Resignation sparks fracas

The Robertson case, involving a lawsuit filed by the Robertson family against the University over the Wilson School's $600-million-plus endowment, has grown tenser in recent days as the two sides to the suit blame each other for the recent resignation of the Robertson Foundation's auditor.

In the latest chapter of this expensive dispute between Princeton and the descendants of donors Charles '26 and Marie Robertson — who endowed the foundation in 1961 with its sole donation of $35 million — words and accusations are acerbic and the truth is far from clear.

The recent events nevertheless reflect what has become the hallmark of the three-year-old litigation: the bitter back-and-forth between two parties, each convinced it is being gravely wronged by the other.

The case began in July 2002, when the three family trustees on the foundation's board — led by Bill Robertson '72, the son of Charles and Marie — filed suit against Princeton, President Tilghman and the foundation's three University-designated trustees.

The Robertsons allege that the University has misused the foundation's funds, which they say are intended to support the Wilson School's graduate program and to place its graduates in federal government jobs, especially in foreign policy. The University denies any misuse and says it does a good job of placing graduates in the public sector.

The current dispute revolves around the Aug. 25 resignation of Grant Thornton LLP, a well-regarded international accounting firm hired to audit the foundation's financial records for the 2004 fiscal year.

The University and the Robertson family trustees agree that the family sought an independent audit of the foundation's records because of a perceived conflict of interest with Deloitte Touche Tohmatsu, the University's auditors for its own accounts. Both sides also say Grant Thornton accepted its task with the knowledge that the two parties are embroiled in a bitter lawsuit.

But that is largely where the agreement ends. The family argues that Princeton most likely withheld information from the auditors, thus leading to Grant Thornton's resignation. The University says it has provided the company with nothing but full cooperation and that the family's actions actually caused the resignation.

For its part, Grant Thornton is commenting neither on the nature of its involvement with the foundation nor on the reasons for its resignation. When called by a reporter from The Daily Princetonian, Frank Kurre, the New York-based managing partner in charge of the Robertson account, immediately declined to comment and ended the call.

However, Grant Thornton's letter of resignation, signed by Kurre, was released to the 'Prince' by family trustee Bill Robertson.

"We are aware of a sharp division of opinion among the parties relating to the Foundation's accounting for certain transactions, investment management, internal controls, and allegations of fraud," the key paragraph of the letter reads.

"Based on those matters and the substantial uncertainty surrounding their ultimate resolution," the paragraph continues, "we have made the professional judgment to resign as auditors of the Foundation for the year ended June 30, 2004."

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The letter also notes that, "Once the legal matters referred to above are satisfactorily resolved, [Grant Thornton] would be willing to discuss with you the possibility that we might be engaged as the Foundation's auditors."

Those words, which seem to offer the casual observer little in terms of evidence one way or the other, have nevertheless become a focal point of the current controversy. Each side points to them as evidence of wrongdoing by the other side.

"All by itself, the significance of an auditor resigning a commission like this — which is to monitor the books and records of a large corporation and advise that corporation as to reporting standards and management standards — for that auditor to resign suggests that the client was just not cooperating or was concealing considerable information from them," Robertson said in one of a series of interviews in recent days.

"In this day and age, when we have seen all the scandals taking place in the corporate world, this is just waving a great big red flag of serious potential problems within the organization," he added.

The response from the University has been categorical: "Mr. Robertson should know better than to suggest that we were not complying with the auditor," said Douglas Eakeley, Princeton's attorney and spokesman in the case. "There's no basis for that statement."

"At no point did Grant Thornton either suggest that it was being prevented from obtaining all relevant information or that somehow something was being concealed from it or that it found something that indicated some inappropriate behavior or expenditure," Eakeley added.

A former Grant Thornton employee said the lack of a detailed explanation from the firm as to why it resigned should be expected. Grant Thornton's reticence must be understood in the context of reluctance on the part of the company — and the accounting industry in general — to involve itself in any litigation, said the former employee, who spoke on the condition of anonymity because he does not have permission to discuss the case.

"The audit industry — there've been a lot of lawsuits," the former employee said. "Even if these guys wanted to talk to you, they wouldn't. They're not going to take any risks with this one."

Aiyesha Dey, an expert in financial accounting and corporate governance at the University of Chicago's Graduate School of Business, agreed.

"Especially in the post-Sarbanes-Oxley regime, the liability of auditors has gone up," she said, referring to a law passed by Congress in 2002 in the wake of corporate accounting scandals like those of Enron and Arthur Anderson, a now defunct accounting firm.

"In terms of lawsuits or more regulatory inspection into their work, they probably thought that whatever the [parties] wanted them to attest to was too costly for them," Dey added, noting that she was speculating. "Now, there's a lot of scrutiny in different quarters at this point, and they wouldn't want to take too much risk."

Indeed, the University argues that the Robertson family is at fault here precisely because they allegedly attempted to draw Grant Thornton into the litigation — a move, the University says, that led directly to the firm's resignation.

"It is the case and it is our view that the reason why Grant Thornton resigned was because they correctly perceived Mr. Robertson and Mr. [Bob] Halligan [another family trustee] were trying to involve them in the litigation," Eakeley said.

He points to a "litigious" letter sent by the family's lawyers to Grant Thornton in August, three months after the auditors met with the trustees at the foundation's annual meeting, where a draft report of the audit was presented.

"There was nothing said at that meeting or at any other time to suggest that information was being withheld or access was being obstructed," Eakeley said, noting that it was the very month when the letter was received that the firm resigned. Some two weeks after receiving the letter, Eakeley said, Grant Thornton submitted its resignation.

But Ron Malone, an attorney for the family, called the University's description of their letter false. "Grant Thornton requested comments on their draft financial report," he said. "It was not litigious in the least."

The University also accuses the family trustees of essentially setting up the auditing contract to fail from the very beginning by excluding analysis of the so-called "Bowen formula," a complex device used to calculate how funds from the foundation's endowment are allocated to various Wilson School programs.

"The main reason Grant Thornton indicated that it was only able to deliver a qualified rather than unqualified opinion was the limitations on the scope of the audit. Those limitations were imposed by Mr. Robertson," Eakeley said.

"It's very ironic for Mr. Robertson to be suggesting that something was being concealed when it was Mr. Robertson who insisted that the scope of the audit exclude the very spending issues of which he's complaining," he added. "That, I think, is the key signal."

But Bill Robertson argued that analysis of the Bowen formula — a tool he believes is inherently flawed — is irrelevant because it could be used by the University to justify otherwise unjustifiable expenditures.

"The Bowen formula was never accepted as the method," he said. "The issue of course is how the money was spent ... The Bowen formula does not refer to the foundation's mission. It doesn't describe the foundation's mission. It doesn't even say that the spending should adhere to the foundation's mission."

"They are trying to distract the public and the courts from the issues in this case," Robertson added. "Frankly, it's just incredibly sad that these people are resorting to such cheap tactics to fool the public and the alumni."

Robertson's turn of phrase was echoed by Eakeley — their shared expression of regret is, perhaps ironically, one of the few areas where the two parties can find common ground.

"This is a very frustrating and sad battle," Eakeley said. "When you consider the amount of resources that are needlessly being spent on this litigation, it's just sad."

The case, which is still in the expert discovery stage, is not expected to go to trial before spring 2006. It remains unclear how the parties will proceed with auditing the foundation's books.