Boston University's President Weathers Charges of Illegal Gain
FOR months now, the public here has been riveted by one of those political dramas that Massachusetts is so good at producing.
The main players are Massachusetts Attorney General Scott Harshbarger, considered by some a potential candidate for governor, and John Silber, the battle-hardened president of Boston University (BU), who was the Democrats' unsuccessful standard-bearer in the 1990 gubernatorial race.
The drama began last summer when Mr. Harshbarger opened an investigation into charges that Dr. Silber may have profited illegally from his university's sale in October 1989 of Seradyne Inc., a medical diagnostics firm. The attorney general also looked into charges that during the campaign Silber may have broken the state's financial disclosure laws by not reporting any such profits.
After months of news media reports about a supposedly secret grand jury investigation, Harshbarger announced on March 15 that Silber had broken no laws. But Round 2 of the encounter is still going on.
In the latest episode, the attorney general threatened to launch a civil suit against Boston University to change what he charges is an overly cozy relationship between Silber and the board of trustees.
Although Harshbarger said on March 15 that he would file a suit, two days later he pulled back somewhat when Silber and BU trustees offered to talk.
This is hardly the first time that Silber has generated controversy. During his 22-year tenure as Boston University's president, he has dramatically improved the college's reputation and its finances. But he also has alienated many professors with his heavy-handed governing style.
Silber earns more money - $275,000 annually plus a hefty deferred-compensation package - than either the presidents of Harvard or the Massachusetts Institute of Technology. He comments: "I have been in office a lot longer, and besides, I make less than the football coach of Boston College."
Silber denies any wrongdoing in the Seradyne affair. In an interview with the Monitor, he says that the whole controversy was the result of documents stolen from his office by a disaffected former staff member and given to the attorney general and the press.
The story that has emerged after a slew of charges and counter-charges is a complex one.
Interviews with those closely involved in the affair at BU reveal that the college acquired the firm that became Seradyne in 1985 from Norwegian-based Nycomed Company. Nycomed was going to close down its medical diagnostic-equipment manufacturing unit, in which the university had invested, but Silber and Charles Smith, BU's treasurer at the time, convinced the university's venture-capital arm that they could make the investment profitable.
Often working on their own time, the two men succeeded in turning Seradyne around. In 1989, BU sold Seradyne for a net profit of at least $12.4 million. Along the way, the university's trustees voted in 1986 to give Silber and Mr. Smith stock options in Seradyne both as a reward and as a further incentive.
Somehow, however, the two men never got around to acquiring the stock. Nevertheless, a BU official mistakenly billed Silber $8,617.40 for a loan the university president had supposedly made from his deferred compensation account to buy Seradyne stock.
Silber's attorney contends the transaction would have been legal in any event. But, in fact, Silber never bought the stock.
In lieu of the stock options that were never used, the university in 1989 transferred $386,700 into both Silber's and Smith's accounts. "This was a sloppy way to pay us," Silber concedes, and he says his attorney advised him it would be illegal to accept the funds - because the trustees had only authorized to pay him in stock options. Therefore, Silber says, he returned the $386,700 "before the attorney general's investigation."
Two problems emerged. First, Boston University did not note the payments to Silber and Smith in the state disclosure reports that are required of all nonprofit institutions. The college says it was an oversight, but Harshbarger is investigating the lapse.
Second, during the 1990 governor's race, Silber repeatedly told a questioning press that he had never profited from the sale of Seradyne and that he had never owned the company's stock. While technically accurate, the position he took then did not tell the whole story, his critics claim.
The perception developed among some that perhaps it was not a legitimate deal. "Silber's comments on the money during the campaign amount to half truths. He was avoiding saying he received the money," says Michael Manove, a professor of economics at Boston University.
Harshbarger's office would not reply to a query as to what specific evidence prompted a grand jury investigation into the Seradyne deal.
But Harshbarger's March 15 printed statement on BU for the press focuses on exactly the same issues raised by key documents published in December 1992 by the Boston Herald. These are the documents Silber says were stolen from BU offices and leaked to the attorney general and the press.
Harshbarger, after a six-month investigation, has indicated he has not been able to rebut the essential details of how BU says it handled the purchase and subsequent sale of Seradyne.
Just how much the investigation has harmed Silber politically remains a hot but very speculative question in the state. But the battle is certainly not over.