The University of Louisville will sue its former president, James Ramsey, and his top aide, Kathleen Smith, and others, for mismanagement of UofL Foundation funds, the board of trustees and foundation directors said in a rare joint meeting Wednesday.
The decision comes nearly a year after a $1.7 million forensic investigation of the foundation found Ramsey’s administration depleted the school’s endowment through excessive spending.
A resolution passed by both boards authorized their attorney to sue Ramsey, Smith and “certain other former Foundation officials and service providers.” A copy of the lawsuit to be filed shows the other defendants as former foundation chief financial officers Jason Tomlinson and Michael Curtin, former foundation board chairman Burt Deutsch, and former foundation law firm Stites & Harbison.
UofL and the foundation jointly retained law firm Campbell Guin for the suit, authorizing the firm to “take any and all actions they deem necessary and appropriate to protect and serve the interests of the University.” Andy Campbell, who works for the firm, told reporters they’re trying to recover “millions” in losses, but won’t be able to name a specific amount until the discovery process.
A UofL news release stated that Ramsey and others “conspired to divert millions of dollars from the Foundation’s endowment into speculative and unauthorized ventures, putting the Foundation at risk,” in addition to depleting the endowment “through complicated – and often unauthorized – transactions designed to avoid scrutiny and circumvent the Foundation’s approved rules and annual budget.”
The suit also claims that Ramsey and Smith “colluded to pay excessive compensation to themselves and others,” and that they “intentionally concealed the improper expenditures and compensation, and that their actions caused the Foundation to lose millions of dollars.”
“Millions of dollars of donations originally intended for the benefit of the University and its students instead were used to pay excessive compensation,” stated UofL board of trustees chairman David Grissom in the news release. “Other funds were directed toward risky and inappropriate investments, and spending regularly exceeded the Foundation’s own policy.”
Foundation chair Earl Reed said the two boards have done “extensive due diligence,” and that they would not sue if they didn’t think they would be successful.
“Simply, we think it is the right thing to do,” Reed told reporters.
Released in June 2017, the 132-page report from Alvarez and Marsal said that Ramsey and staff overspent on things including compensation. The investigation also suggested that Smith, Ramsey’s chief of staff, may have attempted to conceal the spending from journalists and the public.
Ramsey used the endowment, at the time worth around $800 million, to fund bonuses and cover extra expenses for the university. While the part of the endowment goes to the university each year, Ramsey overspent that allotment, the report said. Ramsey would spend 15 percent of the endowment a year — three times the 5 percent spending rate the foundation now has in place.
Ramsey was warned multiple times the spending rate was unsustainable, but he continued to spend, the report found.
The investigation focused on the criticized deferred compensation program, designed to give administrators bonuses if they stay at UofL for a certain period of time. Instead, the deferred compensation vested faster than normal, allowing Ramsey and other top administrators to make $21.8 million in bonuses, the report said.
It didn’t appear that the program was approved by the foundation’s board, the investigation found. Ramsey served as president of both UofL and the foundation for 14 years, which critics said allowed him too much power.
Since Ramsey left in July 2016, the foundation has made changes to prevent similar mismanagement. The presidential roles have been separated, and the deferred compensation program has been eliminated.
Ramsey’s total compensation package, often totaling over $1 million a year, drew criticism near the end of his tenure. Ramsey’s multiple sources of compensation and the aftermath were considered in crafting incoming president Neeli Bendapudi’s contract, which has no foundation compensation and streamlined benefits.
The report said that emails show Smith may have attempted to conceal the overspending by using obscure names that wouldn’t come up in public records requests made by journalists or the public.
“We are deliberately ambiguous because ambiguity is in the employee’s favor,” Smith wrote in an email to former provost Shirley Willihnganz when she said she was worried she was being overcompensated with a $50,000 bonus not in her contract.
Smith’s attorney, Ann Oldfather, told Insider immediately after the decision by the board of trustees and foundation that she was not aware of these actions and why they were taken, but “we look forward to a thorough public airing of what’s gone on with this board of trustees and the way it’s treated people that helped make UofL what it is today.”
“We look forward to placing all parties under oath, putting all the facts on the table and letting the public see the truth,” Ramsey’s attorney, Steve Pence, said in a statement Wednesday afternoon. “We are confident Dr. Ramsey will be vindicated.”
Attorneys at Stites did not immediately respond to requests for comment from Insider, nor did Tomlinson’s attorney Don Cox.
Curtin and Deutsch resigned from the foundation in 2013, with Ramsey resigning under pressure from both of his leadership position in 2016. Smith was fired from the foundation in June of 2017 after being on paid leave for nine months, with her attorney stating that UofL officials had attempted to cast her as a “fall girl.” Tomlinson was fired in July 2017, one month after the audit was released, and his lawsuit against the foundation over that firing was settled in February for $175,000.
Bob Hughes, a staunch defender of Ramsey when he was the board chairman of both the university and foundation, told Insider that the misguided lawsuit could serve as an unintended vehicle to redeem the reputation of the former president and Smith. He claimed that misleading attacks and media reports on Ramsey overshadowed all of the progress during his administration, which turned UofL “from a backwater commuter college to an ACC university.”
“In sort of an odd way, it’s a good thing, because it will give the public an opportunity to see facts separated from fiction, or from a story,” said Hughes. “Once you raise that right hand in that air and you’re under oath at the risk of perjury, then I think you’re going to start to see the facts emerge.”
In September 2016, the James Graham Brown Foundation and the C. E. & S. Foundation, both major donors to UofL Foundation, said they would stop donating until a forensic audit took place. Both later donated $1 million each to help fund the audit.
Grissom said UofL has spent roughly $1.5 million in legal fees so far, and Reed said the foundation has spent less than $1 million. The two groups will be splitting the cost of the lawsuit, but weren’t sure of the exact split yet.
A copy of the full complaint to be filed by UofL can be read below:
This story has been updated.
Joe Sonka contributed reporting.