June 3, 1995 in City
Whitworth In Red From Bankruptcy
The bankruptcy of a East Coast fund-raising organization leaves Whitworth College in a dilemma, and $3.5 million in the red.
Whitworth is short of the cash it was going to use for projects on campus.
Meanwhile, the bankruptcy trustee is asking institutions like Whitworth to return profits taken from the fund-raising group so other colleges and charities can recover some of the millions they lost.
Whitworth officials Friday said they have no plans to return any money the college received over the past two years.
Too many legal questions surround the financial failure of the Foundation for New Era Philanthropy to justify the return of any money at this point, said Tom Johnson, vice president for business affairs at Whitworth.
The Presbyterian school in North Spokane has been involved with New Era for more than two years, and over that time, received slightly more money than it currently has tied up in the bankruptcy, college officials said.
Whitworth is among 300 unsecured creditors - mostly colleges and nonprofits - that are owed between $175 million and $225 million. Many have Christian ties.
Regulators are investigating New Era and some observers say the organization ran a pyramid scam.
The bankruptcy trustee last month asked charities and colleges like Whitworth to return proceeds they received from New Era to help out charities suffering from the bankruptcy.
For example, the Esperanza Health Center serving Hispanic poor in Philadelphia lost $100,000. The Lancaster, Pa., Bible College is owed $16.9 million, money it was planning to use for a new chapel.
Some philanthropy experts said the case poses an ethical question for institutions like Whitworth that benefited from New Era, based in Philadelphia.
Whitworth officials said the legal problems surrounding the case are so complex that it is too early to even consider refunding any money.
“We are in a wait-and-see mode,” Johnson said.
In fact, Whitworth is considering the possibility of joining a lawsuit to recover some of the $3.5 million it had on deposit with New Era.
Whitworth’s money originally came from its own donors, who contributed to the college to take advantage of New Era’s dollar-for-dollar matching program.
New Era had promised to find additional donors to match the $3.5 million after six months. During the six-month waiting period, New Era held the money and kept interest earnings for expenses.
College officials said they believed their money was safe because New Era had strong ties in the financial community and among large nonprofit organizations.
Johnson said he even made calls to New Era and to Prudential Securities, which held the Whitworth money for New Era, to check on the status of the deposits.
Prudential Securities allowed New Era to use the money from Whitworth and other organizations as collateral on about $45 million in loans. The bankruptcy was triggered when Prudential sued to collect.
Now, the federal Securities and Exchange Commission is suing New Era’s president, John G. Bennett Jr., for fraud on grounds he used $4.2 million of New Era money on himself.
Whitworth’s money was going to be spent on a new dining hall and renovation of the Cowles Memorial Auditorium. Renovations also are planned at Johnston Science Building and two dormitories.
At least one project is being postponed and three others are being scaled back.
The $1.2 million project at the auditorium will be scaled back by 40 percent, said Tim Wolf, college spokesman.
Whitworth is going ahead with new seating, new stage curtains, new restrooms and an expanded lobby. Electrical and mechanical renovations are being postponed, possibly until next year.
The second phase of a new campus center for student services is being postponed. That project was to add a larger dining hall to the campus.
College officials said they aren’t sure when they will have the money for the $4.5 dining hall and office building. Trustees have put a hold on renovations of the Johnston Science Building.
Johnson said the college hopes to raise more money in the next few weeks to complete the $200,000 project, which will include new seating, paint and wall coverings.
Improvements at two residence halls are also being scaled back.
Whitworth is offering to return money received from its donors for the New Era matching program, but so far, no donor has asked for a refund, said Wolf.