YU’s Conflict of Interest Policy: Lessons in Student Journalism

By: Mindy Schwartz  |  May 10, 2018

Earlier this year, as I was researching YU’s financial situation to prepare for an interview with President Berman, I came upon an enlightening, and also deeply troubling article about our school. Published in 2014, the article, titled “How to Lose $1 Billion: Yeshiva University Blows Its Future On Loser Hedge Funds” by Steven Weiss, described the full extent of YU’s financial problems and how those problems were really caused. It also led me on an almost half a year long investigative journey, which unfortunately did not end in a ground breaking news piece, but did end with some important realizations about the practice of student journalism.

If you ask most people how YU got into its financial mess around 2008, they will probably tell you that YU had heavily invested in Bernie Madoff’s ponzi scheme hedge fund. This is what I would have said before reading Weiss’ article and what I have heard from many students, faculty, and community members over the years. But a two year investigation, as relayed in Weiss’ article, revealed that YU’s loses to Madoff represented just a small fraction of their overall losses, which were primarily caused by a reckless investment strategy. Under President Joel’s leadership the school invested almost entirely in high risk investments like hedge funds, and moved away from safer investments like U.S. Treasury bonds. Although this high risk strategy paid off for a little while, when the financial meltdown came in 2008, these risky investments backfired, and between 2007 and 2009, the school’s investment loses were valued at $525 million–five times greater than the $105 million it lost to Madoff.

While this whole article was upsetting to say the least, the most disturbing piece of the investigation in my eyes were the egregious conflicts of interest it revealed on YU’s investment committee–even before Joel and his investment committee took over.

YU’s policy for conflicts of interest since 1993 allowed board members and members of the investment committee to conduct business with YU, and even take personal returns on that business, as long as it was disclosed beforehand. In 2000, conflicts of interest generating significant personal returns for board and committee members amounted to more than 5% of YU’s operating budget. In fact the very conflict of interest policy YU was operating under had actually been drafted by board member Ira Millstein, whose own law firm Weil, Gotshal & Manges, annually billed YU $200,000 to $500,000 for a number of years.

Under Joel these conflicts of interest shifted alongside the new investment strategy. Conflicts of interest took the shape of hedge fund investments in funds for which committee members worked, or even ran. Ezra Merkin, who served as the chair of the investment committee from 1993 to 2008, earned fees typical of hedge funds off the money YU invested in his fund Ascot Partners, a “feeder fund” to Madoff’s ponzi scheme. The university invested well over a $100 million with Merkin, and he earned over $20 million off of YU’s investments with him during his 15 years as chair of the committee.

After reading about the conflicts of interest in the investment committee I was shocked and concerned about my school. So I did some more digging to see if this problem was ever addressed. I came upon a letter from President Joel released on the YU news site just three days after Weiss’ article was published, in which he defended the school’s financial decisions and insisted that “beginning in 2009, as part of a comprehensive review of the university’s governance practices, we established new oversight practices for the University’s investments.” He defended the old conflict of interest policy as “in line with other major universities” but still asserted that the “with the help of leading experts in the field we enhanced our policy to make it best in class.”

It struck me as odd that the university did not simply release their conflict of interest policy to prove to everyone that it was as “best in class” as Joel claimed. If they had truly changed their ways since 2009 then what did they have to hide?

As the editor in chief of one of the school’s student newspapers, I was in fairly regular contact with the president’s office over email, and so I simply emailed the president’s media contact person asking if I could have access to the conflict of interest policy for the investment committee.

My email was ignored.

So I emailed again. This time I got a response–”YU’s investments are professionally managed by our investment office with careful Board oversight and best-in-class conflict of interest policies are in place”–but no, “the policies are not available to the public.”

Now I was hooked. If the policies were really “best in class” as Joel and now President Berman’s office were telling me, why couldn’t I see them. Sensing that further emails wouldn’t get me anywhere, I decided to address my common sense question to President Berman directly, who I was conveniently interviewing for the paper in a few short days.

As it turned out, the current president did agree with me–at least in theory. I noted the past reports of conflicts of interests and asked him, “if we want to feel confident that nothing sketchy is going anymore, then why can’t we just see the [conflict of interest] policy itself–not the actual investments, but just the commitments to honest financial dealings that the policy presumably upholds?” To which he responded “I mean I assume that things are public, [but] I will check.” I informed him that his office had already told me that the policy wasn’t public, and he assured me that he would look into it.

With the current president on record agreeing that it was common sense to release the policy, I had more leverage when I again emailed the president’s office asking for a copy. But I was ignored again. So I waited a week and sent another email. It took about two months of unreplied emails and delays before I was finally told that “Rabbi Berman has looked into this matter and the policy will be made publicly available online in the coming days.” I was sent a link to the PDF of the policy two days later.

Although the policy was–and still is–not “publicly available” on their website, I saw this as a huge victory for student journalism. I felt empowered as a student journalist, convinced now that I could do anything as long as I was persistent–and kept up a steady barrage of emails. But once I finally had the policy, I needed to figure out for myself if it really did improve upon the old policy uncovered in the investigation four years ago.

This was the hard part, I realized. While I could read the policy, try to make sense of it as best I could, and draw my own conclusions about whether improvements had really been made, I hesitated to publish an article with those conclusions. I am, after all, not an expert on finance or law by any measure and, like all legal policies, it was written in confusing jargon I often had to google. It wouldn’t just by wrong for me to write an article drawing conclusions about the new policy, it would be foolish. This was a job for experts.

So my next step was to find those experts; if I couldn’t draw conclusions myself I would find people who could. YU has plenty of experts in finance and law, but unfortunately I found many of those experts difficult to reach. When I finally was able to make an appointment to speak with a finance professor uptown–the first person who agreed to meet with me after weeks of searching–we spoke for just five minutes before it was clear to us both that he too was not the man for the job. He told me to contact someone at Cardozo.

By then it was almost midterms of the Spring semester. I had had the policy for almost three and half months but hadn’t done anything with it, still looking for some expert opinion in how to assess it. But  as midterms approached and my workload began to weigh me down, I put my research on hold. I had contacted so many people about the policy to no avail and it was time consuming. I made the decision to put my school work first and put the article on hold. But my school work never lightened up and I never found the time to get back to it. Now I am finishing my time on the paper without having ever gotten to the root of that story.

My experience investigating–and not investigating–YU’s conflict of interest policy, taught me lot about the serious weaknesses and great strengths of student journalism.

One of the biggest problems with student journalism is that we are foremost, obviously, students. Unlike full-time journalists who can chase a story with all of their energy, students have a responsibility to themselves to be successful at their studies. We aren’t able to fully devote all or efforts all the time to every story, and so, sometimes, we can’t do the investigative research needed to appropriately cover them.
But despite the drawback this experience taught me, I chose to end my time at The Observer with this story because I think it also shows the greatest strengths student journalists have to offer, especially at YU: our passion and ability to have a lasting impact through that passion.

Nobody cares about YU as much as its students–we have invested a considerable amount of money and our future career prospects in this institution, and we spend the majority of our days here for three to four years. As student journalists it is our job to care about our school–to care about what goes on here and share it with everyone else. As students of YU we are perfectly equipped for this job; we are passionate about our school and that passion drives us. It drives us to email the president’s office fifteen times a month about a policy that you may never get to read. It drives us to expose significant problems on campus, shape student conversation with our opinions, and hold people accountable, both for what they have done right and what they have done wrong.

When it comes to news about our school, it is that passion that makes us the best source. Our passion comes from intimate knowledge of what it is like to be a student here, something a even the most skilled journalist with all the time in the world could not replicate.