Armiñana defends controversial loans

<p>Sonoma State University President Ruben Armiñana defended the SSU Academic Foundation’s practice of issuing private loans to local land owners Wednesday, saying they were legal, ethical and profitable for the university foundation.</p><p>In his first comments on the controversial loans, Armiñana said they were a prudent investment strategy that delivered consistently good returns.</p><p>“It was absolutely legal, proper and appropriate,” Armiñana said in an interview Wednesday. “The fact is that every one of those loans did perform superbly well.”</p><p>Starting in 1994, the university’s foundation issued more than 21 private loans worth at least $18 million to local landowners. A former foundation board member, Clem Carinalli, received or arranged the majority of the loans that took place during a nine-year period, according to county land records.</p><p>Carinalli stopped paying on a $1.25 million loan this summer, and the foundation is in the process of taking possession of the land he mortgaged. The land, which is located just north of Windsor, is worth less than the outstanding loan, according to a June memo written by the foundation’s attorney.</p><p>“Only one has had difficulties and at the end of it, it might be a very wise investment,” Armiñana said. “At the appropriate time we will probably sell it.”</p><p>Carinalli has declined to comment on the loans.</p><p>The foundation is charged with investing and distributing donations made to the university. Its assets have grown more than 10 fold after Armiñana became SSU president in 1992 and he pushed fund-raising to the top of the foundation’s priorities.</p><p>The foundation also began investing in an ever riskier strategy, replacing its use of government securities with private loans to wealthy land owners who wanted to mortgage their properties. Of its 21 loan investments, 15 were issued between the years of 1997 and 2003 and went to Carinalli or were arranged by his company.</p><p>Carinalli resigned from the board in 1995, and received his first loan two days later.</p><p>“We would have not done that investment, that land investment, if he had continued being on the board,” Armiñana said. “It shows we played it very overboard.”</p><p>By 2003, the foundation had allocated more than half of its $40 million investment portfolio into private loans. That contrasted sharply with other university foundations of a similar size, according to a 2001 study.</p><p>On average, foundations invested 3 percent of their total portfolios into alternative investments such as private loans, concluded the National Association of College and University Business Officers.</p><p>Armiñana did not think the foundation had invested too much in private loans.</p><p>“It was a totally proper, legal, appropriate financial transaction which was a small part of the foundation’s portfolio,” he said on Wednesday. “It provided a diversity of the portfolio.”</p><p>Armiñana dismissed criticism of the private loans by County Supervisor Shirlee Zane and state Sen. Leland Yee, a San Francisco Democrat. Zane said the foundation mismanaged donations and she had lost faith in it, and Yee said the loans were a form of cronyism.</p><p>“That is Shirlee Zane’s opinion, she has lots of opinions,” he said.</p><p>Armiñana said Yee’s proposed law to require university foundations to comply with the same public meeting laws that govern state agencies and universities would not have changed the SSU foundation’s investment strategy, and would potentially hurt donors who want to stay anonymous.</p><p>Armiñana answered the questions during a 90-minute interview arranged to discuss the state of the university.</p>