NEW YORK (Legal Newsline) - New York Attorney General Eric Schneiderman has obtained a $5.5 million settlement with Educational Housing Services Inc. to resolve allegations of self-dealing and excessive executive compensation.
Educational Housing Services Inc. is a not-for-profit corporation that provides housing for students in New York City. Schneiderman alleged that George Scott, EHS's president until he was removed last month, misused EHS as a vehicle to subsidize a lavish lifestyle and generate personal wealth.
"The breakdown in corporate governance at Educational Housing Services was stunning," Schneiderman said Monday. "Siphoning millions of dollars at the expense of college students is deplorable. Scott's conduct and the role of the EHS board in enabling his abuses represent the complete opposite of what is expected from the leadership of not-for-profit organizations in New York state. We have no tolerance for officers and directors who treat a not-for-profit organization as a vehicle for personal enrichment, and we will hold them accountable for breaking the law."
Schneiderman's Charities Bureau alleged that starting in 2003, Scott and his wife siphoned off millions of dollars through Student Services Inc., a company Scott set up to provide internet, cable and phone services to EHS dorm rooms. SSI was allegedly just a shell company serving as a middleman between EHS and legitimate cable companies, charging millions of dollars worth of unnecessary services that otherwise would have remained with EHS.
The directors of EHS's board allegedly breached their fiduciary responsibilities by approving Scott's self-dealing without proper oversight or diligence. Scott also received a high executive compensation and many expensive perks while working as the company's president.
Under the terms of the settlement, Scott and SSI will pay restitution of $4.5 million and the directors of EHS' board will pay $1 million for breaches of fiduciary duty. The settlement funds will be used by EHS to reduce the rent payments of students and upgrade amenities and services EHS provides to students.
The settlement also requires that EHS completely change over its board of directors. Scott and the five EHS director parties to the settlement are now permanently barred from serving as a trustee, director or officer at any non-for-profit organization in New York.