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BY TOM HESTER SR.

NEWJERSEYNEWSROOM.COM

UPDATED

Harold J. Raveche will step down as president of Stevens Institute of Technology on June 30, and action that helped bring about a settlement Friday of two lawsuits brought against the Hoboken-based school by the state Attorney General's office.

The lawsuits were filed Sept. 17 against Raveche and the university administration and contained a 16-count civil complaint of financial mismanagement, excessive spending of endowment investment gains, improper handling of specific endowments and investments, failure to properly maintain records and accounts, and excessive compensation of the school president.

The legal action sought reform of the university's administrative and accounting practices, reform of internal controls, and Raveche's removal.

Amid concerns about the handling of the school's finances, Raveche‘s salary and bonuses went from $362,458 in 1999 to $1,089,780 in 2008. In addition, Raveche, who has been the school's president since 1988, received approximately $1.8 million in loans at below market rates. Approximately half of the loans – $928,319 – were agreed to be forgiven in a 2007 employment agreement. The loans and the loan forgiveness were outside the scope of the authority of Stevens under the state's Nonprofit Act, the suit charged.

In 2007, Raveche's salary and bonus was $770,645. In comparison, the salary and bonus of the president of the Massachusetts Institute of Technology was $635,294,000. MIT's operating expenses in 2007 were approximately $2.3 billion, while Stevens' was approximately $158 million.

"I have made this decision in the best interest of Stevens because I had become the focus of a legal dispute that has now been successfully concluded,'' Raveche said in a statement. "Remaining in office would have unnecessarily prolonged that dispute to the detriment of Stevens.''

Lawrence Babbio, chairman of the Stevens Board of Trustees, said Raveche, who has been with the university for 22 years, would remain connected to the school as a consultant.

Under the agreement, Raveche will receive a salary until July 1, 2011 and compensation as a consultant until July 1, 2014.

Babbio said Raveche's resignation recognizes "that organizations with considerable momentum need time and freedom for succession planning.

"On behalf of the board and the entire Stevens family, we would like to thank Dr. Raveche for his 22 years of tireless efforts as president,'' Babbio said. "Under his leadership all enrollments and sponsored research have reached record levels, transformational improvements to campus life and facilities have been achieved, international programs of impact are in place, and Technogenesis has attracted national and global recognition. We look forward to working with Dr. Raveche as he completes his outstanding service, and then serves as a consultant, to prepare the institute for the transition."

Babbio said Stevens has begun a search for a new president, with the board vice chairman Steven Shulman appointed to lead the effort. "The Board and Dr. Raveche both have as their highest priority a smooth transition of leadership to ensure the continued enhancement of the Institute as one of the nation's preeminent technological research universities," Babbio said.

Babbio said the board has also asked retired state Supreme Court Chief Justice James R. Zazzali to continue overseeing the school's efforts at improving its operation.

Attorney General Anne Milgram brought the lawsuits under the authority of the New Jersey Nonprofit Corporation Act and the Uniform Management of Institutional Funds Act.

A three-year investigation into the university's financial practices found that beginning in 1999 annual financial reports to the public and the trustees misstated the university's assets during certain years. Outside auditors regularly warned school officials of deficiencies in management and financial policies. PricewaterhouseCoopers, which served as Steven's independent accountant from 2000 to 2005, "fired" the university as a client due to the high risk the school posed to the accounting company.

Grant Thornton, the school's auditor from 2005 to the present has also repeatedly found internal control deficiencies and other material weaknesses and has issued multiple internal control letters with instructions and criticisms related to Stevens' financial management practices. In 2008, Stevens paid the IRS $750,000 in penalties and unpaid taxes of subsidiaries.

Former trustees told investigators that the board was kept in the dark about key financial information, including reports on endowments and reports from Steven's auditors, and about information related to annual hikes in salary and bonuses earned by Raveche.

The lawsuits charged that Stevens' administration and board breached their fiduciary responsibility through negligent internal control and accounting practices and policies and failed to remedy the practices despite "multiple instructions" from its independent auditors.

The complaint also charged that Raveche and the administration spent more than trustee-approved spending rates, used gifts and bequests to pay operating expenses, invaded restricted assets, collateralized the endowment, and excessively borrowed through lines of credit. Some spending and borrowing were beyond the scope of powers delegated to Raveche and the administration by the school's by-laws or trustee board resolution, including violations of donor-imposed restrictions on certain endowment assets.

Under state law, Stevens, through its trustees, must ensure that spending and investment of its endowment's assets do not violate donors' restrictions and ensure "prudent" spending that preserves the endowment's value for future beneficiaries.

"The corporate governance structure agreed to by Stevens' Board of trustees will significantly reform past management practices and procedures and serve as an example to other not-for-profit organizations," Acting Attorney General Ricardo Solano Jr. said.

"These changes are 'best-in-class' in our judgment. Our goal has been to put the school on a path to sound financial management to ensure that Stevens Institute of Technology provides a top-notch education to its students well into the future."

Babbio said the Board of Trustees has made significant progress in the past on improving the governance structure. He said the changes agreed to Friday are designed to improve the school's internal controls.

In the settlement, school administrators and the state agreed to a number of changes to Stevens' administrative procedures, including:

• Bylaws amendments to document the specific duties of the Board of Trustees;
• A general requirement that the entire board approves important compensation and investment decisions and review important financial information;
• Rotational appointments for committee members and chairs;
• Reorganization of the executive committee to function as an advisory group to the board;
• Improvements to the operations of board committees in general, and specific improvements to the operations of the Audit, Human Resources and Compensation, Nomination and Governance, and Investment committees;
• Appointment of a non-trustee financial expert to the Audit Committee.

"We will also seek increased faculty representations on board committees," Babbio said.

The agreement also provides that each board committee shall include at least two faculty members, and the board has already established a joint Trustee-Faculty Council Committee to work together on leadership and governance issues.

"We want to work collaboratively with our faculty, our alumni and our students,'' Babbio said. "Working together, we see a very bright future for the Institute."