Column: Can you trust investment executives who were snared in the college cheating scandal?
We’re often told that trust is a hard quality to develop, and the easiest of all to lose.
That notion is about to be put to the test by the college admission scandal, in which investment executives, doctors and at least one high-profile lawyer stand accused of having committed bribery and fraud to get their kids into college.
The question sure to be asked by their clients and patients is whether their alleged willingness to bend the rules in the admissions case says anything about their trustworthiness in general.
Is that kosher?
— Investment executive William McGlashan
That’s especially pertinent because, while many of the headlines have focused on two Hollywood actresses — who after all personify fabrications for a living — many of those arrested are professionals whose activities are ostensibly subject to strict scrutiny by government regulators, licensing boards and their own employers.
The charges place the effectiveness of the culture of compliance under which many have worked under the spotlight. That’s partially because of the lengths some are alleged to have gone to conceal their alleged cheating from their children and the outside world, according to the transcripts of recorded phone calls that federal prosecutors have placed in the public record.
We wouldn’t want to say that all the parents swept up in this scandal are necessarily crooked in all other aspects of their lives (assuming they’re guilty in the admissions scam) — it’s human nature to compartmentalize one’s behavior so that breaking rules in one context doesn’t prevent one from being a model of rectitude in another. The human capacity for rationalization and self-deception is unlimited.
Still, it’s proper to wonder how people whose professional activities are so constrained by rules and regulations could treat legal strictures against bribery and fraud so cavalierly? If their excuse is that they were desperate to help their sons and daughters gain admission to universities of their choice, what if they’re desperate to win a lawsuit or complete a financial deal?
In turn, that raises questions about the effectiveness of the compliance system itself. Given that so many accused parents appear to have acted as if they’re exempt from rules and regulations, did they learn this lesson by flouting regulations in their professional lives?
Not all the accused have yet been arraigned or entered pleas to felony charges, which include conspiracy and fraud. Some of the bribes they are accused of paying to university coaches and officials were funneled through a purported tax-exempt charity established by William “Rick” Singer, 58, the scam’s ringleader. The government says that several of the accused filed tax returns claiming tax deductions for their payments, and wiretap transcripts entered in court show some asking Singer for receipts to support the deductions.
Already, some of their employers have moved to distance themselves from the accused. Some of those charged have stepped down from their official posts.
The latter include Douglas Hodge, 61, and Michelle Merage-Janavs, 48, who both resigned from the board of Sage Hill, a Newport Coast preparatory school where tuition runs $40,680 a year.
Hodge is the former CEO of Newport Beach-based Pimco, perhaps the leading investment firm in Southern California. Hodge stepped down as CEO in 2016 and retired from Pimco the following year. He’s accused of having paid $200,000, including $50,000 as a purported charitable donation, to get his daughter admitted to Georgetown University using fabricated credentials as a soccer player, and $250,000, including a supposed $125,000 charitable donation, to get his son admitted to USC with faked football credentials.
Hodge has been released on $500,000 bail but has not lodged a plea.
Merage-Janavs, a member of the family that invented Hot Pockets meals, is accused of arranging for a daughter to be admitted to USC as a purported beach volleyball player.
For some of the accused, disbarment and revocation of medical and securities licenses could be in the offing if they are convicted of felonies. Thus far, no regulatory agencies have weighed in about the consequences for the professionals they oversee, but the implications are self-evident.
Can there be much doubt of their intent to break the rules? They digitally altered photographs to give their children the image of athletes, had college admissions essays rewritten to incorporate fabricated athletic credentials, and concocted claims of learning or physical disabilities to facilitate cheating on college entrance exams.
The evidence produced by the government in court thus far indicates that the accused parents typically were fully aware of the legal risks and moral compromises presented by their efforts to corrupt the system and suborn coaches.
For example, here’s Gordon Caplan, 52, then the co-chair of the big law firm Willkie Farr & Gallagher and a prominent dealmaker, talking with Singer in July 2018:
“Is that kosher?” Caplan asked about Singer’s offer to have an employee take online college credit classes in the name of Caplan’s daughter. “If somebody catches this, what happens?”
“The only one who can catch it is if you guys tell somebody,” Singer replied.
“I am not going to tell anybody,” Caplan said, joining Singer in knowing laughter. Caplan added, “to be honest, I’m not worried about the moral issue here,” but only that his daughter not be caught.
A few months later, in another conversation about plans to have his daughter’s college entrance exam results fabricated for $75,000, Caplan told Singer: “Keep in mind I am a lawyer. So I’m sort of rules-oriented. … There’s no way … any trouble comes out of this, nothing like that? … Never been an issue?”
“Never been an issue,” Singer assured him.
In a statement Wednesday, Willkie Farr said that Caplan had been placed on leave and removed from the firm’s management, but said that the case is “a personal matter and does not involve Willkie or any of its clients.”
Another accused parent, investment executive William McGlashan, 55, sought assurances that his son would not know that he had been admitted to USC by fabricating his credentials as a football player — and that his own acquaintances on the USC board of trustees would also be kept in the dark, according to recorded transcripts. McGlashan has been released on $1 million bail and scheduled for arraignment on the charges later.
McGlashan’s investment ventures include the Rise Fund, a social investing fund he co-founded with musician and social activist Bono that describes itself as “committed to achieving social and environmental impact alongside competitive financial returns.”
McGlashan was fired Thursday from the Rise Fund and its parent, TPG Growth, a private equity firm he founded and ran as managing partner. “We believe the behavior described to be inexcusable and antithetical to the values of our entire organization,” the firm said.
In an earlier prepared statement in which McGlashan claimed to have resigned, he said he would be “focused on addressing the allegations that have been presented, and there are aspects of the story that have yet to emerge that I wish I could share.”
Government transcripts depict the Marin County resident hectoring Singer about how to conceal his machinations. “Half the board knows me,” McGlashan said of the USC trustees, “and I’m going to be sort of calling in and asking people to help.”
Singer was evidently unnerved by the notion of McGlashan asking friends to pull strings independently of his own scam, according to the transcript of a July 2018 phone call.
“Have you called them?” Singer asked McGlashan. “Any of them yet?”
“Good. Don’t. … The quieter this is, the better it is.”
Another parent, Manuel Henriquez, 55, stepped down Wednesday as chairman and CEO of Hercules Capital, a Silicon Valley venture investment firm. Henriquez and his wife allegedly arranged for their two daughters to cheat on their ACT and SAT college entrance exams, and to bribe the head tennis coach at Georgetown University to accept one daughter as a tennis recruit despite her lack of any competitive experience.
Two doctors are listed among the accused. One is radiation oncologist Gregory Colburn, 61, of Palo Alto, who is alleged to have transferred stock to Singer’s charity in 2017 and then agreed in a phone conversation with Singer to describe it to the Internal Revenue Service as a charitable donation if the IRS inquired.
The second doctor is Homayoun Zadeh, 57, a department chair at USC’s dental school who allegedly arranged with Singer to have his daughter admitted to USC as a recruit in lacrosse, a sport she did not play. USC has begun termination proceedings against Zadeh, my colleagues Matt Hamilton and Harriet Ryan report.
Altogether, the accused parents are a rogues’ gallery of heedless privilege who allegedly behaved as though they occupied a separate reality from the rest of us. The indictments unveiled Tuesday suggest that they can’t be trusted. But it’s enough to shatter one’s confidence, too, in the systems that were supposed to keep them honest.
Still, what may be the most striking aspect of the whole affair is the sheer guilelessness with which Singer’s marks connived with him to cheat and bribe.
Last November, Singer phoned Agustin Huneeus Jr., 53, the owner of a portfolio of Napa vineyards, to recapitulate the terms of their deal in which Huneeus allegedly paid $50,000 for his daughter’s score on a college entrance exam to be fabricated so she could get admitted to USC.
Singer by then was cooperating with prosecutors, who recorded the call. Singer walked Huneeus through their cover story if government investigators asked questions.
“So what I want to make sure is that you and I are both on the same page,” Singer said, “because what I’m going to tell them is that you made a 50k donation to my foundation for underserved kids,” not to cheat on the test.
“Dude, dude,” Huneeus snapped impatiently. “What do you think, I’m a moron?”
Huneeus appeared in federal court in San Francisco on Tuesday to face conspiracy and fraud charges, and was released on $1 million bail.