The case against former Wesleyan Vice President and Chief Investment Officer Tom Kannam took a new turn on Aug. 23, as Connecticut Attorney General Richard Blumenthal filed his own civil lawsuit against the ex-administrator. The University dismissed Kannam last October and filed suit against him in November, accusing him of using University funds for personal expenses and violating his contract by sitting on several corporate boards without alerting the administration. Blumenthal announced his own investigation into the matter in late January, shortly after The Argus broke the story of Kannam’s alleged misconduct, although he did not launch the suit until the summer.
“Wesleyan’s endowment strictly promotes education and charity–not private profit and personal trips,” Blumenthal wrote in a statement announcing the suit. “So-called golf outings of the century and new job-seeking trips abroad illegally drained school resources. My office will fight to recover charitable resources and restore public trust.”
The Attorney General is responsible for protecting the assets of charitable organizations and has filed suits against people accused of misusing charitable funds almost every year for the past decade. But Kannam’s lawyer, Stephen Fitzgerald, characterizes the suit as a “me too” gesture and argues that it is redundant.
“In our view, the Attorney General’s lawsuit, which is a mere copy of the lawsuit that is already being pressed by Wesleyan, is a waste of taxpayer resources,” Fitzgerald said. “With one limited exception, the Attorney General’s office is seeking the same relief that Wesleyan is perfectly capable of seeking in their own right. The only difference between Wesleyan’s lawsuit and the Attorney General’s action is that the Attorney General is seeking an injunction that would prevent Mr. Kannam from engaging in [the type of behavior he is accused of], which of course he has no ability to do because he no longer works at Wesleyan.”
But as Jack Chin ’85, a law professor at the University of Arizona and a former white-collar crime prosecutor, explained, the Attorney General has the right to seek certain kinds of penalties that a private party like Wesleyan cannot.
“If your lawyer steals money from you, you can maybe get the money back,” he said. “You can’t get the lawyer’s license revoked. The Attorney General can do things like that and they’re trying to do that here.”
Indeed, along with monetary penalties, Blumenthal is asking the court to bar Kannam from handling investments for or serving on the board of any charitable organization. He is also seeking an injunction against Kannam that would prevent him from violating Connecticut’s Solicitation of Charitable Funds Act in the future.
“You might say ‘gee, you’re not allowed to violate the law anyway, so how does that make any difference for anybody?’” Chin said. “It’s basically impossible to work in a regulated industry if you have an injunction against you, so this would make him largely unemployable in a wide range of financial entities.”
Chin explained that many investment firms are legally barred from employing anyone with an injunction against them. Moreover, an injunction would mean that Kannam could be charged with contempt of court if he were to engage in the practices he is accused of in the future.
“The good news for Kannam is that he’s probably not being charged with a crime,” Chin said. “There’s a Professor, I believe, at Northern Arizona University who was just charged with a crime for a $400 overcharge on an expense account, so this guy is lucky.”
Currently, Blumenthal’s suit is completely separate from that of the University, but it is unclear how long that arrangement will last. Michael Harrington, a lawyer representing Wesleyan, suspects that the two suits might be consolidated.
“They would still have the right to assert what they want to assert, but it would be before the same judge and at the same time,” he said.
If that were to happen, it might delay the case for some time. Kannam’s contract stipulated that any disputes related to the termination of his employment would be resolved out of court by arbitrators. The University argued that its suit was not subject to that agreement because Kannam allegedly broke the law, but over the summer, an arbitrator decided that most of the claims were in fact subject to arbitration, an alternative litigation process in which a private arbitrator renders a legally-binding decision rather than a court. There are some notable exceptions. Since the employment agreement went into effect on July 1, 2005, any misbehavior before that is not subject to arbitration.
“Most of the claims involved some conduct that occurred before that date,” Harrington said. “So what were going to do is arbitrate the claims to the extent the arbitrator has indicated. When we finalize that, when the dust settles, then we reactivate the claims in the superior court.”
Meanwhile, the University’s request for a pre-judgment remedy may proceed in court, although those hearings have not been scheduled yet. A pre-judgment remedy is a security that a defendant must set aside before a formal trial actually begins in order to preserve assets during legal proceedings. Last Spring Harrington explained the University’s rationale for seeking such a remedy.
“The wheels of justice move slowly, and we want to make sure that if we win it isn’t a hollow victory because [Kannam] has sold his house or depleted his bank accounts,” he said.
Arbitration is set to begin in January, and the University’s claims against Kannam’s associates and the companies he was affiliated with are on hold until after arbitration ends. Kannam is also seeking to have Blumenthal’s suit stayed until then. Fitzgerald continues to deny any wrongdoing on his client’s part.
“We’re looking forward to the arbitration to put on a full defense against all the claims that Wesleyan has brought against Mr. Kannam,” he said.
Harrington is also confident.
“We feel very strongly about our claims, mainly because our claims are based on Tom’s own e-mail,” he said. “I understand what they are saying to the press right now, but I am very interested to see what Mr. Kannam’s response to his own e-mails will be.”
Both parties, however, will have to wait to receive any closure in this case; the schedule for litigation is still up in the air.