Six Universities and Two Foundations Accused of Usury

A real-estate developer has sued six universities, including Harvard, Princeton, and Yale, and two foundations, after the organizations backed a loan with 42-percent interest, reports Bloomberg News.

The developer, Fred Fahey, borrowed $10.1-million from Realty Financial Partners, a firm in which the universities were limited partners, and planned to build a development with a golf course and houses. Massachusetts law does not allow loans with more than 20-percent annual interest.

In addition to Harvard, Princeton, and Yale, the lawsuit also names the University of Notre Dame, Oberlin College, Spelman College, the Carnegie Corporation, and the John D. and Catherine T. MacArthur Foundation.

“You have to ask if there’s an inconsistency between the public purpose” of universities “and this type of financial transaction” of charging 42-percent interest, says Peter Kinder, the president of KLD Research & Analytics Inc., a financial adviser to nonprofit groups. “It’s a hell of a burden to put on someone.”

According to court documents, the colleges and foundations named in the lawsuit say that the usury law’s requirements are not applicable because they did not manage Mr. Fahey’s investment and that Massachusetts law protects limited partners from such claims. Mr. Fahey is asking for more than $20-million, the amount he says he could have earned on the golf-course project.

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