Scandal-tainted corporate gifts create dilemma for charities

The recent investigations of some of the nation'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 Lay-endowed chairs, 40 or so 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 1999-2000 from the roughly 30 firms that have acknowledged they are under investigation by the Justice Department or Securities and Exchange Commission (SEC), 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, for instance, once considered John and Michael Rigas heroes. The businessmen pledged $2 million to the organization. John was given a lifetime-achievement award, and son Michael was invited to sit on the board of directors. A theater was named in their honor.

But that was before the Rigases were arrested in July for reportedly bilking billions from their cable company, Adelphia Communications. 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 Maxwell.

"For charities to say it's OK 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, which provides research on the cable-television industry.

Gifts could be forfeited

Under the law, gifts traceable to 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 round of investigations, agency officials said, they are likely to demand the return of at least some of the proceeds donated to charities and political campaigns.

"When it's someone else's money, it's very easy to be generous," said David Kornblau, chief litigation counsel of the SEC's enforcement division. "The victims did not make the choice about where the funds went. Even if given to a perfectly honorable charity, the money should be returned to its rightful owners" — including shareholders and creditors.

Audrey Alvarado, executive director of the National Council of Nonprofit Associations, which represents 21,000 small to midsize organizations, said it would do more harm than good for the SEC to go after such charitable donations.

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 who must decide what's right or wrong.

Rep. James Moran Jr., D-Va., is keeping the contributions he got from WorldCom, but Rep. Frank Wolf, R-Va., is not. The New York Council for the Humanities has informally prodded former ImClone Systems 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 suspected corporate crooks have been at odds over whether to return the money.

Hard to ignore

Previously, many organizations quietly 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.

During the Enron scandal, many politicians gave back the contributions they had received from the company or its executives.

At the time, Enron's suspected 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.

Many recipients draw a distinction between companies whose executives have admitted guilt, have been arrested or indicted for wrongdoing (Enron, Adelphia, Tyco International, ImClone, WorldCom) and those that have become subjects of federal investigations (Global Crossing, Computer Associates International Inc., AOL Time Warner).

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 period under investigation.

In the case of educational institutions, in many cases the money has been spent or at least budgeted. For instance, Bernard Ebbers, the ousted chief executive of WorldCom, donated tens of millions of dollars for building improvements at his alma mater, Mississippi College.

Three schools — Harvard, the University of Michigan and Brown University — have buildings that bear the name of A. Alfred Taubman, the ex-chairman of Sotheby's Holdings, who was convicted this year of conspiring with his counterpart at Christie's International to fix commissions their clients paid to have artworks auctioned. All are keeping his money and Taubman's name on the buildings.

At Brown, the conviction of Taubman led to some soul-searching among leaders of the Taubman Center for Public Policy. The school concluded it could keep the money because the donations were given to the school between 1980 and 1994; Taubman's crimes occurred between 1993 and 1999, said Darrell West, the center's director.

At Michigan, whic 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.

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 charged 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, the school's Web site included John Rigas' biography along with his award announcement, prompting at least one complaint from an alumnus. The details have since been scrubbed from the site.

Museums keep money

Charities tend to take a more practical approach to the problem. But they, too, can be sensitive to appearances.

At the Museum of Modern Art and the Whitney Museum, directors said they plan to keep the $4 million they got from embattled former Tyco Chief Executive Dennis Kozlowski and the $5 million from Global Crossing Chairman Gary Winnick, even as some 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 being investigated for reportedly "swapping" network-usage rights with other companies to artificially inflate revenue.

Junior Achievement, a national not-for-profit 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 fiscal 1999, 2000 and 2001.

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 be 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 teaching children about insider trading, accounting fraud and such so they understand these actions are not acceptable.