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Some of Dennis Kozlowski’s expenditures have already become the stuff of legend, like the $6,000 that prosecutors say he spent on a single shower curtain. But the former CEO of Tyco International Ltd. didn’t just blow his company’s money on overpriced home furnishings, according to the government. He also shared his wealth with several worthwhile institutions, including Columbia University and the Whitney Museum of American Art. Kozlowski isn’t the only disgraced executive who did some good deeds with his allegedly ill-gotten riches. Kenneth Lay, Bernard Ebbers, Richard Scrushy and other recent inductees into the corporate hall of shame all gave generously to their favorite charities when their fortunes and reputations were intact. If these executives are convicted, however, their donations may come under scrutiny from the Securities and Exchange Commission and federal prosecutors. In its 2002 civil complaint against Kozlowski, for example, the SEC noted that he “directed millions of dollars of charitable donations in his own name using Tyco funds.” The agency names Columbia and Seton Hall University as two of Kozlowski’s beneficiaries. A Columbia official confirms that the school received $2 million from Kozlowski, while Seton Hall’s Web site refers to Kozlowski Hall as the school’s newest academic center. Neither Columbia GC Elizabeth Keefer nor a Seton Hall spokesperson would comment on their school’s gifts. But officials at both schools have got to be worried by what David Kornblau, the chief litigation counsel of the SEC’s enforcement division, told The Washington Post last year. (He declined to comment for this article.) Addressing the subject of tainted donations in general, Kornblau said, “When it’s someone else’s money, it’s very easy to be generous.” He added, “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.” According to philanthropy experts and news reports, the government has sought the return of tainted donations three times in the past three years. A review of these cases suggests the government is most likely to go after a questionable contribution when it’s clear that the gift was made with illegally obtained funds, and when a judgment has been entered against the donor that he can’t afford to pay. In 2000 the SEC won a $59 million judgment against David Mobley for defrauding investors in his Naples, Fla.-based hedge fund. (Kornblau handled the case for the SEC.) Mobley, who is currently serving a 17-year sentence, has claimed that he is indigent. A court-appointed receiver is trying to satisfy the judgment by seeking the recovery of some $3 million that Mobley gave to several Florida charities, including a homeless shelter in Naples and an evangelical church. In another case, a court-appointed receiver won the return of a tainted donation from the University of Oregon. In 2001 the school agreed to return an $850,000 contribution from Jeffrey Grayson, who ran Portland, Ore.-based investment firm Capital Consultants. Grayson pleaded guilty in 2002 to bilking $355 million from his investors in an elaborate Ponzi scheme. The university gave the donation back after the receiver established that Capital Consultants was already insolvent when Grayson pledged his firm’s money to the school. In the government’s most recent effort to recover a suspect gift, the University of Michigan agreed in November to return part of a donation made by J. Richard Jamieson and his wife. In 2003 Jamieson was convicted of orchestrating a massive insurance and investment fraud scheme, and was ordered to repay $28 million to his investors. Federal prosecutors initially demanded the return of $85,000 that Jamieson and his wife allegedly donated to Michigan from illegally obtained funds. The government later settled for just a $20,000 contribution that Jamieson’s wife gave to the school while she was under a court order prohibiting the transfer of funds for anything besides living expenses. Donica Varner, the in-house lawyer at Michigan who negotiated the settlement, says it wasn’t clear that the local U.S. attorney’s office had a “slam dunk case” against the school. Still, Michigan’s athletic department — which received the Jamiesons’ donations — decided to return the wife’s gift “for other practical reasons.” The department “felt it was the right thing to do,” Varner says, “plus they were just not interested in the bad press.” In contrast, Varner points to the donations Michigan received from A. Alfred Taubman, the former chairman of Sotheby’s Holdings Inc. In 2003 Taubman finished a year-and-a-day sentence for price-fixing at the auction house. His name appears on three buildings at Michigan, yet Varner says the government has not asked the school to return his contributions. But Taubman, who was worth $770 million in 2001 according to Forbes magazine, was able to pay the $193.5 million in fines and judgments levied against him in the Sotheby’s case. Though Michigan returned part of the Jamiesons’ donation, Varner says the case has had little impact on how the school handles contributions. “Personally, I don’t think the university has any interest in doing background checks of anyone who gives us money,” says Varner. “Nor does it want to be seen in the position of pre-judging our donors.” But maybe they should, says Michael Peregrine. A partner at McDermott, Will & Emery who advises nonprofit groups, Peregrine thinks that donations will come under greater scrutiny as a result of the recent corporate scandals. “In-house counsel [at nonprofits] are now expected to monitor relationships with donors and advise boards on what they should do [about questionable contributions].” Tamara Loomis is a reporter with Corporate Counsel, a Recorder affiliate based in New York City.

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