Law School Deans, Law Schools, Money, Politics, Real Estate

NYU Law’s Secret Slush Funds

This site has a reputation for suggesting that law schools run students into debt and pocket the cash while providing less and less to their students. (I don’t have the time to find one story, but here’s every story Elie has ever written.) We have articles on increasing debt. We have features on the salaries of law school professors.

Some call the business model of law schools a scandal.

But you can’t really have a scandal without Senate investigations uncovering secret slush funds, right?

It looks like NYU Law School may have hit the Nixonian big time!

Here’s a report from Wall Street on Parade:

According to documents unearthed in a month-long search of public records, NYU Law School has created an array of nonprofits to funnel money into lavish perks for its professors. The money has been used by professors to buy multi-million dollar brownstones and condos in Manhattan and Brooklyn with portions of some loans forgiven over time. In some cases, even the interest charged on the loans has been reimbursed.

These accusations actually grow out of the purely partisan bomb-throwing of Senator Chuck “Twitter God” Grassley. Grassley wanted to throw stones at Secretary of the Treasury Jack Lew during Lew’s confirmation process. Senator Grassley wrote NYU President John Sexton demanding answers about home loans provided to Lew while he worked as NYU’s Executive Vice President of Operations.

The decision to use nonprofit funds to enhance the lifestyles of a select handful of professors and administrators rather than assisting students is under investigation by Senator Chuck Grassley at the Senate’s Judiciary Committee. A referral has also been made by the NYU chapter of the American Association of University Professors to the New York State Attorney General’s Charities Bureau which oversees nonprofit organizations.

The entire NYU operation under the leadership of President — and former Dean of the School of Law — John Sexton is under scrutiny. Unconfirmed reports place him at a New York animal shelter the other day shopping for a black and white dog. But the unique issue facing NYU Law School involves potentially abusive non-profits:

In 2004, the NYU School of Law Foundation informed the IRS on its annual tax filing that its primary purpose which garnered it tax exempt status was to foster legal education and research “by awarding scholarships, making grants for educational purposes related to law, and supporting programs of the School of Law.”

Seems fair. And no one would possibly lie to the IRS just to get non-profit status, right? The self-interested disclosures of entities seeking non-profit tax benefits are above reproach. At least that’s what Fox News keeps telling me.

But on December 9, 2004, the NYU School of Law Foundation made a $2,850,000 mortgage loan to one of its law professors, Richard (Rick) Pildes to purchase a 6 room, 3 ½ bath, luxury condo with views of the Hudson River.

That deal followed an earlier one with Pildes in 2001. On January 30, 2001, the NYU School of Law Recruitment Assistance Corporation gave a $200,000 mortgage loan to Pildes and magically made him a tenant in common with the nonprofit in a brownstone on West 10th Street. On October 29, 2004, the same nonprofit bought back Pildes’ 49 percent interest in the West 10th Street brownstone for $3,000,000, according to the public record it filed with New York City, even paying $42,000 in transfer taxes.

I guess setting up professors with comfortable NYC living might constitute “making grants for educational purposes related to law, and supporting programs of the School of Law.” Kinda?

Pam Martens reached out to Pildes regarding this deal:

In response to an emailed request for clarification, Pildes says “I never received a penny from NYU (or anyone else) for the sale of my interest in the house. When the house was sold in 2004/03, all of the money from the sale went to NYU.” Just a little over a month after the $3 million faux sale of the West 10th Street brownstone, Pildes got his $2,850,000 mortgage loan for the new condo with river views.

I asked Pildes to explain the rationale for the deals, how it was possible for an NYU professor to carry that level of debt, and inquired if the debt was being forgiven over a number of years. Pildes said he was out of the country and couldn’t access the records to provide greater detail. I sent him the link to his specific transactions which were recorded at the Office of the City Register, available to the public at no charge with the click of a button. I received no further information from him.

Pildes is not the only professor receiving loans from non-profit entities related to NYU Law. The NYU School of Law Foundation is not even the only non-profit in the real estate game. The school “had four separate nonprofits involved in the deals: the NYU School of Law Foundation, NYU School of Law Retention Assistance Corp., NYU School of Law Housing Assistance Corp., and the NYU School of Law Recruitment Assistance Corp.” With all these separate entities to keep straight, this is starting to sound like Enron:

On February 2, 1999, law professor Noel Cunningham and his partner, adjunct professor Laura Cunningham, received a $1.4 million mortgage for a brownstone in the Park Slope section of Brooklyn. The loan went to $1.5 million 11 months later. The nonprofit that arranged the deal was the NYU School of Law Faculty Retention Assistance Corporation. Noel Cunningham had already been a law professor at the school for 24 years, suggesting retention was not an issue.

Now we know a little bit more about the financing behind all of the amazing Lawyerly Lairs connected to NYU Law and its faculty that we have covered over the years.

Finally, the recently retired Dean Ricky Revesz and Vicki Bean found themselves in the documents:

Revesz’ mortgage deals with NYU date all the way back to June 24, 1998 when the NYU School of Law Foundation bestowed on he and his partner, Vicki Been (also a law professor at NYU), a 46.5465 percent interest in a brownstone on West 11th Street in the West Village. The home had been purchased by the Foundation on October 16, 1995 at a cost of $1,450,000. With considerable improvements made by the Foundation, the fair value was placed at $2,664,000 on the date Revesz and Been acquired their interests. The Foundation sold the 46.5465 percent interest to the law professors for $1,240,000 and provided their full purchase price in two mortgage notes. On December 19, 2002, a little over six months after Revesz became Dean of the Law School, the Foundation transferred its 53.45 percent interest in the property to Revesz and Been.

According to documents on file with New York City, large amounts of the interest on the Revesz mortgage loans were not being paid but were, instead, allowed to accrue and be added to principal. On March 30, 2012, Revesz and Been entered a mortgage modification directly with NYU, not the Foundation. The document notes that as of March 30, 2012 there was a combined outstanding principal balance in the amount of $2,180,597 (including capitalized interest) and a second outstanding principal balance of $1,197,661. The deal was renegotiated to reduce the amount of interest and extend the maturity date on the larger balance.

In defense of the school, the odds of quality professors signing on to teach in the heart of Greenwich Village without a domicile nearby are close to nil. Why teach at NYU while living in a 500-square-foot studio when you can have a nice, multi-bedroom home in Ann Arbor or Charlottesville?

As an NYU grad, I’m conflicted. I’m troubled about the idea of using funds to buy luxurious homes rather than providing students a tuition break. On the other hand, my NYU learning experience was based on the school generally (and John Sexton specifically) luring elite professors to Greenwich Village at the height of the housing bubble, and that requires either massive salaries or some form of school-provided housing. NYU probably wouldn’t be NYU if it weren’t for programs like this.

But the question is whether or not non-profit, supposedly “charitable” funds should be used to put up professors. Even if the school demonstrates that no student money funded these entities, money is fungible and the contributions given to these “charities” could have gone directly to the school.

As a final tidbit from the article, Revesz owed the school $5,683,652 as of NYU’s 2010 tax filing. Pro tip: if you owe someone over $5 million, you might not want to take that public interest gig. Unless the Marron Institute is going to operate like these NYU non-profits. In that case, Revesz is going to have to build a Scrooge McDuck-level Money Bin.

NYU Channels Wall Street: New Documents Show Lavish Pay, Perks and Secret Deals [Wall Street on Parade]

Earlier: How Much Does Your Law Professor Make? UCLA Law Edition

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