Creditors of the College of New Rochelle have sued the defunct school”™s officers and trustees for mismanaging the institution.
Former college President Judith Huntington, financial executives Keith Borge and Betty Roberts, and 32 members of the board of trustees are named in a lawsuit filed Jan. 14 in U.S. Bankruptcy Court, White Plains.
From 2013 to 2017, the complaint states, the officers “systematically mismanaged CNR”™s finances and the trustee defendants failed to supervise and acquit their own duties.
“CNR routinely failed to pay federal and state payroll taxes, flouted and ignored rules regarding use of federal grant money, overdrew its bank accounts, and depleted the majority of CNR”™s endowment fund.”
The College of New Rochelle was the first Catholic college for women in New York, when it was founded in 1904. It closed in 2019, three years after financial irregularities were formally revealed.
Borge had failed to pay $20.4 million in payroll taxes from 2014 to 2016, drained $10.1 million from the $14.2 million endowment fund to cover operating expenses, used about $5 million from federal grants to pay unauthorized expenses, routinely bounced checks, failed to remit employee retirement plan contributions and filed false financial statements that inflated the college”™s net assets by $33.8 million.
Borge was convicted in 2019 of securities fraud and failure to pay payroll taxes. He was sentenced to three years in federal prison, and now, at 64, is in custody at a halfway house in Brooklyn.
The complaint focuses mostly on Borge and alleged failures by Huntington and Roberts to rein him in. But it describes the trustees as asleep at the wheel, delegating nearly complete control over key financial decisions to the officers and allowing Borge to have unfettered control over the endowment funds.
The trustees had no corporate governance committee, according to the complaint, a nonexistent cash management system, no legal compliance regime and for several years no system for administering federal grants.
Had the trustees implemented reasonable governance, the complaint states, the abuses could have been checked or mitigated sooner “and CNR”™s disastrous end potentially averted.”
The complaint describes numerous “red flags” during Borge”™s tenure as vice president of finance and, after he was demoted, to controller. But it wasn”™t until six months after he retired in 2016, that an outside counsel formally reported the scope of financial misconduct.
Huntington had failed to adequately supervise Borge, according to the report. Borge had engaged in extensive unlawful misconduct. Roberts had failed to tell the trustees about Borge”™s conduct, even as “she continued to give him responsibility over CNR”™s key financial matters, notwithstanding her belief that he was incompetent.”
Huntington and Roberts knew that Borge had failed to pay federal payroll taxes numerous times from 2013 to 2016, according to the lawsuit, but “allowed the situation to fester for years.”
Even after Huntington hired two high-priced consultants to deal with the finances and after Borge was demoted, trustees made no “genuine inquiry or investigation.”
There were other red flags. The college”™s payroll processor, ADP, refused to handle the payroll taxes. Sovereign Bank cut off the college”™s line of credit and Santander Bank reduced the line of credit.
One employee complained directly to Huntington, according to the complaint. She allegedly shut down the inquiry, advising the employee that Borge had assured her that the taxes were paid.
The creditors committee accuses the former officers and trustees of breach of fiduciary duty and violations of the state not-for-profit corporation law.
The complaint demands damages but does not specify how much is sought. The claims register in CNR”™s Chapter 11 bankruptcy case lists nearly $2.5 million in claims from 22 creditors, mostly former employees.
The creditors committee is represented by Manhattan attorneys David B. Newman and Matthew Canini.
