Company asks for donor’s money back

John Mazzuto's '70 donation to Yale's baseball program was made with stock that his former company now says was illegally issued.
John Mazzuto's '70 donation to Yale's baseball program was made with stock that his former company now says was illegally issued. Photo by Sean Fraga.

The company formerly run by John Mazzuto ’70 has asked the University to return Mazzuto’s gift to Yale’s baseball program, which the company alleges included improperly issued stock worth $1.7 million.

The company’s current CEO, Robert Renck, said Friday that Industrial Enterprises of America has been negotiating with Yale’s lawyers since October 2009 to recover the gift. For the company to emerge from bankruptcy, IEAM must first reclaim all the stock Mazzuto improperly gave to friends, family and institutions including his alma mater (Yale) and former preparatory school (Tabor Academy). After months of discussions, the University has not yet decided either to return or keep Mazzuto’s donation, which paid for an endowed head coaching position and a new all-weather baseball practice facility.

In the meantime, the baseball coach’s title still bears Mazzuto’s name, and the University still plans to mount a plaque on the field honoring Mazzuto and his wife.

University President Richard Levin declined to comment on the facts of the case Friday, but said Yale is “trying to determine the right course of action.”

Renck said Mazzuto and several other high-ranking IEAM employees frequently abused the company’s stock option program, which allows employees to issue shares or stock options to other people employed by the company in exchange for commercial services. The shares can only be issued to people within the corporation ­— not personal friends or family members ­— and only to individuals, not organizations or institutions, such as Yale.

Mazzuto and others issued improper shares directly through the company’s stock transfer agents, making their illegal activities easy to track, Renck said.

“[Levin] said they would ‘do the right thing,’ ” Renck said, referring to a comment Levin made to the News in December. “I think it’s clear what the right thing is.”

‘INNOCENT UNTIL PROVEN GUILTY’

Before fully recovering from bankruptcy in 2008, Mazzuto was able to donate at least $1.5 million to Yale, leading many who lost money in the IEAM scandal to question where he found the funds to make his gift.

“I think he’s a criminal,” said Leon Borstein, an attorney representing a former IEAM investor who sued Mazzuto and IEAM in 2008 . “It’s probably all illegally gotten gains.”

Reached by phone Sunday, Mazzuto declined to comment.

Levin said in December that administrators are looking into whether they should have known about the allegations against Mazzuto when the University accepted his gift in 2007.

Now, the Securities and Exchange Commission and the Manhattan District Attorney’s Office are both investigating allegations that Mazzuto committed accounting fraud during his tenure as CEO of IEAM. Yale is complying by providing e-mail records and allowing investigators to interview development employees, Vice President for Development Inge Reichenbach said Wednesday.

But as long as the investigation continues, and unless Mazzuto is indicted, the University still plans to mount a plaque at the practice facility his gift paid for, and the official title of the head baseball coach, John Stuper, remains the Mazzuto Family Head Coach of Baseball, Reichenbach said.

“You’d never act on just an investigation,” she said. “He’s innocent until proven guilty.”

The plaque has not yet gone up because all plaque designs must go through an extensive approval process, Reichenbach said.

Stuper declined to comment Thursday, saying he did not have any new information about the investigation into Mazzuto.

Reichenbach declined to disclose the total amount of Mazzuto’s gift and whether he had paid it in full. But the minimum gift required to endow any varsity coach’s position is $1.5 million, according to the Yale Tomorrow giving catalog.

Reichenbach said the University does not have a policy of vetting its donors ­­— and she said she hopes the Mazzuto investigation will not change that.

“I hope we will never get there because that would be the breakdown of any human relations as we know them,” she said. “It’s a level of trust in society that you maintain.”

UNDER SCRUTINY

Meanwhile, information about Mazzuto, whose gift was enough to endow the head coaching position and pay for the construction of the John and Theresa Mazzuto Field, continues to emerge.

Since February 2008, the SEC has been investigating IEAM, the chemical manufacturer Mazzuto ran from 2005 to 2008, for insider trading and accounting fraud during Mazzuto’s tenure, according to a May 2009 SEC filing. Filings in various court proceedings involving Mazzuto show that the Morse College graduate, lauded in a 2009 Yale press release as an “absolutely phenomenal” supporter of Yale baseball, may have a long history of unscrupulous business practices.

Representatives for the SEC and the Manhattan District Attorney’s Office, which is also investigating IEAM, declined to comment on an ongoing investigation.

IEAM and Mazzuto were defendants in a November 2007 securities class action lawsuit that alleged that Mazzuto used more than $1 million in funds from insider trading to buy a Porsche for his girlfriend at the time. The suit also accused IEAM executives of deliberately inflating the company’s revenue and convincing investors to buy stock at high prices.

Saying the accounting mistakes were unintentional, Mazzuto and IEAM settled the case for $3.8 million, but a third of the shareholders dropped out of the settlement to try to recover more damages by bringing their own suits against Mazzuto and the company, said Borstein, the attorney representing the former IEAM investor.

FOLLOW THE MONEY

Mazzuto and some of the other defendants in the 2007 suit had worked together before their days at IEAM — at Environmental Technologies Corporation (EVTC), a chemical manufacturer. That company ceased operations in 2002 after the SEC investigated many EVTC executives, including then-CEO George Cannan Sr. and director Robert Casper — though not Mazzuto, who was the CEO — for securities fraud. Cannan, Casper and Mazzuto all resigned.

By 2002, Mazzuto filed for personal bankruptcy. At the time, he had just $4,000 in personal assets and owed about $6 million, including a $15,000 debt to the Yale Club of New York and a $665,000 debt to the law firm Greenberg Traurig, according to the bankruptcy filing. He also owed $30,000 to Paris Limousine of Flushing, N.Y., and $66,000 to the Waldorf Astoria hotel.

Mazzuto’s parents were Italian immigrants who lived in West Orange, N.J. At Yale, he was a member of the Delta Kappa Epsilon fraternity and earned a history degree while playing shortstop for the baseball team.

Mazzuto now lives in a 5,569-square foot house in a gated community in Palm Beach Gardens, Fla., which he purchased in 2007 for $2.6 million. The community is also home to its own golf course.

Comments

  • Stan

    So guy is in bankruptcy with $6m in debt and no assets and has enough scratch laying around for…

    A $2.6m house in FL
    A $3.2m house in Southamptom

    http://pde.realnet.com/realtyeco/pde/photosViewer.cfm?ptype=H&folio=65273

    Enough money to have the head coaching position named after him and the practice facility (we know Yale received stock improperly – registration statement ineffective, stock issued free trading, not restricted as required, and not to a natural person as required, among other things)

    Not a chance his donations to Yale were only the $1.7m of illegally issued shares for the coaching position and practice facility – I bet it approaches $10m funded by cash from illegally issued stock he sold.

    SEC and Manhattan DA investigating. At first I thought Yale should “do the right thing” as Levin stated. Now they should just do it to save face. This story will get bigger. $86.6m of illegal stock issuance being investigated. Securities counsel for IEAM during this fiasco was Martin Weisberg of Baker McKenzie. Check out his recent indictments and his other indcitment from 1991. Rescidivists. Special place in hell for them. Have fun upstate.

    PS Well handled Inge. Wait for indictments to do the right thing. Don’t vet donors. How are those comments being received by Yale’s administration?

    I can’t wait to see the conclusion of this.