The University is among the institutions being sued by a Massachusetts real estate developer for usury — the plaintiff alleging that the University's endowment supported activities that violate loan sharking laws — Bloomberg News reported last week.
The University, as well as Harvard and Yale, three other colleges and two foundations face the suit filed by Fred Fahey, a developer who borrowed money to finance the construction of a golf course community and was charged an interest rate of 42 percent by Realty Financial Partners, a firm in which the defendants invested.
Fahey wants the loans declared illegal and is seeking $20 million in damages, citing a Massachusetts law forbidding loans that charge more than 20 percent annual interest unless a notice is filed every two years with the state attorney general. Fahey claims the notices were filed improperly.
Fahey said he accepted the terms of a $6.7 million loan despite the high interest rate because he thought he would quickly refinance with a bank. He was unsuccessful, however, in securing a bank loan and failed to meet his payments to the lender, which then foreclosed on his property and sold it at auction. Fahey had also taken out another $3.4 million loan from the lender.
The three Ivy League universities, along with the University of Notre Dame, Oberlin College, Spelman College, the Carnegie Corporation and the John D. and Catherine T. MacArthur Foundation all invested in Realty Financial Partners V, a firm that is a limited partner in LR5-A, which was the actual entity that issued the loan.
In a statement filed with the Massachusetts Superior Court, Princeton, Harvard and Yale said that they had no involvement in managing the loan and are also protected from the claims by Massachusetts law.
The usury law under which they are being charged, the statement added, is aimed at loan sharking and organized crime, not at limited partners in a lending corporation. A hearing to dismiss the complaint against the schools and foundations has been set for mid-December.
The lawsuit raises questions about university endowment investment practices, with some arguing that the desire for greater returns undermines the social responsibility of academic institutions. "You have to ask if there's an inconsistency between the public purpose [of universities] and this type of financial transaction," Peter Kinder, a nonprofit endowment and pension fund advisor, told Bloomberg News. "It's a hell of a burden to put on someone."
Lauren Robinson-Brown '85, the University's director of communications, declined to comment on behalf of the University.
Previous calls for a responsible investment policy at Princeton revolved around other universities' investments in companies doing business with the Sudan. The University agreed in 2006 to ensure that none of its secondary holdings or new investments are in companies with any stake in the Darfur conflict, which the U.S. government characterizes as a genocide.
The University's endowment, which now totals $15.8 billion, increased by 24.7 percent in the 2006-07 fiscal year and 19.5 percent the year before.
Read More
Reunions, Commencement see isolated demonstrations as U. tightens protest warnings
Calvin Kenjiro Grover and Luke GrippoAt this year’s Reunions and Commencement, the University sought to get ahead of any potential demonstrations by exhaustively emphasizing its policies around protests and interruptions, including that those who disrupted an event could face arrest. However, there were only a few Pro-Palestine protest actions, all of them sparsely attended.
At this year’s Reunions and Commencement, the University sought to get ahead of any potential demonstrations by exhaustively emphasizing its policies around protests and interruptions, including that those who disrupted an event could face arrest. However, there were only a few Pro-Palestine protest actions, all of them sparsely attended.
Princeton awards 1,293 degrees to the Class of 2025 as speakers reference political headwinds
Maya MukherjeeReunions and graduation speakers referenced the tense political climate around higher education, adding urgent undertones — and sometimes overtones — to otherwise standard ceremonial speech fare.
Reunions and graduation speakers referenced the tense political climate around higher education, adding urgent undertones — and sometimes overtones — to otherwise standard ceremonial speech fare.
Joseph ’25 next Young Alumni Trustee in 21 percent turnout election
Vitus LarrieuGil Joseph ’25 won the Young Alumni Trustee election, which saw 21 percent turnout. Joseph, Stephen Padlo ’25 and Ben Wachspress ’25 competed in the final round of elections after advancing from a notably large primary in April.
Gil Joseph ’25 won the Young Alumni Trustee election, which saw 21 percent turnout. Joseph, Stephen Padlo ’25 and Ben Wachspress ’25 competed in the final round of elections after advancing from a notably large primary in April.