Trenton, NJ – Attorney
General Anne Milgram today filed suit against
Stevens Institute of Technology, the president
of the university and the chairman of the
board of trustees, charging in a 16-count
civil complaint financial mismanagement, excessive
spending of endowment investment gains, improper
handling of specific endowments and investments,
failure to properly maintain records and accounts,
and excessive compensation of the school president.
The suit seeks reform of the
school’s governance practices, reform
of internal controls and accounting practices,
and the removal of school president Harold
J. Raveche and board trustee chairman Lawrence
T. Babbio from the Hoboken-based school’s
board of trustees.
The Attorney General acted
under the authority of the New Jersey Nonprofit
Corporation Act and the Uniform Management
of Institutional Funds Act.
"The university is important to the State
of New Jersey and we are determined to see
to it that it is managed in a way that will
make its students and alumni proud,"
Attorney General Milgram said.
Milgram met with the Stevens
board earlier this month to review the findings
of a three-year investigation into the school’s
financial practices and to seek a settlement.
Instead, the school sought a temporary restraining
order on Wednesday in Superior Court attempting
to block any potential action by the Attorney
General or, in the alternative, to cover up
the investigation by requiring that any proceeding
against the school proceed only in secret.
The restraining order was denied at an initial
The investigation found that
beginning in 1999 annual financial reports
to the public and the board misstated the
school’s assets during certain years.
Outside auditors regularly warned school officials
of deficiencies in management and financial
policies. PricewaterhouseCoopers, which served
as Steven’s independent accountant from
2000 to 2005, “fired” the school
as a client due to the high risk the school
posed to the accounting company.
Grant Thornton, the school’s
auditor from 2005 to the present has also
repeatedly found internal control deficiencies
and other material weaknesses and has issued
multiple internal control letters with instructions
and criticisms related to Stevens’ financial
management practices. In 2008, Stevens paid
the IRS $750,000 in penalties and unpaid taxes
Former trustees told investigators
that the board was kept in the dark about
key financial information, including reports
on endowments and reports from Steven’s
auditors, and about information related to
annual hikes in salary and bonuses earned
by Raveche, whose salary and bonuses went
from $362,458 in 1999 to $1,089,780 in 2008.
In addition, Raveche, who has been the school’s
president since 1988, received approximately
$1.8 million in loans at below market rates.
Approximately half of the loans -- $928,319
– were agreed to be forgiven in a 2007
employment agreement. The loans and the loan
forgiveness were outside the scope of the
authority of Stevens under the New Jersey
Nonprofit Act, the suit charges.
2007, Raveche’s salary and bonus was
$770,645. In comparison, the salary and bonus
of the president of the Massachusetts Institute
of Technology was $635,294. MIT’s operating
expenses in 2007 were approximately $2.3 billion,
while Stevens’ was approximately $158
The suit asks repayment to
Stevens for improper payments of compensation,
benefits, and loans to Raveche.
The civil complaint charges
that Stevens’ administration and board
breached their fiduciary responsibility through
negligent internal control and accounting
practices and policies and failed to remedy
the practices despite “multiple instructions”
from its independent auditors.
The complaint further charges
that Raveche and the administration spent
more than board-approved spending rates, used
gifts and bequests to pay operating expenses,
invaded restricted assets, collateralized
the endowment, and excessively borrowed through
lines of credit. Some spending and borrowing
were beyond the scope of powers delegated
to Raveche and the administration by the school’s
by-laws or trustee board resolution, including
violations of donor-imposed restrictions on
certain endowment assets.
In one instance, involving
the Clement M. Bonnell Jr. 1919 Memorial Scholarship
Fund, scholarships were to be awarded to seniors
majoring in mechanical engineering who also
excelled in humanities courses. Instead, awards
went to freshmen majoring in other areas.
In addition, the scholarships were to be in
addition to any student aid packages, but
became part of an overall package. Eventually
the funds were returned to the Bonnell family
after Stevens did not comply with the donor’s
intent for the scholarship.
Under New Jersey law, Stevens,
through its board, must ensure that spending
and investment of its endowment’s assets
do not violate donors’ restrictions
and ensure “prudent” spending
that preserves the endowment’s value
for future beneficiaries.
The Attorney General thanked
Deputy Attorneys General Megan Lewis and Samuel
Cornish and Division of Consumer Affairs Investigator
Patrick Mullan for their work on this investigation.
Lewis is the chief of the Affirmative Litigation
Section in the Division of Law. She also thanked
Division of Law Director Taysen Van Itallie
for his work on the suit.