|State lawyers assert the UW Oshkosh Foundation did not pursue a public purpose in a hotel investment.|
The Department of Justice has amended its criminal complaint against two former UW Oshkosh officials, zeroing in on the question of whether they knew that loan guarantees the school issued were against the law.
“The amended complaint recites statements made by the defendants which establish probable cause to believe that both defendants knew that the loan guarantees were illegal when they were made,” states the new filing, dated Nov. 1.
The defendants in the case are former Chancellor Richard Wells H. Wells and former Vice Chancellor Thomas G. Sonnleitner. They face five felony counts of misconduct in office for allegedly exceeding their legal authority.
Each count relates to a different real estate project for which the university issued loan guarantees to back up borrowings made by the UW Oshkosh Foundation.
On at least one occasion the Oshkosh officials were notified in writing about the impermissibility of the university issuing a memomorandum of understanding (MOU) to the foundation promising to make good on financial arrangements, according to the amended complaint.
This MOU was related to the house Wells was using as his residence and that he sold to the foundation. This is not one of the real estate transactions included in the charges against Wells and Sonnleitner.
In the case of the chancellor’s residence Tomas Stafford, a former general counsel for the UW System, wrote to Sonnleitner in January 2013 to tell him that the MOU was illegal.
“The language in the MOU in which the university agrees to pay the house’s monthly debt service for the foundation is not legal,” Stafford wrote in an email. “At this point and for that reason my advice is that we should consider the MOU rescinded and not provide copies to any other parties or cause anyone to rely upon the MOU in any fashion.”
According to the amended complaint, Wells and Sonnleitner ignored this legal advice and “did not warn the foundation and lenders not to rely on them.”
The new version of the complaint also focuses on a conversation that Wells had with retired Judge Patrick J. Fiedler, who was hired by the UW System to investigate the relationship between the university and its foundation. In that exchange Wells reportedly said that he knew that he did not have the authority to enter into legally binding arrangements that would obligate the state to make good on loans taken out by the foundation.
"I couldn't bind the state of Wisconsin to debt," Wells told Fiedler, according to the complaint.
It’s not clear how this statement would necessarily implicate Wells, since this is the same position that the UW System initially took--that the loan guarantees issued to the foundation were not worth the paper they were written on and could not be enforced in court. Two judges subsequently rejected that interpretation and said that the loan guarantees were valid.
The attorneys for Wells and Sonnleitner have arged that they are being charged under laws that should be considered “void for vagueness” because there was confusion about the extent of their authority to act on behalf of the university.
But the state is not buying that argument. “With their education and available legal resources, it is simply not credible for the defendants to argue that they were unable to discern” the extent of their authority.
The defense attorneys declined to comment.
In another filing, the state also takes aim at the argument that the university’s support of the outside real estate investments was justified because the projects were undertaken for a public purpose even if the foundation was a private entity.
The filing cites one project, to purchase and renovate a waterfront hotel in Oshkosh, which benefited private investors as well as the foundation.
“Using state money to finance the construction of a privately owned hotel is a violation of the [Wisconsin] Constitution,” the filing states. “The state asserts that there is no portion of the hotel that is designated as state operated or controlled.”
At the time of the sale, the university issued a press release touting the public purpose of the project. “The new hotel owners said they also remain dedicated to using the revitalized hotel as an additional source of public good,” the press announcement said. “They propose spinning off some revenue annually as UW Oshkosh Foundation scholarships for Oshkosh high school graduates.”