Two top officials of AEPi, the nation’s largest Jewish fraternity, have resigned their leadership positions, citing the group’s refusal to give them its financial records — a possible violation of New York state law.
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Michael Fishel, the group’s No. 2 official, who was slated to become its next president, resigned July 18 after fellow board members passed a vote of no confidence in him. He says the vote came in response to his insistence on obtaining copies of the group’s financial statements so he could look into an employee’s claim that the fraternity was running short of cash.
The fraternity, which adamantly denies this claim, declined to comment on the board’s internal deliberations. But it acknowledged that while AEPi was willing to let Fishel review its records, it drew the line on allowing him to have copies of them, despite his status as an executive officer.
“That policy has been in place many years,” said AEPi’s spokesman, Jonathan Pierce. But Fishel said he could not accept this.
“Professionally, I’m a commercial insurance broker,” he said, explaining his resignation. “I know the red flags of crime and fraud. I can’t put myself in that position.”
In June, Barry Schwartz, treasurer of AEPi’s charitable foundation, also resigned. He, too, was unable to obtain records of the foundation’s expense accounts and other documents.
Schwartz, who is an AEPi past president — or “Supreme Master,” as the fraternity dubs its national board heads — wouldn’t specify the reason he resigned. But in an interview with the Forward, he said that in addition to foundation staff expense accounts, “I asked as treasurer for lots of different things. I didn’t get what I wanted.”
Schwartz is a wealth management director at UBS, the Swiss global financial services company, who serves on the boards of several not-for-profit groups. He took note of the increasing emphasis today on strong governance in not-for-profit enterprises. Given these standards, “I decided I was uncomfortable enough that I needed to resign,” he said, but emphasized, “I’m not aware of any financial issues, challenges or problems at AEPi or the foundation.”
Fishel got more of a push out the door. The no-confidence vote against him came after his involvement in the fraternity’s leadership for more than a decade and more than $100,000 in donations he gave the group during that time.
During an interview and several email exchanges with the Forward, Pierce denied “absolutely” the existence of any financial irregularities at the fraternity. He noted that Fishel had been offered “access” to financial documents under AEPi’s “long-standing policies” of allowing board members to inspect financial records “at our headquarters in Indianapolis or at any board meetings” — but not to take possession of copies of such documents.
Schwartz, he said, had also been offered a chance to see the records he wanted by Andrew Borans, AEPi’s powerful longtime executive director.
But legal experts consulted by the Forward say that this fails to satisfy the broad rights that board members have to a corporation’s records in New York state, where AEPi is incorporated.
“They have no right to withhold any information from a director,” said William Josephson, the former director of the New York State Charities Bureau, which regulates all tax-exempt organizations in the state.
Under New York law, Josephson stressed, the right of access for a board director extends to obtaining the records, not just being allowed to review them in a sequestered room.
“For example, if he wanted to consult with counsel about them, he has a perfect right to do so,” Josephson said. “And he’d need to have the records in order to do that. There’s no question about this issue.”
Marcus Owens, the former director of the IRS’s Exempt Organizations Division, termed AEPi’s policy “extraordinary.”
“To have him in a room without the ability to consult experts about the bona fides of the documents is plainly inadequate,” he said. “It’s awfully suspicious they’re treated so confidentially. It’s not like national security is at stake, or proprietary formulas.”
Nevertheless, Pierce said he had confirmed that his group’s practice was “acceptable and normal” among not-for-profit groups like AEPi.
The high-level departures at AEPi come following several other controversies. Last year, after two members of the fraternity’s College of Charleston chapter were charged with sexual abuse of a minor at a frat house party, the national office revoked the South Carolina chapter’s charter.
Also last year, a restricted listserve for University of Chicago chapter members revealed a toxic culture riddled with racist comments about blacks, Muslims and Arabs, and crude sexist remarks about overweight women, when its contents were disclosed by BuzzFeed. The national organization pledged to investigate “and, if necessary, work to educate the individual members about this issue.” Fraternity officials said the organization was “especially sensitive to hate speech and behavior towards any minorities.”
Indeed, AEPi has been on the receiving end of bigotry: In 2014 swastikas were spray painted on the AEPi house at Emory University.
Separately, AEPi has also faced allegations from members on some campuses that it pressures and punishes chapters admitting non-Jews into its ranks, even though its mission statement describes the fraternity as “non-discriminatory and open to all who are willing to espouse its purpose and values.” AEPi officials deny the allegations.
Founded in 1913 in Manhattan’s Washington Square Park by a New York University basketball star and several friends, AEPi today claims it has chapters on 190 campuses in seven countries, up from 184 chapters 10 years ago. Its website, however, lists only 185 currently active chapters. Today it is one of just three Jewish frats left in the United States. Its alumni include Harvard dropout Mark Zuckerberg, the musical artists Paul Simon and Art Garfunkel from Queens College, and Wolf Blitzer, of the SUNY-Buffalo chapter.
Financially, Pierce describes the organization — contrary to Fishel’s concerns — as “stronger than it’s ever been.” Still, from fiscal years 2011 through 2014, the most recent years for which records are publicly available, the national fraternity organization of which Fishel was president-elect spent $1 million more than it took in, running deficits in three out of those four years.
Structurally, AEPi consists of three separately incorporated entities: the national fraternity organization, which collects dues from and provides services to the network of campus chapters; the AEPi Foundation, which raises money for the fraternity and its causes and projects, and a not-for-profit real estate enterprise, which holds and manages AEPi chapter houses on campuses.
Pierce stressed that when he spoke of the fraternity’s financial strength, “I meant all three entities.”
The financial questions that prompted Fishel’s demand for financial records are arcane and in sharp dispute. But they involve, potentially, millions of dollars. And AEPi’s limited transparency when it comes to providing its own board members with documents has clearly left Fishel with suspicions of misfeasance.
“The Supreme Board of Governors had an hour-long conference call with Mr. Fishel’s participation,” AEPi’s Pierce replied in response to those suspicions. “During that call he had the opportunity to explain his concerns, listen to the concerns of his colleagues on the board and listen to the responses to his accusations.”
The bottom line, Pierce said, is that “Mr. Fishel’s interpretation of what should have or should have not happened is incorrect.”
Fishel’s concerns about his fraternity’s finances were first aroused in early July, he said, when he got a hushed phone call from an AEPi staff member. The staff member told him that the organization was running short of cash-on-hand. The amount available then, this source told him, was only $400,000 to $600,000.
As the fraternity’s president-elect, Fishel thought this was impossible. Among other things, Fishel said, he knew of an account that had been established a decade ago with some $2.1 million, according to his recollection, to cover uninsured liabilities that could arise at AEPi houses around the world. This “risk management” account should not have been used for other purposes, he said.
With a standard return on investments, plus a continuing flow of funds into the account from student membership dues, Fishel said, “this fund should be $5 to $6 million today.” Instead, he was eventually told, the original sum was $1 million, contrary to his recollection. And it stood at about $1.9 million today.
That’s when disclosure became an issue.
Fishel asked Borans to email him copies of AEPi’s current income statement and balance. Told that confidentiality concerns about email made this unacceptable, he says he asked Borans to simply mail him the documents. AEPi refused this request, too, he says.
“[Our] policy,” Pierce reiterated in an interview, “is not to have financial information sent out. We make [the records] available for review, then we require board members to turn them all in.”
In a testy email exchange, Richard Stein, who chairs the fraternity’s Fiscal Control Board, told Fishel, “Had you picked up the phone and asked questions, they would have been answered.” Referring to a concern Fishel expressed that someone might “tamper” with the books, Stein wrote: “Your approach to incriminate” unnamed AEPi officials “will never be forgotten.” Contacted by phone, Stein referred all questions about AEPi to Pierce.
In a reflection of his own bitterness, Fishel asked that his family’s name “be removed from the award that we established to recognize young alumni and entrepreneurs. Whatever money remains in our family’s fund shall remain untouched until such time as the board of the foundation and I agree on how those funds should be used or distributed.”
Pierce and other AEPi officials contest Fishel’s grievance about missing funds on multiple grounds. In a July 18 memo sent out to fraternity board members, senior board members Jason Oshins (“Supreme Exchequer”), and Eric Farbman and Adam Cohen (“Supreme Governors”), stated that the account in question was never meant to be “untouchable savings.”
“The fund has been used to offset risk management-related expenses as early as 1995,” they state in the memo. A review of the “Risk Management Education Fund,” they add, shows that over the past three years, all expenses for which the fund was used as an offset “were risk management-related” — and thus proper.
Fishel, for his part, cites the addition of continuing revenue from student membership dues and the return to be expected from investments to ask: Why is the risk management account still at $1.9 million?
Fishel’s assumptions are simply “incorrect,” Pierce said via email when asked this question. “The large risk management expense on our [tax form] includes liability insurance and related expenses as well as risk management education expenses.”
Both Fishel and Schwartz spoke of earlier financial issues at the fraternity that gave them cause for concern. For Fishel, perhaps, they also aroused present-day suspicions.
Schwartz related that when he took over as treasurer of the AEPi Foundation — a position held until then by Stein — he found that “a large majority” of the foundation’s money was being held in cash. “It was not being invested,” he said.
As a result, the foundation’s reserves were earning little or nothing in returns — something similar to the concern that Fishel voices today about the risk management account. “I spent about a year getting it invested,” Schwartz said, referring to the foundation’s funds.
Fishel, meanwhile, related that a past senior official of the fraternity “was found to have stolen a huge amount of money” while suffering no apparent penalty.
“It was all kept hush-hush,” he said. “They wouldn’t even rescind the awards he got. The board refused to expel him, and he was never prosecuted.”
Asked about this case, Pierce said: “This was an internal matter. Restitution was made.”
But Pierce backtracked when pressed on whether the restitution was made in full. “I probably shouldn’t have said ‘restitution,’” he said. “He has satisfied the agreement he had with the Supreme Governing Board.”
To Schwartz, who resigned from his post with no bitterness, his experience and Fishel’s concerns stem from a similar source: what he called the fraternity’s “mom and pop” style of financial management. With the growth he sees over the years, he said, “you can’t do things the same way.”
Fishel, meanwhile, says he has heard that his former colleagues on the fraternity’s Supreme Board of Governors are now planning to expel him. Asked about this, Pierce replied, “Mr. Fishel’s membership status is an internal matter, and we will not discuss it publicly.”