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Post date: September 2 2015

A.G. Schneiderman Announces Comprehensive Reform Package To Resolve Cooper Union Investigation And Lawsuit

Cooper Union Agrees to Board Restructuring, Financial Monitoring, and Transparency Measures; New Committee Will Develop Plan Aimed At Returning School To Its Traditional Free-Tuition Policy; Court Still Must Approve The Plan

Schneiderman: This Reform Package Will Help Preserve Cooper Union As A National Treasure

NEW YORK -- Attorney General Eric T. Schneiderman, the Committee to Save Cooper Union ("CSCU"), and The Cooper Union for the Advancement of Science and Art ("Cooper Union") today announced a settlement agreement that will resolve the Attorney General's investigation into Cooper Union's financial troubles and end the litigation filed by CSCU seeking to reinstate the school's historic free-tuition policy.

The agreement follows a year-long investigation by the Attorney General’s office and calls for reforms and monitoring of Cooper Union’s oversight and management, while also establishing a committee aimed at returning Cooper Union to its traditional free-tuition policy.  The Attorney General, joined by Cooper Union and CSCU, today filed a motion in New York State Supreme Court seeking approval of the plan from Justice Nancy Bannon, who is assigned to the CSCU lawsuit.

“Today we are uniting to preserve Cooper Union as a national treasure,” Attorney General Scheiderman said. “My office will ensure all sides work together to put Cooper Union back on a path to fiscal sustainability and, hopefully, to one day return the school to its tradition of free tuition. It is my responsibility to promote and protect New York’s nonprofit sector and to help cherished New York institutions like Cooper Union which encounter financial, governance, and operational issues to address them. The school and its dedicated community should be commended for taking these important steps forward.”

“Thanks to the tireless dedication of an extensive network of alumni, faculty, students and supporters, the Committee to Save Cooper Union was able to mount a highly effective legal battle to protect the mission of The Cooper Union,” said Adrian Jovanovic, President and Co-Founder of the Committee to Save Cooper Union (CSCU). “This settlement implements significant reforms and creates a path to restoring Peter Cooper’s vision of education ‘open and free to all.’ We would like to thank Attorney General Eric Schneiderman and his staff for their critical role in investigating the fiscal mismanagement of previous presidents and board members that the CSCU lawsuit illuminated, and for helping all parties reach this milestone. It’s a major step forward, but we will need the continued help of our supporters and others who believe in Peter Cooper’s vision to see this through.”

 “Peter Cooper built a completely free, merit-based learning institution that produced some of our nation’s greatest minds, but in recent years, those values were abandoned in favor of financial manipulation and debt.  Because of the litigation settled today, Peter Cooper’s spirit is back,” said Richard Emery, Founding Partner of Emery Celli Brinckerhoff and Abady and Attorney for the Committee to Save Cooper Union. “The changes dictated by the settlement explore every possible way to get the school back to free tuition; give students, faculty and alumni a powerful role in Cooper’s governance; and create a more fiscally conservative approach supported by a reshaped Board of Trustees.  The Attorney General heeded our call for oversight and intervention and was key to brokering a settlement that delivers immediate results and sets the stage for an ultimate return to free tuition.  Justice for Peter Cooper and all those who benefited from his great experiment is now a promise that must be kept.”

“We commend the Attorney General for the efforts of his office in helping to forge this agreement, which will enable us to turn our focus to the future of The Cooper Union in a manner that is inclusive of and transparent to our community,” said Richard S. Lincer, chairman of The Cooper Union Board of Trustees. “We hope that this framework will enable us to develop and build support to sustain the strengths of this great institution for future generations of students.”

“The Cooper Union Alumni Association is encouraged by the news of this settlement agreement. As alumni, we are direct beneficiaries of Peter Cooper's gift of free education, and understand -- on a deeply personal level -- the importance of the full tuition scholarship in making our alma mater a vibrant and unique environment for learning,” the Cooper Union Alumni Association said. “As elected representatives of a diverse constituency, the CUAA Council maintained a neutral stance throughout the course of this litigation. However, we have, by resolution, remained steadfastly committed to the preservation of Peter Cooper's mission and vision, and have welcomed the efforts of the Office of the Attorney General. We are profoundly grateful to the OAG, the Board of Trustees, and the Committee to Save Cooper Union for laying a groundwork in this settlement agreement that mandates the development of a strategic plan to return to the full scholarship model. Furthermore, we are humbled by and proud of the creative efforts, perseverance and personal sacrifices made by countless Cooper Union alumni, students, faculty, and staff in the last four years in their endeavor to defend the historic Mission of Cooper Union. We welcome the opportunity to provide additional alumni representation on the Board of Trustees, and stand with the entire community, willing and ready to commence work on the challenging task before us. Once again, we would like to thank the Office of the Attorney General for recognizing the Cooper Union and its full scholarship policy as a national treasure, and valuing the CUAA’s role in its stewardship.”

The Attorney General’s financial and operational investigation, which began in August 2014 and the results of which are being released today, revealed that Cooper Union’s current financial problems are rooted in the failure of a 2006 plan to finance the construction of a new academic building at 41 Cooper Square.  The plan involved the school taking out a $175 million mortgage loan on the land it owns beneath the Chrysler Building, while simultaneously committing to a long-term renegotiation of its lease with the tenant that owns and operates the building.  

The Board of Trustees’ projections showed that the plan would keep the school solvent for at least the 30-year term of the mortgage loan.  However, the Attorney General’s investigation showed that the plan relied on optimistic assumptions to achieve that long-term solvency projection, including an assumption that the school could safely invest $35 million in borrowed funds in the stock market and profit by making returns in excess of the loan’s interest rate.  The investigation determined that the Board’s review of the plan did not include risk assessment of, or contingency planning for the failure of any of these assumptions.

The investigation further showed that these key assumptions were already beginning to fail by 2007.  After the stock market crashed in 2008, the entire $35 million borrowed for investment purposes was lost, and the plan’s projections unraveled.   The school then became locked into a spiral of escalating debt service and deficit spending that threatened to consume its endowment.  

In 2009 and 2010, The Board and administration continued to provide financial information suggesting to the Cooper Union community and the public that the school’s finances were sound and that the loan plan was working. After the financial crisis and the depletion of Cooper Union’s endowment were revealed to the Cooper Union community by a new president in late 2011, tuition was proposed as a means to fill the budget gap. The imposition of tuition in a school with a tradition of free education divided the Cooper Union community.  To address these concerns, a working group process was created to examine alternatives to the imposition of tuition.

The Attorney General’s investigation showed that the working-group to explore alternatives to the tuition policy was not given adequate time and information to carry out its charge. The Board eventually voted to charge tuition for new students beginning in 2014, but the Attorney General’s investigation found that the budget planning that accompanied the tuition proposal suffered from financial planning and risk assessment weaknesses as well, relying heavily on assumptions of dramatic increases in contributions to the endowment and development of revenues from untested new programs.

In recent months, Cooper Union has taken important steps to address the issues raised by the Attorney General’s investigation.  In July 2015, the Board of Trustees named William Mea as Interim President, and approved President Mea’s new near-term budget plans that are focused on achieving financial stability based on prudent financial and operational assumptions. 

President Mea has also committed to a policy of inclusiveness and transparency in decision-making, which will be essential to the success of the reform package that the Attorney General, the school Board and Administration, and the Committee to Save Cooper Union have proposed to the Court.

The reform plan consists of the following main initiatives:

  • Board of Trustees Expansion:Increases number of alumni elected by the Cooper Union Alumni Association (CUAA) to the Board; adds two students as full voting trustees; and adds four full-time faculty members, one adjunct faculty member, and one staff employee as non-voting representatives.
  • Free-Education Committee:A new standing committee will be established, chaired by a CUAA-elected trustee, to spend the next three years developing a strategic plan aimed at returning Cooper Union to its traditional free-tuition policy, while maintaining the school’s academic reputation and historical enrollment levels.
  • Financial Monitoring:The Attorney General’s office will appoint an independent financial monitor to review and report on Cooper Union’s day-to-day fiscal operations and long-term strategic planning.
  • Governance Reform: The Board will have a committee tasked with revising the school’s governance policies to conform to current law and recognized best practices.
  • Transparency:The school agreed to publicly and promptly disclose board materials, financial monitor reports, budget documents, financial statements, and investment-return information.
  • Inclusive Presidential Search:A special search committee will be drawn from all constituencies to investigate potential hires for a new president to replace Interim President Mea.

If the settlement is approved by the Court, Cooper Union’s implementation of these reforms will be supervised under the terms of a consent decree.

The Attorney General is committed to safeguarding all of New York’s not-for-profit corporations, and believes that collaborative efforts that draw on the strengths of all the people affected by a charity’s work can provide effective and lasting solutions to even the most daunting institutional challenges.  This agreement demonstrates that Cooper Union’s trustees and administration, and its devoted community of alumni, students, faculty, staff, and supporters, are ready to meet the challenge of honoring Peter Cooper’s legacy in the 21st Century and preserving his irreplaceable gift for future generations.  

The Cooper Union investigation and agreements were led and brokered by John Oleske, special counsel assigned to the Attorney General’s Charities Bureau, which is led by James Sheehan. The Charities Bureau is part of the Division of Social Justice, which is led by Executive Deputy Attorney General Alvin Bragg. The First Deputy Attorney General of Affirmative Litigation is Janet Sabel.