Just when you thought the pre-trial drama in the MIT excessive fee suit was behind us – it wasn’t. And this time it involves Jeffrey Epstein.
As it turns out, MIT President Rafael Reif on Sept. 7, “in response to articles in The New Yorker and other periodicals,” issued a “Letter to the MIT Community.” According to the plaintiffs, in response to revelations that improper donations were received by MIT, “Reif addressed what MIT’s policy for improper donations would be in the future” and “asked MIT’s General Counsel to engage a prominent law firm to design and conduct [a thorough and independent investigation].” The director of the Media Lab at the Massachusetts Institute of Technology subsequently resigned following a New York Times report detailing his ties to disgraced financier Jeffrey Epstein and Epstein’s donations to the institution.
In their Sept. 9 filing, the plaintiffs also note that, “In an earlier letter to the MIT Community, Reif noted ‘decisions about gifts are always subject to longstanding Institute processes and principles’ and ‘despite following the processes that have served MIT well for many years, ... we made a mistake of judgment.’”
This, the plaintiffs claim, amounts to a “new declaration” that they say “reveals that Reif is uniquely responsible for the oversight of MIT employees and the investigation, compliance, and enforcement of conflict of interest policies related to donations.” And they want him to testify in their suit against MIT since they are “seeking to inquire about whether the policy changes Reif instructed the committee to investigate include donations to MIT from MIT Supplemental 401k Plan (the ‘Plan’) vendors paid by employees’ retirement assets.” More specifically, the filing alleges that Reif’s “…failure to initiate the same type of investigation related to Fidelity’s gifts and donations to MIT, both today and in the past, is something to which only Reif can testify” since – they allege – “his subordinates, Theresa Stone and Israel Ruiz, received gifts from Fidelity, instructed their subordinates to stop all actions related to the Plan’s payment of fees to Fidelity, and Ruiz did not disagree with an email stating that MIT expected large donations after retaining Fidelity as the Plan’s service provider.”
The plaintiffs – represented by the law firm of Schlichter Bogard and Denton – state that “these and other disturbing engagements with the Plan’s primary Plan’s primary service provider, Fidelity, went uninvestigated and unchecked.”
How We Got Here
For those of you who haven’t been able to keep up with the machinations in this case – it was, after all, one of the first of the wave of university 403(b) plan suits filed three years ago – the plaintiffs in this case are five employees of Massachusetts Institute of Technology (MIT) and participants in the MIT Supplemental 401(k) Plan.
The suit alleged that Fidelity was paid excessive compensation for its recordkeeping services, and that MIT never engaged in a competitive bidding process for those services – and, in a claim unique to these 403(b) excessive fee cases, the plaintiffs alleged that this amounted to an illicit kickback scheme whereby Fidelity received inflated fees at the expense of the plan’s participants in exchange for: (1) making donations to the MIT endowment, and (2) Fidelity CEO Abigail Johnson’s seat on MIT’s board of trustees.
Over the ensuing three years there has been a series of motions for – and opposing – summary judgment, with various claims from the original suit set aside, and most recently an effort by the plaintiffs (at least in the form of a potential witness list), and a press release calling attention to an alleged quid pro quo between MIT and Fidelity, the plan’s recordkeeper, drawing a connection between the presence of Abigail Johnson, CEO of Fidelity, on MIT’s board of trustees, the retention of Fidelity as recordkeeper for the retirement plan, and a $5 million donation to MIT by Fidelity. Last week Fidelity (which, remember, is not a party to the suit) and Johnson reached an agreement with the plaintiffs whereby Johnson would not have to actually testify, but could simply stipulate to certain facts.
Donate ‘Shuns’?
“There is good cause for the filing of this supplemental evidence,” the plaintiffs conclude in their motion, “because Reif has very recently taken a unique, public role overseeing MIT’s donations policies and developing new policies regarding preventing improper donations.”
They conclude by noting that the “Plaintiffs intend to seek injunctive relief preventing MIT from hiring vendors for the Plan that are donors (or foundations controlled by common ownership with the vendor) or accepting donations from existing vendors to the Plan.”
The case is currently scheduled to go to trial Sept. 16 before Judge Nathaniel M. Gorton of the U.S. District Court for the District of Massachusetts.
But who knows what may happen between now and then?
