The attorney appointed as financial receiver for the Dickinson State University Foundation says the foundation’s money issues are so bad, it will have to be dissolved.
Court-appointed receiver Sean Smith, in his latest report filed Aug. 31 in Southwest District Court, stated “the continued operation of DSUF is not a viable option” based on its inability to negotiate a financial settlement with developer Granville Brinkman, overall donor reluctance, and because receiver-retained accounting firm Brady, Martz & Associates was unable to determine the foundation’s net assets.
The DSU Foundation was forced into financial receivership by North Dakota Attorney General Wayne Stenehjem last November. During a meeting on Nov. 12, Stenehjem used the word “chaos” to describe the foundation’s financial records. In December, Smith — a partner at Tschider & Smith law firm in Bismarck and a certified public accountant — was appointed as receiver.
Over the past nine months, Smith has released seven reports detailing his work in trying to determine the cause behind the DSU Foundation’s financial issues, which the attorney general alleged stemmed from numerous financial and ethical issues, including that the university used scholarship funds to cover its operating costs.
He said in a phone interview that he planned to file a motion Tuesday in Southwest District Court to have the receiver’s report approved by Judge William Herauf.
“Once the attorney general has a chance to assess it, they will likely adopt my recommendations and then pursue an action that would start the dissolution,” he said.
In the latest report, Smith wrote that he has not discovered “any malfeasance, wrong-doing, or fraudulent activity on behalf of the current or past management, staff, or directors of DSUF,” and that he has not been able to determine if the DSU Foundation used restricted assets — money donated to the foundation to be used for specific purposes — in improper ways. However, Smith added that neither he nor Brady Martz have been able to obtain adequate information regarding the actual amount of the foundation’s total restricted funds in order to make that determination.
The largest remaining issue, Smith wrote in the latest report, is the DSU Foundation’s inability to come to a financial settlement with Brinkman — the developer of the Hawks Point assisted living facility on DSU’s campus — after he was awarded $1.56 million in an arbitration decision against the foundation and Dickinson Investments, LLC, earlier this year. That amount is likely up to about $1.75 million with interest, Smith said Tuesday.
“The business relations of DSUF cannot continue as a viable support organization for Dickinson State University facing the continuous threat of execution on its real and personal property assets by Granville Brinkman and the Brinkman related entities as judgment creditors,” the report states. “In order for DSUF to continue as a viable organization, it would be necessary to resolve the monetary judgment.”
The DSU Foundation’s decision to invest in businesses operated by Dickinson Investments, LLC — including the Blue Hawk Square student housing complex on Villard Street — “did not generate the positive financial results anticipated by DSUF,” Smith wrote. The DSU Foundation also suffered stock market losses during the recession of 2008 and 2009, he stated.
The arbitration settlement and the DSU Foundation’s financial unrest has also “effectively eliminated the willingness” of donors to contribute to the foundation, Smith stated in his report.
“People are asking, “If I give you a dollar, is it safe?’” he said in an interview. “I don’t know that yet.”
Defaulting on BAC loan
On top of this, the report also details how the DSU Foundation owes more than $3.8 million on the Henry Biesiot Activities Center, and defaulted on its latest loan payment in July.
The DSU Foundation paid less than half of a semi-annual loan obligation of $264,677.49 to Wells Fargo Securities on July 15. It paid $99,750.71, which represented donor pledges paid to the foundation specifically for the BAC. The DSU Foundation had made all of its all semi-annual payments prior to its default, Smith wrote.
The report states that the university, which receives all revenue generated by the BAC, had also not paid the foundation any of the approximately $90,000 it generates from corporate suite rental used to pay off the stadium’s debt. Though the university is expected to give the foundation those funds, when the money is received, it’ll be paid directly to Wells Fargo Securities to cover a portion of remaining loan costs.
“That is one of the issues that’ll be solved in this litigation,” Smith said in an interview, adding there’s no telling who would pay the remaining bill on the BAC if the DSU Foundation dissolves. “That’s a very serious question. It’s not chump change.”
Financially ‘under water’
In Smith’s previous report, released in early July, he stated that the DSU Foundation and Brady Martz have been unable to agree on the amount of the foundation’s permanently and temporarily restricted assets.
Brady Martz was unable to classify the amount of the DSU Foundation’s permanently restricted and temporarily restricted net assets, Smith wrote in the report. Brady Martz indicates more than $12.2 million, while the foundation’s numbers show more than $4.7 million.
“I can’t tell the court how much money the foundation should have, and that’s part of the process we’re going to have to go through in this dissolution process — is to decide, or have the court determine, what is restricted and what is not restricted,” Smith said in an interview.
Smith wrote in the report, “If the amount of restricted net assets of DSUF exceeds the amount of total net assets of DSUF as of calendar year end,” it would be “under water” in terms of honoring the restrictions placed on its assets by donors. That would lead to all of the foundation’s available assets being restricted and unavailable for use.
Smith wrote that if the DSU Foundation and Brinkman agree to a settlement at “less than the face amount of the judgment,” and the foundation determines a way to pay off its other outstanding debts, its dissolution may be avoided.
However, if the foundation dissolves, Smith recommends that it honor the wishes of donors, and all claims by creditors, employees or other interested parties.
The DSU Foundation’s incorporation documents state that in the case of dissolution, its remaining assets be distributed to the “State Board of Higher Education for the exclusive use and benefit of Dickinson State University or its direct successors …” Yet, Smith recommended in the report that if the DSU Foundation is completely dissolved and liquidated under the court’s supervision, its remaining assets should be turned over to a new foundation that qualifies as a tax-exempt organization.
“We need answers,” he said in an interview. “The creditors need an answer. The donors need an answer. The university needs an answer. The foundation needs an answer. And quite honestly, your community does. Both of those institutions mean a lot to Dickinson in terms of employment and prestige. Just to have a college in your town is huge. I understand how important that is, so we are trying to get that done as quickly as possible.”