Baseball gift going to court

The company formerly headed by John Mazzuto ’70, who donated at least $1.7 million to Yale’s baseball program, is preparing to sue the University to recover Mazzuto’s gift, which the company says included illegally issued stock.

While Mazzuto is under investigation for alleged accounting fraud and insider trading, the current CEO of Mazzuto’s former company, Industrial Enterprises of America, asked Yale last October to return Mazzuto’s gift to help IEAM repay its creditors. But months of discussions between IEAM’s new management and the University have fallen through, said the lawyer representing IEAM, and he and his team are now asking for sworn depositions from University administrators in preparation to file a lawsuit in bankruptcy court, where IEAM is currently working its way out of chapter 11 bankruptcy.

If the University had agreed to give Mazzuto’s stock back, IEAM might have accepted less than the full amount of the original gift, said the company’s lawyer, Steven Thomas of the Venice, Calif.-based Thomas, Alexander & Forrester. But now that Yale appears unwilling to negotiate the return of the donation — which paid for an all-weather baseball facility and endowed the baseball head coaching position — Thomas said IEAM will fight for all $1.7 million, as well as any additional stock Mazzuto may have given to Yale.

Thomas was hired by IEAM’s new management about six weeks ago, he said, when the CEO, Robert Renck, concluded that verbal negotiations with Yale had stalled.

“We’ve reached the point where we’re going to start taking action,” Thomas said Tuesday. “And every day that Yale doesn’t do the right thing, it becomes more expensive for them.”

Still, Thomas said Yale administrators probably were not aware of the allegations against Mazzuto when they accepted his gift.

In December, University President Richard Levin said Yale would try to “do the right thing,” though he and Vice President for Development Inge Reichenbach declined to comment on IEAM’s impending lawsuit. But the University is continuing to cooperate with the investigations of Mazzuto by the Securities and Exchange Commission and the Manhattan District Attorney’s office, General Counsel Dorothy Robinson said.

SEC investigations can lead to civil lawsuits, while the district attorney’s office is responsible for looking into criminal activity. Both have a policy against commenting on active investigations.

Reached by phone Tuesday night at his home in Florida, Mazzuto declined to comment.

With IEAM in bankruptcy court, more details about the antifreeze, lighter fluids and motor oil manufacturing company’s troubled finances under Mazzuto’s leadership recently emerged in a debtor’s disclosure statement IEAM filed on Feb. 19. In the years leading up to its bankruptcy, the company had $91 million in net losses and generated no revenue between October 2004 and June 2007, according to the document.

The document also says that Renck discovered a hidden Wachovia bank account in which IEAM deposited money that Mazzuto later withdrew. In a single month between December 2006 and December 2007, the statement said, $5 million was transferred in and out of this account.

According to the disclosure statement, Mazzuto wrote $83.7 million in checks from company holdings. Renck said he has tracked down the recipients of about half that, including a $13 million chunk Mazzuto wrote to himself.

Mazzuto and his associate Jim Margulies also improperly issued a total of 16.1 million shares to different recipients — including Yale and Mazzuto’s prep school, Tabor Academy in Massachusetts — amounting to $87 million between 2005 and 2008, the statement says.

Though the statement says Yale received at least $1.7 million in stock, Renck said he thinks Mazzuto may have given the University much more than that, and that the remainder of the gift might account for some of the missing $43 million.

Levin and Reichenbach declined to say how much exactly Mazzuto gave to Yale.

Despite the company’s financial struggles, Mazzuto continued to portray IEAM as healthy and profitable to potential employees, investors and even banks, according to the document. He and his associates announced a joint venture with a Chinese company in 2006, but according to the statement, an e-mail between two of his associates confirmed that there was never such a deal. And IEAM secured a $5 million line of credit with Sovereign Bank, but the documents submitted to Sovereign for approval were outdated or false.

Renck and Thomas are not the only ones asking Yale to re-evaluate Mazzuto’s gift: At least two Yale alumni have written to Levin expressing displeasure with Yale’s handling of the situation.

In one letter, Hugh MacMillan ’58 told Levin that he and his family have “suffered considerable harm from Mr. Mazzuto’s actions, in financial losses sufficient to build the practice diamond or, at least, its infield.”

MacMillan added that he was offended that the University has so far kept Mazzuto’s name on the baseball practice facility.

“If you cannot find a way to undo Mazzuto’s gifts, perhaps you can consider renaming those assets in honor of Mazzuto’s victims, who indirectly paid for those gifts,” MacMillan wrote in his letter. “May I suggest ‘Suckers Diamond’ and ‘Fleeced Families Head Baseball Coach.’ ”

Levin said he received several communications from another alumnus earlier in the year. Although he has yet to respond to MacMillan’s letter, Levin said he takes note of all such opinions from alumni.

Mazzuto first donated to Yale in 2007, endowing the head coaching position of the baseball program, now held by Coach John Stuper.

Comments

  • ’98

    Does it really make sense, in the long run, for Yale to try and hold onto this tainted money, or the to try and hold onto Peru’s historic treasures acquired under questionable circumstances?

    I wouldn’t think so, but apparently President Levin does.

    I hope he knows what he’s doing, because it strikes me that these matters have reflected very badly on the Alma Mater.

  • What if?

    While some believe that Yale shouldn’t be getting its hands dirty in court by fighting over what is a relatively paltry sum (compared to the larger, big ticket donations), I still believe that it is important for the university to assert its rights as a designated recipient of this money. As far as we know, Yale did not know about Mazzuto’s wrongdoings at the time the money was accepted (and I sincerely doubt that Yale would have accepted the money if it did). Furthermore, let’s assume that someone were to donate a much larger sum of money to Yale in the future (say $200 million) for a new building or a major project. If it later emerged that the money was ill-gotten, would it be reasonable to expect Yale (or a smaller university that values the $200 million much more) to return the money? How would Yale “undo” the investments and resources that may have already been invested in such a project? This is clearly a slippery slope and I believe that Levin is justified in putting his foot down.

    As for investors who have been fleeced by Mazzuto and his company, I sympathize with you and your plight. However, I still don’t think you can hold the University responsible and expect Yale to pay up to compensate for your sour investments. We all invest money, and sometimes our choices blow up in our face. That’s a reality we have to accept, no matter how difficult it may seem.

  • Ross Cathie

    The points above are valid to a point. But lets say someone robbed a bank and donated that money, or robbed your house and donated that money. Does that make it okay? Yale is still receiving stolen money, which is illegal. It is their duty to determine the source of the donation if for no other reason than what is happening here. Otherwise why not just take money from any fraudsters or unscrupulous characters? Which in essence is what they did.

    I don’t think the investors are holding Yale responsible. they are merely saying that money that was not Mazzuto’s to give, should be returned. I don’t see anything wrong with that.