University Sues Former Investment Officer Thomas Kannam for $3 Million
By Rob Wohl and Ezra Silk, Editor-in-Chief and Executive Editor
This is an updated version of a story that was originally published on Jan. 4 on www.wesleyanargus.edu
Wesleyan University has brought a lawsuit against former Vice President of Investments and Chief Investment Officer Thomas Kannam and nearly 20 other defendants, alleging breach of fiduciary duty, civil theft, breach of contract, fraud, statutory forgery, and unjust enrichment, among other charges. Kannam was dismissed from his position at the University on Oct. 13. Two days after his departure, President Michael Roth sent an all-campus email announcing that Kannam had left to “pursue other opportunities.” According to Roth, the University received an anonymous tip through its Whileblower Policy on Sept. 30. Wesleyan filed its suit in the Middletown Superior Court on Nov. 24, requesting a hearing which could force Kannam to put aside a $3 million pre-judgment remedy that would be paid to the University if it eventually wins its case. There was no public announcement from the University administration until this story was originally published on The Argus website. University sources have declined to offer additional comment on the substance of the case.
Roth sent an all-campus e-mail on Jan. 14. Roth wrote that it would be inappropriate to comment on the content of the lawsuit but described the situation as “no cause for alarm.”
“This litigation reflects just how seriously the University takes its fiduciary responsibilities and adherence to its policies,” Roth wrote.
According to the University’s pleadings, Kannam violated his contract by devoting most of his energies into personal “entrepreneurial ventures,” which diverted his attention away from his duties at Wesleyan. The University also claims that Kannam improperly exploited his privileged access to Wesleyan’s financial information, some of which was proprietary, for his own benefit, and that he used the University’s funds for his own business and personal expenses.
“We deny all of the allegations in the complaint,” said Stephen J. Fitzgerald, Kannam’s attorney. “If there’s going to be a hearing on the pending application for a pre-judgment remedy, we will at that time put on our defense.”
According to the complaint, Kannam began improperly profiting from his position at the University in 2001, when he and Ralph Gill, an associate, formed Cross Border Capital Advisors, or CBCA. The University released what it claims are some of Kannam’s e-mail correspondences, sent from both his official e-mail address and a personal account he accessed regularly on his work computer, to support its charges.
“Through my portfolio at Wesleyan, I have a window on some very interesting stock ideas,” Kannam allegedly wrote. “If possible I’d like to cherry-pick the best and capitalize on them. Would it be possible to feed Mike’s [Zaninovich] hedge fund and get paid some incentive on the performance of our ideas? Might be the fastest way to some real dough.”
The University claims that around 2006, Kannam became the owner and Director of Investments for the Belstar Group, where he received his own healthcare plan, pension, and corporate credit card, and continued to take advantage of information about Wesleyan’s investments. Belstar’s Managing Partner and Chief Investment Officer reportedly described Kannam as “our critical endowment asset.” The suit also alleges that Kannam took business trips on behalf of Belstar at the University’s expense.
Kannam is also accused of sitting on several corporate boards, including that of his father’s company, Advanced Device Technology Inc., which supplies infrared devices to the United States military, and Vietnam Capital Partners. Wesleyan says that Kannam failed to alert the University President of his involvement in these other boards, which his contract required him to do.
“Another board seat ($=equity)…Whoo, whoo, whoo, whoooooo! They’re adding up,” Kannam wrote in an e-mail to his wife, according to the University.
The University claims that Kannam was aware that his activities represented a conflict of interest, and that he took steps to conceal them. He allegedly created presentations for CBCA under his wife’s name, and, according to the University’s complaint, worked with a partner at Belstar to “draft a letter to the University’s President from an alleged Korean dignitary,” that would conceal his involvement in outside entrepreneurial projects.
“We need to handle this discreetly at Wesleyan since there’s major turnover on our Board now and the new members that are joining take their fiduciary duty seriously in the Sarbanes-Oxley environment,” Kannam allegedly wrote to a CBCA associate in 2005.
The Sarbanes-Oxley Act set higher standards for oversight by corporate boards in the wake of the Enron scandal. The suit also argues that Kannam was concerned about the arrival of a new President in 2007, and told his associates that he would have to “lay low.”
When Kannam started working at Wesleyan, his office was located in North College, the main administrative building. The University claims that he lobbied to have the Investment Office moved into its current location at 74 Wyllys Ave. in order to conceal his private ventures from his colleagues. The complaint claims that Kannam referred to his office as “The Taj” and used it primarily for his non-Wesleyan business.
The suit alleges that Kannam used a variety of the University’s resources for the benefit of his private ventures. He reportedly offered to have his staff at the Wesleyan Investment Office handle projects for Belstar. In 2007 Kannam allegedly reported that a hedge fund had retained the services of Wesleyan’s Quantitative Analysis Center (QAC), an interdisciplinary data analysis workshop, and that it had agreed to pay a fee of several thousand dollars. This fund was allegedly Belstar, which never paid for the services it received from the QAC. The University claims that Kannam recommended the hiring of several new employees so that he could focus more of his attention on his own ventures. Of one new member of his staff, Kannam reportedly wrote, “I’m so happy. With my extracurricular ventures heating up, he’ll help a lot.”
Finally, the complaint accuses Kannam of fraudulently using University funds for his own expenses on “countless occasions.” The suit alleges that Kannam routinely doctored expense reports to pay for golfing outings, international travel, and even a trip to the 2008 Super Bowl. He allegedly allowed his associates to travel to conferences under the pretense that they were financial advisors to the University. He is also accused of having received “double reimbursement,” when he paid for his expenses using his Wesleyan credit card and then submitted his expenses for cash reimbursement.
Court proceedings are scheduled to begin at the end of February.
This is an updated version of a story that was originally published on Jan. 4 on www.wesleyanargus.edu
Wesleyan University has brought a lawsuit against former Vice President of Investments and Chief Investment Officer Thomas Kannam and nearly 20 other defendants, alleging breach of fiduciary duty, civil theft, breach of contract, fraud, statutory forgery, and unjust enrichment, among other charges. Kannam was dismissed from his position at the University on Oct. 13. Two days after his departure, President Michael Roth sent an all-campus email announcing that Kannam had left to “pursue other opportunities.” According to Roth, the University received an anonymous tip through its Whileblower Policy on Sept. 30. Wesleyan filed its suit in the Middletown Superior Court on Nov. 24, requesting a hearing which could force Kannam to put aside a $3 million pre-judgment remedy that would be paid to the University if it eventually wins its case. There was no public announcement from the University administration until this story was originally published on The Argus website. University sources have declined to offer additional comment on the substance of the case.
Roth sent an all-campus e-mail on Jan. 14. Roth wrote that it would be inappropriate to comment on the content of the lawsuit but described the situation as “no cause for alarm.”
“This litigation reflects just how seriously the University takes its fiduciary responsibilities and adherence to its policies,” Roth wrote.
According to the University’s pleadings, Kannam violated his contract by devoting most of his energies into personal “entrepreneurial ventures,” which diverted his attention away from his duties at Wesleyan. The University also claims that Kannam improperly exploited his privileged access to Wesleyan’s financial information, some of which was proprietary, for his own benefit, and that he used the University’s funds for his own business and personal expenses.
“We deny all of the allegations in the complaint,” said Stephen J. Fitzgerald, Kannam’s attorney. “If there’s going to be a hearing on the pending application for a pre-judgment remedy, we will at that time put on our defense.”
According to the complaint, Kannam began improperly profiting from his position at the University in 2001, when he and Ralph Gill, an associate, formed Cross Border Capital Advisors, or CBCA. The University released what it claims are some of Kannam’s e-mail correspondences, sent from both his official e-mail address and a personal account he accessed regularly on his work computer, to support its charges.
“Through my portfolio at Wesleyan, I have a window on some very interesting stock ideas,” Kannam allegedly wrote. “If possible I’d like to cherry-pick the best and capitalize on them. Would it be possible to feed Mike’s [Zaninovich] hedge fund and get paid some incentive on the performance of our ideas? Might be the fastest way to some real dough.”
The University claims that around 2006, Kannam became the owner and Director of Investments for the Belstar Group, where he received his own healthcare plan, pension, and corporate credit card, and continued to take advantage of information about Wesleyan’s investments. Belstar’s Managing Partner and Chief Investment Officer reportedly described Kannam as “our critical endowment asset.” The suit also alleges that Kannam took business trips on behalf of Belstar at the University’s expense.
Kannam is also accused of sitting on several corporate boards, including that of his father’s company, Advanced Device Technology Inc., which supplies infrared devices to the United States military, and Vietnam Capital Partners. Wesleyan says that Kannam failed to alert the University President of his involvement in these other boards, which his contract required him to do.
“Another board seat ($=equity)…Whoo, whoo, whoo, whoooooo! They’re adding up,” Kannam wrote in an e-mail to his wife, according to the University.
The University claims that Kannam was aware that his activities represented a conflict of interest, and that he took steps to conceal them. He allegedly created presentations for CBCA under his wife’s name, and, according to the University’s complaint, worked with a partner at Belstar to “draft a letter to the University’s President from an alleged Korean dignitary,” that would conceal his involvement in outside entrepreneurial projects.
“We need to handle this discreetly at Wesleyan since there’s major turnover on our Board now and the new members that are joining take their fiduciary duty seriously in the Sarbanes-Oxley environment,” Kannam allegedly wrote to a CBCA associate in 2005.
The Sarbanes-Oxley Act set higher standards for oversight by corporate boards in the wake of the Enron scandal. The suit also argues that Kannam was concerned about the arrival of a new President in 2007, and told his associates that he would have to “lay low.”
When Kannam started working at Wesleyan, his office was located in North College, the main administrative building. The University claims that he lobbied to have the Investment Office moved into its current location at 74 Wyllys Ave. in order to conceal his private ventures from his colleagues. The complaint claims that Kannam referred to his office as “The Taj” and used it primarily for his non-Wesleyan business.
The suit alleges that Kannam used a variety of the University’s resources for the benefit of his private ventures. He reportedly offered to have his staff at the Wesleyan Investment Office handle projects for Belstar. In 2007 Kannam allegedly reported that a hedge fund had retained the services of Wesleyan’s Quantitative Analysis Center (QAC), an interdisciplinary data analysis workshop, and that it had agreed to pay a fee of several thousand dollars. This fund was allegedly Belstar, which never paid for the services it received from the QAC. The University claims that Kannam recommended the hiring of several new employees so that he could focus more of his attention on his own ventures. Of one new member of his staff, Kannam reportedly wrote, “I’m so happy. With my extracurricular ventures heating up, he’ll help a lot.”
Finally, the complaint accuses Kannam of fraudulently using University funds for his own expenses on “countless occasions.” The suit alleges that Kannam routinely doctored expense reports to pay for golfing outings, international travel, and even a trip to the 2008 Super Bowl. He allegedly allowed his associates to travel to conferences under the pretense that they were financial advisors to the University. He is also accused of having received “double reimbursement,” when he paid for his expenses using his Wesleyan credit card and then submitted his expenses for cash reimbursement.
Court proceedings are scheduled to begin at the end of February.
8 Comments
Argus Reader
Wes’ General Counsel appears to be doing a very thorough job. These allegations seem to be newly reported. They are shocking to say the least. Kudos to the Prez and the General Counsel for full disclosure and prompt action.
Hiring of internal staff to benefit outside ventures? “I’m so happy. With my extracurricular ventures heating up, he’ll help a lot.” Note that the quote says “ventures” vs. “activities”.
Double billing of expenses? A real internal controls issue. Didn’t the auditor test controls on expense reports/other administrative costs?
Unreimbursed QAC services to outside hedge fund? Another internal controls issue possibly.
International travel? There is no plausible rationale for international travel. None. Any international investments that require internationa travel for due diligence are by definition way too risky.
Doctoring of expense reports?
Associates traveling on Wes’ dime? Reimbursement should be sought from any outsider who traveled on Wes’ dime. Add to that administrative and legal cost penalities for the work involved in recovering these misappropriated funds.
Cogita ante salis
Battle vs War?
On the battle front, Wes directly pays out of some pocket for entering. Years of counterclaims by 20 defendants takes significant chunk out of needed funds regardless of outcome.
As far as the war goes, prospects not great for fund raising given onslaught of negative press. Increased finger pointing among trustees creates fear and frustration within the adminstration.
Flamma fumo est proxima
Years of counterclaims? Doubtful. Most parties will simply want this to go away.
Trustees finger pointing? Very doubtful. You have to assume they were advised prior to the filing.
Affect on fundraising? None
A nice yarn you spin, but reality is quite different.
Unfortunately for Mr. Kannan he apparently used his Wes computer for communicating about his “extracurricular ventures” as he calls them.
I suspect that the veracity of Wes claim against him is all written in his own hand in the alleged e-mails and their attachments.
Prehende uxorem meam sis
Ready, Fire..Aim
Reader
“Years of counterclaims? Doubtful. Most parties will simply want this to go away.” A big assumption – damages will likely be substantial, attributable, and measurable.
Questioner
Why will damages be likely “substantial, attributable, and measurable”? What do you know that others don’t?
I suspect the biggest surprise will come when all the defendants have in their possession Kannam’s e-mail evidence.
I would bet that the Wes Prez and General Counsel presented all evidence to the Trustees prior to filing the suit, and the Trustees were stunned and immediately approved going forward with a filing.
Really
“Affect on fundraising. None”