 "Photo: Brittany Summerhill")
Controversial debate continues to be made in regard to a possible conflict of interest within the Sonoma State University Academic Foundation (SSUAF), when a loan agreement was made to a former board member who resigned from the foundation board two days prior.
This spring, a former board member, Clem Carinalli had two outstanding loans. Carinalli paid off the smaller loan but is currently defaulting on the larger of the two.
"Primarily the job of the SSU Academic Foundation is to manage the fund raising funds and the endowment of the university," said University President Ruben Arminaña.
"There was no conflict of interest," said Arminaña. "This arrangement with Mr. Carinalli did not come from Mr. Carinalli, it came through a savings and loan mortgage corporation, who a year or so after this happened, got bought by Mr. Carinalli, but when he was in that, he was not the owner, he was not involved in this. For this is why there is no conflict of interest."
Some faculty members disagree with Arminaña and believe the loan agreement to be a conflict of interest.
"It seems to me that the Carinalli loan was a de facto conflict of interest," said Noel Byrne, professor in the sociology department. "The fact that the loan was granted only two days after Carinalli resigned his membership on the SSU Academic Foundation Board clearly establishes that the loan process was initiated while he was a member of the board, and that most of the processing of that load was completed while he was a member of the board."
Byrne, along with other faculty and staff members believe that since the loan was made so quickly after Carinalli left the board, there was some wrongdoing.
"This is only one of many aspects of the SSU Academic Foundation stewardship of donor funds that raise very serious questions about the character and quality of that stewardship," said Byrne.
Arminaña explained both the benefits and the stipulations of such a loan agreement.
"One of those investments made to an individual, who at one time before that loan was made, was a member of the board, Mr. Clem Carinalli," said Arminaña. "Mr. Carinalli has run into significant financial difficulties and he has not been able to pay to a number of investors with him. We were among one of those included. This investment was backed up with a deed for a property in Windsor of about nine acres of land."
Dean Emeritus of the School of Social Sciences Robert Karlsrud, and also a member of the Academic Foundation found the loan agreement with Carinalli to be controversial.
"We now know that Carinalli was two days off of the board when the first loan was extended, a fact university spokespersons use to claim that these loans were legal and involved no conflict of interest," said Karlsrud. "However, according to reliable sources, the arrangements for that loan were made while he was still on the board."
"The fact that these loans were arranged without the knowledge of the public or of other university employees runs counter to what I and most faculty believe should be the standard operating procedure for a public university, including its auxiliaries: its financial activities should be as transparent as the university can make them," he said.
"It also seems to me that these loans were made without any attempt to publicize the fact that funds were available for borrowing, thus denying to others in the community the opportunity to compete for them," he added.
Nick Curry, student representative to the SSUAF stated the positive results of loan agreements and the reasoning behind the board's decision.
Charitable Remainder Trusts, (CRT), and endowments allow the foundation to invest money and provide an annual income as well as to promote activities such as scholarships.
"A CRT is where an individual provides an amount of money on an agreement that the university pays him or his beneficiary for a specific amount of time in return of this," said Arminaña. "And when that time is over that amount or what is left of that amount goes to the university. This is a way for individuals to get a non taxable contribution, but still obtain a return."
"It is a good point of clarification, the endowment and CRT has been positive through the unperceivable when the stock markets have taken big losses," said Curry. "It could have been the other way around."
"Clem Carinalli had an investment solution for the foundation," said Curry. "The foundation's investment policy back then was that they would make loans such as these, so the foundation said that given the appraisal that was appraised for much more than the land's value, nobody saw the losses coming as they have."
"Given the land's appraised value and the interest rate that he was willing to provide, the board saw it as a great alternative investment," said Curry.
"In the last three months it has been revealed that one of the investments of the academic foundation of about $1.2 million was an investment to pay a CRT," said Arminaña.
Both Arminaña and Curry made it very clear that student scholarships and all other obligations made by the foundation would not be affected.
"At this moment, nothing has been lost because it is backed by this property of land, therefore at one point this land will be worth at least what it was loaned, if not more," said Arminaña. "But what has been lost is the interest that would have been received annually on this loan, $153,000."
"That affects mostly the return to the beneficiaries of the CRT," he said. "This does not affect scholarships or other pieces of how we return benefits to the university."
Karlsrud expressed his concern with the issue and how a perceived conflict of interest would affect the university.
"A public university should be above board in all of its dealings and do everything it can to avoid the appearances of 'insider deals' or favoritism towards one community member over another," said Karlsrud. "It seems to me and many others on this campus that the SSUAF trustees failed to do either in the case of these loans."
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