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Moritz family challenges Ohio State University for using percentage of endowments to woo more gifts

September 18, 2018

Moritz family challenges Ohio State University for using percentage of endowments to woo more gifts

CLEVELAND, Ohio -- Since 1994, Ohio State University has pulled millions of dollars out of endowments -- up to 1.3 percent of all gifts -- to woo more donors, for more money.

The 1.3-percent fee is now detailed on contracts donors sign before creating endowments, pools of invested money which generate more money for the university through interest. The university began putting language about the fee on contracts in 2008, more than 10 years after the fee began. 

The family of Michael Moritz, the namesake of Ohio State’s Moritz College of Law,  claims the school didn’t tell them about the fee.

And they say because they weren’t notified, most likely many other donors don’t know about the fee. 

Michael’s son, Jeffrey, found out about the fee in 2016, 15 years after Michael donated more than $30 million in stocks. The family learned the endowment had lost nearly 28 percent of its original value, according to court documents. Instead of funding 30 annual law scholarships, the university was giving out only 12 to 16.

The Moritzes want the money put back into the endowment, which was intended to fund faculty chairs and scholarships.

The university refused, and now Jeffrey Moritz, an OSU alumnus like his dad, is trying to reopen his father’s estate to get more bargaining power to get the money back.

“Our first thought is that (the fund) is going down to zero ... the legacy of my father and all his work would be gone,” Jeffrey Moritz said. 

Officials argue the development fee is lawful, as well as a common university practice. Gift contracts didn’t need to cite the fee, because the documents are designed to address the purpose of the money, OSU spokesman Chris Davey said in a written statement.

State law and university policy apply whether or not it’s detailed in the document, Davey said.

Laid out through court documents and Board of Trustees minutes, as well as interviews with the Moritz family, here’s what we know about the dispute.

1994 – Ohio State Board of Trustees approve pulling money from investors

In 1994, the Board of Trustees approved a measure to pull an “administrative charge” out of unrestricted and restricted endowments.

The measure reads:

“The University be permitted to charge restricted and unrestricted development accounts received after July 1, 1994, an administrative charge of up to one percent of the value of the gift for the duration of the campaign as described in the attached text, provided that such charge does not reduce the principle of the gift.”

The board authorized the charge as OSU was about to embark on a major development campaign; the general fund was limited, according to the resolution.

The money was needed to help pay for fundraising staff, travel and event costs.

July 1998 – The fundraising fee is increased

Trustees increased the annual development fee from 2000 to 2003 to up to 1.1 percent. They also authorized a “funding supplement” which takes the interest for the first 90 days of the endowment’s earnings.

2001 – Michael Moritz creates the Moritz endowment

Michael Moritz, a high-profile lawyer, multimillionaire and alumnus of Ohio State University, donated stock worth $30.3 million.

Michael was a two-time OSU alumnus. He was accepted into numerous law schools, his son said, but OSU came through with a scholarship and a stipend.

That’s what Michael wanted to do with this endowment, Jeffrey said. That way, students could go to law school with minimal or no debt, freeing up the opportunity to pursue nonprofit work or other paths instead of scrambling to pay off loans.

When a donor gives money to the university, they sign a gift agreement.

Michael Moritz’s gift contract states that:

$10 million will be used to create four endowed faculty chairs at the College of Law$9.88 million will be used for a Merit Scholars Program which will provide full tuition and a stipend for 30 students in the College of Law.$10 million will create a Dean’s Fund for Innovation and Excellence.$120,000 will be used to endow leadership awards for one student in each of the three classes.

There is no mention of any fees on the gift contract. This gift is known as a “restricted” endowment, in which the money’s uses are explicitly laid out.

In a later gift by Mary Lou Moritz Ransom to the university’s dental school in 2010, there was language that pointed out the development fee, though it’s much smaller than the rest of the text on the contract.

July 2002 – The fundraising fee is increased

The trustees approved raising the charge against endowments to 1.33 percent.

The reasoning was that “continued investment in fund raising is needed to protect and enhance the University’s ability to acquire private gift support.”

This measure does not include language about reducing the principal. 

2016 – Jeffrey Moritz finds out about the fee

In 2016, Moritz’s son Jeffrey found that the endowment had lost nearly 28 percent of its original value, according to court documents. He also found that instead of the 30 annual law scholarships that money was intended to fund, only 12 to 16 were given out per year.

He asked OSU where that money was going.

After many conversations with OSU, Jeffrey said he learned that:

The university puts all of its endowments into one big investment account, which had not performed well, Jeffrey said.The development fee existed. 

Because of the way endowments are managed, Davey said OSU cannot comment on the performance of the Moritz endowment separately from the pool.

The university also claims that since Michael Moritz sat on the board of the Ohio State University Foundation, he knew the development fee existed. 

“Michael Moritz was a member of the Foundation Board of Directors from 1990 until his untimely death in 2002, and as such, was fully aware of the University’s practices in managing and administering these types of endowed funds, including the development fee,” Davey wrote.

The family objects to this, claiming that anyone who knew Michael would know he was an experienced lawyer with an eye for detail. If he approved of the fee, he still would have made sure it was addressed in the gift contract.

Mary Lou said in her time on the foundation board following Michael’s death, they never talked about the development fees. 

2017 – Moritz family fights to reopen Moritz estate

Jeffrey is trying to reopen his father’s estate to establish himself as an authority to enforce his father’s gift. That would mean working with the Ohio attorney general’s office. If that doesn’t work, it means potentially suing OSU for breach of gift contract.

The battle is being waged in Delaware County probate court.

The initial request to reopen the estate was denied by a magistrate.

Representatives from both OSU and the attorney general’s office spoke at a hearing against the Moritz family, claiming even if the estate was reopened, Jeffrey would have no authority to enforce the gift contract. 

In the magistrate’s decision, R. Lamont Kaiser wrote that Jeffrey did not demonstrate that if the estate was reopened, he would have the “standing” to enforce the agreement or shown a basis where this efforts would return money to the estate.

The Moritz family is appealing.

“We want to see the university succeed,” Jeffrey said. “We want to see the law school succeed. ... We love Ohio State. But we can’t sit by and see a $30 million (fund) go to zero.” 

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