U. had millions in bankrupt charity's fund

Officials downplay potential loss Lured by promises of doubling its money in just six months, the University invested more than $2 million over the last two years with the mysterious and controversial Foundation for New Era Philanthropy, which filed for Chapter 11 bankruptcy protection Monday. It is not clear how much of the University's money is currently invested with New Era -- which listed $551 million in liabilities and only $80 million in assets in federal bankruptcy court filings this week -- but sources indicate that it may be in excess of $1 million. New Era, which is based in Radnor, Pa., and has offices in London and Hong Kong, promoted itself as an innovative new charity capable of doubling nonprofit institutions' money by soliciting matching funds from a pool of anonymous wealthy donors who supposedly relied on the charity to find worthy causes. Along with the University, thousands of nonprofit organizations deposited their money with New Era, which said it would hold the funds for six months in brokerage accounts -- rather than in escrow -- and claimed to be investing it in certificates of deposit or treasury bills while finding matching donors. But according to New Era's attorneys, the charity's president, John Bennett Jr., admitted to his staff last weekend that the anonymous wealthy donors, which were supposed to act as the ostensible source of funds for the charity, do not really exist. The Pennsylvania Attorney General's Office, the U.S. Attorney's Office in Philadelphia and the U.S. Securities and Exchange Commission are now investigating whether New Era is anything more than an elaborate pyramid scheme orchestrated by Bennett. Pyramid or "Ponzi" schemes promise victims huge returns on their investments and produce the illusion of financial success by paying off early investors with the money donated by later victims. The scheme eventually collapses when no more investors can be found. -- or the operator disappears with the pooled funds. The state froze New Era's assets on Tuesday and moved to freeze Bennett's bank accounts on Wednesday. A six-count complaint filed by the Pennsylvania Attorney General's Office Tuesday in Commonwealth Court claims New Era "misled contributing donors with regard to the extent of donor participation and the nonprofit matches" and charges the charity with violating the state's Charity Act, Consumer Protection Law and Nonprofit Law. University spokesperson Barbara Beck said Tuesday that the University General Counsel's Office is providing authorities any information they need to investigate. Beck said the University invested in New Era on the advice of several individuals close to the institution and after hearing of the tremendous returns other nonprofits were reaping from the charity. "We were invited to participate by people close to the University who have a great deal of credibility and attested to the success they had had with New Era and had others attest to the soundness of this investment," Beck said. She added that the University was aware that New Era was "slightly unorthodox," but trusted advisors close to the University. "I think it's one of our jobs to be suspicious of everything," Beck said. According to an article in Tuesday's Wall Street Journal, Vivian Piasecki, a member of New Era's Board of Directors as well as the chairperson of the Nursing School's Board of Overseers and a University Trustee, confirmed that she helped convince the University to double some of its money with the charity. A source for The Daily Pennsylvanian said Piasecki first approached Nursing Dean Norma Lang about investing in New Era. Lang and Piasecki then convinced former University President Sheldon Hackney that the University should deposit money with the charity. Hackney approved an initial investment of $600,000, the source said. In April 1993, the University wrote a $600,000 check to New Era. Two months later, the University invested an additional $300,000. In both cases, the money was doubled within six months. New Era's 1993 federal tax return, the most recent available since the charity filed for an extension on its 1994 return, states that it paid the University more than $2.1 million during that year. The charity also gave a $50,000 grant to Lang's School of Nursing, $1,000 to the Wistar Institute and $90 to the University Museum. Neither Piasecki or Lang could be reached for comment. With a $1.4 billion endowment, the University's level of involvement in New Era is far less than many smaller nonprofits that invested large portions of their total assets in the charity, Beck said. "I don't want to minimize the seriousness of this at all," she said. "I don't know the situation at other institutions that have placed a great deal at risk, but the University's level of activity is pretty small." While University's investment relative to its total assets is not substantial, the Academy of Natural Sciences in Philadelphia had deposited $2.7 million with New Era -- one-tenth of its endowment. The Esperanza Health Center, a clinic in an impoverished Hispanic neighborhood in Philadelphia, had invested $100,000, and Spring Arbor College in Spring Arbor, Mich., had turned over $1 million of its $6 million endowment to New Era to be doubled within nine months. The small college also has several hundred thousand more dollars with New Era that the charity was supposed to double in six months. A lawsuit against New Era filed by Prudential Securities Inc. in federal court on May 11 and a front page article in Monday's Wall Street Journal detailing New Era's suspicious financial dealings were the first indications that the the money many nonprofits had invested in the charity might be at serious risk. "I don't think we knew about the level of seriousness until the Journal article was published," Beck said. Prudential's suit claims New Era had borrowed $44.9 million on margin and failed to repay it on demand. The collateral for the loan was the brokerage account into which the University and other nonprofits had placed the money. The status of this account is now in dispute, as the money was used to buy treasury bills that Prudential liquidated on May 12 when New Era refused to repay the loan. Neal Colton, one of New Era's attorneys, has asked the bankruptcy court to appoint the accounting firm of Coopers and Lybrand to audit the charity's records "on an expedited basis." Auditing the records may prove a difficult task, as many accounts describe New Era's bookkeeping as lax and potentially misleading. "By their own admission, [New Era staffers] acknowledge that their books and records are disorganized and may be inaccurate," the state Attorney General's complaint states. Colton has asked that the list of New Era creditors -- numbering about 300, including up to 150 wealthy philanthropists according to bankruptcy documents -- be kept under seal to avoid unnecessary embarrassment to any of the organizations or individuals. Many who had money with New Era were shocked to learn that they may have been involved with a Ponzi scheme. Some said they were still hoping that the pool of secret donors Bennett claimed supported the foundation would come forward to bail out the charity. Beck said that if the University was taken in by New Era's claims of lavish profits, it was in good company. According to New Era's 1993 tax return and the Pennsylvania Attorney General's complaint, among the more than 2,000 nonprofits that have invested in the matching funds program since its inception in 1989 are the Boy Scouts of America, the Environmental Defense Fund, Haverford College, One to One Partnership Inc., Planned Parenthood, the Philadelphia Orchestra, Stanford University Medical School, the United Way and Yale Law School. New Era also attracted money from scores of Christian churches and evangelical groups -- particularly during the early years of the program. Bennett, a former substance abuse counselor, was a well-known figure in religious and charitable circles, serving on the boards of several Christian organizations. And many are finding it hard to believe that he may have defrauded them. "I think he will have good answers," said wealthy mutual-fund trader John Templeton in an interview with The Wall Street Journal Monday. Templeton, who like Bennett is connected to conservative Christian groups, served as a trustee of New Era's London affiliate. His son, John Templeton Jr., a surgeon at the Children's Hospital of Philadelphia, also donated large sums of money to New Era. University officials believed John Templeton Jr. was one of the donors matching its investment when the University first deposited money with New Era, The Wall Street Journal reported Monday. But Templeton denied he was one of the anonymous philanthropists and said he only invested in New Era in order to double his own contributions to charities. Since last weekend, Bennett has severed all ties with New Era and is not being represented by the foundation's lawyers, according to New Era attorneys.

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