigations. Others said the donations they received are
proper as long as the money was earned before or after any time under investigation.
The latest campaign contribution debate to hit Capitol Hill involves WorldCom.
A few weeks ago, the newly created Ex-WorldCom Employee Assistance Fund began calling and sending
letters and e-mail to every politician who has received money from the company's political action committee.
"It's ridiculous for a politician to say this is money he can keep in good conscience when WorldCom employees
who were let go by no fault of their own can't pay their mortgage or feed their kids," said Kate Lee, 44, a former
internal communications manager for the company who was laid off this summer and now chairs the assistance
fund.
Next on Lee's list: some of the charities and educational institutions that received money from WorldCom and
its executives.
WorldCom's internal auditors uncovered more than $7.6 billion in improper accounting over the past two years.
The company's former chief financial officer, Scott D. Sullivan, and former controller, David F. Myers, are
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accused of hiding the transactions. Federal prosecutors indicted Sullivan and a company accounting official last
week.
Moran and Wolf disagree on how to deal with the money they received from WorldCom.
Moran's office said the decision to keep the $10,000 he received from WorldCom was based partially on the
fact that the contribution came from employees and not the executives accused of wrongdoing. Still, Moran is
waiting to learn what the federal investigations turn up. If the executives accused are found guilty, the money
might be given to an employee assistance program, spokesman Daniel Drummond said.
Wolf, on the other hand, is one of 10 members of Congress so far who have donated their WorldCom campaign
contributions to the Ex-WorldCom Employee Assistance Fund. A Wolf staffer, Dan Scandling, said the
lawmaker's decision to give up the $2,000 was not based on his assessment of the possible guilt or innocence of
company executives.
"It has nothing to do with right or wrong or indifferent," Scandling said. "It has to do with the fact that a number
of WorldCom employees have been laid off and are hurting."
Educational institutions face similar questions, but in many cases the money has already been spent or at least
budgeted. For instance, Bernard J. Ebbers, the ousted chief executive of WorldCom, donated tens of millions of
dollars for building improvements at his alma mater, Mississippi College. He was well known on campus,
always friendly as he roamed in jeans and boots.
"We never knew him as a bad guy," said Grace Thornton, 21, editor of the Mississippi Collegian.
Three schools -- Harvard, the University of Michigan and Brown University -- have buildings that bear the
name of A. Alfred Taubman, the former chairman of Sotheby's Holdings Inc., who was convicted this year of
conspiring with his counterpart at Christie's International PLC to fix commissions that their clients paid to have
artworks auctioned. All are keeping his money and Taubman's name on the buildings.
At Brown, Taubman's conviction led to some soul-searching among leaders of the Taubman Center for Public
Policy. The school concluded that it could keep the money because the donations were given to the school
between 1980 and 1994, while Taubman's crimes occurred between 1993 and 1999, said Darrell West, the
center's director.
At Michigan, which has declined to talk about its decision-making process, editors of the campus newspaper
protested.
"In respect to honesty and civility, Taubman has abandoned the University's standards and his name should no
longer grace the University's property and institutions," the student editors of the Michigan Daily wrote.
"Graduates of the College of Architecture and Urban Planning now have a felon's name on their degrees.
Professors and medical researchers now work for institutions that bear the surname of a criminal."
The Rigas family was a supporter of Rensselaer Polytechnic Institute. It named John Rigas, who graduated from
the school in 1950, as Entrepreneur of the Year four years ago. Federal officials alleged this summer that the
Rigases used Adelphia as their "personal piggy bank," paying for Manhattan apartments and using company
aircraft for a family African safari and other trips. As recently as a few weeks ago, RPI's Web site included John
Rigas's biography and his award announcement, prompting at least one complaint from an alumnus.
The details have since been removed.
The Greater Good
Charities tend to take a more practical approach to the problem. For many, ends justify means. But they, too,
can be sensitive to appearances.
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At the Museum of Modern Art and the Whitney Museum, directors said they plan to keep the $4 million they got from former Tyco
chief executive L. Dennis Kozlowski and the $5 million donated by Global Crossing Chairman Gary Winnick even as some of the
organizations' trustees push to have the two men ousted from their boards.
Kozlowski has been accused of being a tax cheat and making personal use of company money, art and property. Global Crossing is
under investigation for allegedly "swapping" network usage rights with other companies to artificially inflate revenue.
At the New York Council for the Humanities, several trustees were shocked at the news of Waksal's arrest and suggested that he take a
leave of absence as chairman of the board. The charity's Web designer then quickly moved him from the top of the organizational
chart to the bottom, where he was listed as "Former President and CEO, ImClone Systems, Inc."
The council has received at least $10,000 from Waksal and Martha Stewart Omnimedia Inc. each. Questions have been raised about
Martha Stewart, a friend of Waksal, and her sale of 4,000 shares of ImClone stock the day before it plummeted, after the Food and
Drug Administration rejected the company's application for permission to market a cancer drug.
Junior Achievement, a national nonprofit organization that educates youth in business and economics, took $130,000 from Global
Crossing and Winnick, $65,000 from Arthur Andersen and $10,000 from Tyco during the 1999, 2000 and 2001 fiscal years. The tax
returns for the Jeffrey Skilling Foundation show that the Enron executive also gave about $86,000 to Junior Achievement's Houston
chapter. But Jerry V. Mutchler, president of that office, said his records show only a $2,000 donation.
"My position on this whole thing is we used the money to the benefit of the kids," Mutchler said. "When we received the money from
Mr. Skilling, there was nothing inappropriate about receiving money from him."
Peter Frumkin, an associate professor with Harvard University's Hauser Center for Nonprofit Organizations, said Junior Achievement
has found itself in a hypocritical position given that the business leaders who support it are supposed to role models for the children.
"Should an opera company lose sleep from taking contributions from these companies?" Frumkin asked. "I would say no. . . . Now
when you talk about Junior Achievement, then you have this question of: 'Is the mission being undermined?' "
Junior Achievement officials said they are doing all they can to teach children about insider trading, accounting fraud and such so they
can understand that they are not acceptable.
As for the Cable Center, Michael Rigas was urged to resign as a director, and he did. Some board members want to take down the
Rigas family plaque before the center's grand opening this fall. The staff debated whether to erase references to the Rigases on the
Web site and other promotional materials; in the end, they decided to keep things as is because the family was such a big part of cable
TV industry history.
It's less clear what will happen with their donations.
John Rigas and his wife, Doris, have already paid $1.5 million of the $2 million the family promised the center. The nonprofit has
raised a total of $75 million. Peter Fleming, an lawyer for John Rigas, declined to comment about his client's charitable contributions.
The skeleton of the building that Rigas contributed to is already finished, and the wiring should be done in time for the planned Oct.
29 opening party. In front of the 200-seat theater, which is on the edge of the University of Denver campus, a sign bearing the Rigas
name has been tentatively put up next to a short biography of the family's contribution to the cable industry. Several trustees hope the
Rigases default on their remaining payments so they can justify taking down the plaque.
James O'Brien, chief executive of the Cable Center, said it is too early to talk about returning the donations.
"My thinking of this situation is that it's a tragedy on many levels -- for the employees, the stockholders, the Rigases themselves, as
well as for nonprofits," said James O'Brien, chief executive of the Cable Center.
© 2002 The Washington Post Company
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