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Anonymous Letter Won’t Spark AG Probe at Dartmouth

Hanover — An anonymous letter charging conflicts of interest and financial mismanagement by some trustees of Dartmouth College’s tax-exempt $3.5 billion endowment will not prompt further digging by New Hampshire officials.

Anthony Blenkinsop, director of the Attorney General’s Charitable Trusts Unit, sent a letter to Dartmouth last month saying that his office would not open an official investigation into the anonymous letter’s charges due to “the unsupported nature of the allegations.”

See related story, e_SDLqN.H. Attorney General Backs Off Dartmouth for Fee Details.”

Dartmouth welcomed the decision by the state’s top nonprofit regulator and pointed to it as evidence of the college’s sound management of its endowment. The decision “that these anonymous and baseless allegations are without merit speaks to the rigor of Dartmouth’s policy and practice,” college spokesman Justin Anderson said in a written statement.

Governance controversies have flared periodically at Dartmouth, where the top authority is the 26-member board of trustees. Dissident alumni have criticized college administrators, contested elections to the board and filed lawsuits seeking to overturn policies perceived as threats to Dartmouth traditions.

The Dartmouth board of trustees has formidable financial credentials. Fifteen of its 26 current members are investment managers or high-ranking executives of financial or other corporations, and two are married to investment managers. Three trustees and one trustee’s spouse own or manage firms that manage investments for the college.

But after the 2008 financial crisis slashed the value of assets in the college’s endowment and forced budget cuts, attention focused on the wisdom of investment choices made by trustees and other alumni leaders — particularly those in which they also had a personal financial stake.

The 500-word anonymous letter and a 2,200-word attachment, from a self-described “group of former and current faculty, staff and employees of Dartmouth College,” were sent to state officials in February and posted in May on the blog of one of the dissident alumni. The documents urged state officials to act to reverse “the quiet takeover of this great College by a cabal of external, wealthy alumni/ae.”

Dartmouth officials dismissed the anonymous letter as valueless. “The unsubstantiated claims and ad hominem attacks contained in the letter have no basis whatsoever and simply do not withstand scrutiny,” Dartmouth General Counsel Robert Donin said in July in an 11-page response to the anonymous letter sent to the Attorney General’s Office. Donin dismissed as “false” the letter’s claim that more than half of the endowment’s assets were invested with “Trustees, Investment Committee members, or their friends.”

As of June 30, 2011, about $460.5 million from Dartmouth’s endowment — about 13.5 percent of total assets — was invested in firms where trustees or other members of the college’s investment committee were owners or managers, Donin wrote in a Sept. 10 letter to Blenkinsop.

Donin said that college leaders decided to invest only a small percentage of those investment dollars — about $43 million, or 1.3 percent of the endowment’s assets — in trustee-affiliated funds while those trustees served on the college’s governing board.

Donin added that the “Related Party investments have substantially outperformed the endowment as a whole.”

Joe Asch, a Dartmouth alumnus and frequent critic of the college’s governors, posted a copy of the letter on his Dartblog in May. The anonymous letter, while “somewhat poorly written and in many areas imprecise … did point to many serious concerns,” Asch said in an email interview. “The trustees seem desperate to cover up their poor financial management of the college.”

In the wake of the attorney general’s decision, two recently retired trustees wrote a letter to alumni reaffirming the integrity and wisdom of college leaders’ oversight of endowment investments. The letter — from Ed Haldeman, a former chairman of the Dartmouth board of trustees and former chief executive of Freddie Mac, and T.J. Rodgers, a semiconductor company CEO who was elected as a trustee with support from dissidents — noted that neither had ever “had an investment relationship with Dartmouth.”

“Based on our direct knowledge, we vigorously reject the assertions of individuals unwilling to name themselves that the board of trustees has in an any way managed Dartmouth’s endowment with less than the diligence and care it deserves,” they wrote.

Dartmouth’s endowment reported a 5.8 return on investments in the 2012 fiscal year ending June, the best return in the Ivy League.

The anonymous letter also said the college’s trustees had “mortgaged the College’s future” through excessive borrowing, made bad hedge fund investments that resulted in the loss of working capital used to fund research grants, and lost $200 million by making bad bets on complex derivative securities called “interest rate swaps.”

In his letter, Donin said that with $1.1 billion in long-term debt the college’s “finances are strong” and that no research money was lost by investing working capital in hedge funds. He added that the $200 million liability on the swaps was an estimate of the college’s long-term obligations and not an actual operating loss.