Attorney General auditing SSU loans to Carinalli

The state Attorney General is conducting an audit of the Sonoma State University Academic Foundation and its loans to former board member Clem Carinalli.

SSU President Ruben Armi?na, who serves as chairman of the foundation, disclosed the audit in an e-mail sent late Friday to faculty and staff.

?We have supplied the Attorney General with all documentation requested and will continue to be responsive to the Attorney General?s requests,? according to the e-mail, which was sent by Armi?na and three other members of the foundation?s executive committee.

Armi?na and other university officials with direct knowledge of the loans again refused to answer questions on Monday. They have declined requests for interviews made over the last two weeks following a surprise disclosure in Carinalli?s bankruptcy proceedings that disputed previous claims by the administration.

The SSU foundation could be forced to return a $232,500 payment from Carinalli under a provision of bankruptcy law intended to protect one creditor from receiving preferential treatment over another.

The Attorney General notified the foundation of the audit on Oct. 16, following months of criticism from SSU faculty and local politicians regarding more than $20 million in private loans made by the foundation to local land owners.

Carinalli received at least $9.6 million in loans from the foundation, the first coming in 1995 two days after he resigned from its board of directors. The Attorney General specifically requested financial documents involving Carinalli, according to the university.

The president of the California Faculty Association, which represents 23,000 faculty statewide, including 500 at Sonoma State University, requested the investigation in a letter sent July 6 to Attorney General Edmund Brown.

?We sent it because we were concerned,? said Alice Sunshine, a spokeswoman for the association. ?There are things going on there that raised a lot of questions.?

The attorney general?s office conducts audits of nonprofits ?to detect cases in which directors and trustees have mismanaged, defrauded, or wrongfully diverted funds from the charity,? according to its Web site. If the attorney general?s office determines that the foundation board members acted inappropriately, it could sue them to recoup the money.

The attorney general?s office declined to describe the extent of the foundation audit, or even if it was conducting a review.

?We don?t deny or confirm that an investigation is ongoing,? said Abraham Arredondo, a spokesman for the attorney general?s office.

Foundation executives also used Friday?s e-mail to explain why statements they made as recently as this month were inconsistent with public records.

Larry Furukawa-Schlereth, the university?s chief financial officer, had told The Press Democrat in a taped interview on July 9 that both outstanding loans to Carinalli ? one for $232,500 and another for $1.25 million ? were secured with property.

As recently as this month, university officials continued to say they learned the loan was unsecured only well after July 9.

However, the university conducted a title search this summer and learned that the loan was not secured with collateral prior to the July 9 interview, according to the statement sent to faculty and staff. It informed Carinalli of this fact sometime in early July, according to the university.

County land records show that all five properties Carinalli used as collateral for the $232,500 loan were removed in 2005.

University executives stated that while their title search determined its collateral had been removed from the loan, a conversation with Carinalli made them believe it was, in fact, still secured with property.

?On July 8, Mr. Carinalli told the foundation that he believed the loan was still secured and that an error must have occurred with the county records,? according to Friday?s e-mail. ?Based on this information, the foundation believed that Mr. Carinalli was correct that an error had occurred, and that all of the loans should still be backed by property.?

Carinalli said he did not learn that all the properties had been removed until someone from the foundation notified him about a week before July 9.

By July 8, Carinalli had already started using four of those properties to secure another loan, he said earlier this month. He received the new loan of $232,500 on July 9 and used it to repay the foundation on that same day.

The e-mail sent by foundation executives Friday did not explain how all five properties were removed as collateral for the loan.

Carinalli?s loan agreement allowed him to repay some of the loan, and in return receive some of the collateral back, according to county land records.